Mr. Ellis serves as Director of Business Development and Marketing of AML RightSource. He has over 15 years of experience in business development, marketing, and professional consulting within the healthcare and financial services industries. Mr. Ellis earned his undergraduate degree from Bowling Green State University and obtained his juris doctor from Cleveland State University – Cleveland-Marshall College of Law.
Rybolovlev says he did not know what was going to happen to Rappo or Bouvier. "I didn't know the police would arrest them then," he says in answer to their accusations of a sting at Rybolovlev's apartment. The police had asked him to act normal, he claims, but "I needed vodka to get through it." Rappo, he says, was her usual, effervescent self, chattering about the beauty of the Rothko and pressuring Rybolovlev to buy it.
Speaking on the sidelines of the Art Business Conference, Pierre Valentin, head of the art law practice at London law firm Constantine Cannon, said laundering illicit funds through the art market was seductive because purchases at auctions "can be anonymous and it's a moveable asset. You can put the art on a private plane and take it anywhere. Plus there is no registration system for art."
And Sater was far from the only person with shady connections doing business with Trump. In 2008, oligarch and fertilizer magnate Dmitry Rybolovlev bought a Trump property for double what it was worth, which can be a classic money laundering technique meant to bake payments or bribes into what looks like a real estate deal. It seems hard to believe that Rybolovlev would think that a $41 million property more than doubled in value in less than a year.
Once purchased, the art can disappear from view for years, even decades. A lot of the art bought at auctions goes to freeports – ultra-secure warehouses for the collections of millionaires and billionaires, ranging from Picassos and gold to vintage Ferraris and fine wine. The freeports, which exist in Switzerland, Luxembourg and Singapore, offer a variety of tax advantages because the goods stored in them are technically in transit. The Economist magazine reported that the freeport near the Geneva airport alone is thought to hold $100-billion (U.S.) of art.
Let’s get back to the real estate pilot program that lies at the heart of the Times’s confusion. That federal program, which may or may not be continued, relies upon mortgage title insurance companies to report to authorities the ultimate beneficial owner of any vehicle used to buy or sell very valuable real estate. It does not require the seller to reveal the beneficial owner to the buyer or vice versa.
“And this doesn’t just apply to the Russians. This is a general cultural thing whereby anyone with money is encouraged to come here. You can effectively buy residency. You’ve got non-dom status, which is very attractive, you’ve got the anonymous companies where beneficial ownership remains hidden, so to this day we have around 100,000 properties in this country whose owners are unknown.”
For the collector who sees his 1961 Petrus not as something to drink but as an asset to hoard and potentially sell, Bouvier offered an invaluable service. Items could not only be stored behind the free port's seven-ton doors, surrounded by laser trip wires and vibration detectors, they could be shown to other collectors there and traded or sold without moving an inch—and taxed only if they left the free port. Perhaps the most attractive aspect of all is that such transactions could take place beyond the prying eyes of a district attorney or a private investigator tracking down assets in a divorce battle. (As a result, many in the art world worry about a tendency for free ports to become "art cemeteries." The world's largest free port, at Geneva Airport, is said to hold as much art as the Louvre.)
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In fact Trump named Wilbur Ross, the former vice-chairman of the Bank of Cyprus, as his commerce secretary. That bank was involved in deals involving Putin’s inner circle in 2015, and incidentally, Rybolovlev had a 9.9% stake in the bank until 2013, after which he divested for undisclosed reasons. It’s very possible that Ross actually has no role in any of this as former employees say he actually drove Russian oligarchs from the bank over his tenure, and the offshores were only used for a failed bid to build a casino.
The looting and illicit export of art treasures is not a new problem. It’s happened whenever there have been armed conflicts during which victorious troops plundered churches, temples and other buildings. Germany carried out massive looting in World War II. By the start of the 21st Century the trade in illicit antiquities had become so huge it was worth billions of dollars each year and was the biggest international crime outside drug and arms trafficking according to The New York Times. When a piece is stolen, the consequence for scholars is tragic, because essential information about the piece – where it was found, what else was with it – is lost forever.
