Initially, the oligarchs used intelligence officers as their personal security guards but Vladimir Putin flipped the system when he came to power in 2000, so that the intelligence services now controlled the oligarchs. The men who had made their fortunes through the privatisation of Russia’s infrastructure and natural resources now faced a choice – to share their cash with Putin’s circle or face the consequences.
A major player in the art world, Bouvier is well-known for operating free ports in Geneva, Luxembourg, and Singapore. Through his Natural Le Coultre, they are the largest art operator in Geneva with a 22,000 square meter state-of-the-art facility that offers art storage, transport, and favorable tax conditions, and sometimes no taxes at all. At Geneva, reports indicate warehouses hold $100 billion worth of art essentially beyond the taxman's eyes. Bouvier was also behind €150 million arts-park named R4 in Paris, and was also courting the Chinese government to set up a freeport in Beijing.
He hasn't given many interviews over the past six years, but I managed to track him down for a chat. After learning I did a bit of unlicensed boxing before becoming a journalist, Michel took a liking to me, as he is a fighter himself. He once had so many contracts on his head that Scotland Yard detectives allegedly placed bets on how long he had left to live before he was murdered by a hitman.
The 2,200 photographs by masters like Alfred Stieglitz, Edward Weston and Edward Steichen — more than could fit into an 18-wheeler — were paid for, court papers say, with some of the $78 million that the authorities say Mr. Rivkin got from defrauding oil companies like Shell, Exxon, and Mobil. Mr. Rivkin, who has not been charged with any crimes, was last thought to be in Spain and had arranged to have the photos shipped there.
There are no accepted estimates on the amounts of money laundered through the art market, although the general belief is that it is enormous and expanding as regulations on other asset classes, from real estate to foreign exchange, tighten up everywhere. The International Monetary Fund estimated that "the amount available for laundering through the financial system" was worth 2.7 per cent of global gross domestic product in 2009 or $1.6-trillion (U.S.).
This would all just be face-palm silliness on the Times’s part, a reflection of its editorial disconnect between the culture pages and the business staff, if the story didn’t also glide over the real point of what is going on here. The best protected transactions in the art market are those that pass through the auction houses because those firms do the KYC due diligence that squelch money laundering. Auction houses have compliance staff and are easily monitored by the law enforcement which doesn’t crack down on large private transactions that take place through lawyers or dealers. The Times admits this when they point out that Jho Low passed KYC diligence before it was revealed that he was involved in the 1MDB transactions. After it was revealed, he is no longer able to access art markets through the auction houses.
"We had a sincere friendship," Rybolovlev says. The two families vacationed together, with the Rybolovlevs often treating the Rappos to trips