Of course, certain countries already impose AML regulations on the art world. The European Union Commission issued its 5th Anti-Money Laundering Directive in June 2018, which must be implemented by Member States by January 2020, and which in part expands its coverage of “obliged entities” to persons trading in art, acting as intermediaries in the trade of art, or storing art in freeports, if the value of the transaction or a group of linked transactions equals €10,000 or more. In the United States, although the BSA already applies to dealers in precious metals, stones and jewels, and thereby requires them to file Suspicious Activity Reports and comply with other AML obligations, no such rules currently apply to U.S. dealers in art.
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Borisovich says London’s Russian oligarchs should not be mistaken for conventional, self-made businessmen. “Their riches come from transactions with the Russian government. They either sold something for a fortune to the state of Russia or they bought something for pennies in some sort of privatisation from the state of Russia. Some of them managed to do both, to buy for pennies and sell for fortunes. Some of them never did any of that and they just worked all their life as government officials and somehow in the process became immensely rich,” he says.
“The tax laws in art make it basically legal to not pay taxes on art. If you’re a serious art buyer, you just get a good tax accountant,” former New York-based art consultant Beth Fiore tells Hopes&Fears. “If you show newly purchased works in certain museums then you never have to pay taxes on it.” Edward Winkleman of Winkleman Gallery maintains that his gallery keeps fastidious records of all transactions and pays taxes even on cash sales. But he admits that, “the state generally wouldn't question what is reported.” He also tells us that individual sales don’t need to be reported, only the totals for each quarter. Hypothetically, someone could buy millions of dollars worth of art without the IRS knowing, and then later sell those works for a “legitimate” profit that looks clean on taxes.
According to Bersheda, the criminal complaint she filed last year was against Bouvier only. Rybolovlev was already hurt and angry, but the serious pain came, he says, when he heard that investigators had found commissions from Bouvier in Rappo's bank accounts going back to 2004. Rappo knew Rybolovlev to be reserved and wary, he says. He let his guard down around Bouvier because he trusted her. At that point he began to see Rappo, not Bouvier, at the center of the spider's web. Their falling out has led him to ask what he calls "difficult philosophical questions." Had it not been for the dentist's wife he would never have gotten involved with Bouvier.
Rybolovlev's suspicion lingered, which is why when Sandy Heller mentioned the Modigliani in St. Bart's a month later, Rybolovlev asked him how much he had sold it for, something he ordinarily might have been reluctant to ask. (He says Bouvier asked that their transactions be kept confidential for fear that combining art dealing with art storage would be seen as a conflict of interest, a practice the art dealer Larry Gagosian has indeed criticized.) As he sat there stunned in the Eden Rock din- ing room, he says, realizing how much he had overpaid, his first reaction was, "I wanted to call Tania and ask her, 'Do you know what Yves is doing?' "
"[If ] he would have asked me," she says, "I would have told him." The question echoing around the art world is how one of the world's richest, toughest investors—whose trusts own the penthouse at 15 Central Park West (bought for $88 million in 2012 and occupied by his daughter Ekaterina, a college student at the time); two entire Greek islands (Sparti and Skorpios, famous for hosting Jacqueline Kennedy's wedding to Aristotle Onassis); the Maison de l'Amitié (a Palm Beach mansion bought from Donald Trump for $95 million, which Rybolovlev reportedly intends to demolish due to mold problems); a $20 million property on Kauai bought from Will Smith; a $100 million yacht; homes in Gstaad, Geneva, Paris, and Monaco; and AS Monaco, the soccer team—could make himself so vulnerable. Was he, like many new billionaires, in such a hurry to build a glittering collection that he failed to "learn art," as experienced patrons know one must to avoid overpaying? The art market is often described as insider trading conducted by a small but sophisticated network of "experts" who prey upon the naïveté of the nouveau riche. Did Rybolovlev, a famously shrewd and strategic investor, underestimate its ability to confound and deceive? Until now he hadn't talked.
The AML Standards for Art Market Operators (“AML Standards”) are set forth by the Basel Institute on Governance, an independent not-for-profit organization. Not surprisingly, the AML Standards adopt a “risk based” approach to establishing measures to mitigate money laundering risks, and further note that “[s]mall businesses may not have the resources to address money-laundering risks in the same way that large auction houses or major dealers and galleries will have, and may have a different risk exposure.” The AML Standards are intended to apply to everone trading in art objects, and intermediaries between buyers and sellers. They also suggest that service industries supprting the trade in art objects that are already subject to AML laws, like financial institutions, should identify their clients and customers in the art trade “as higher risk as long as there are no internationally applicable standards.”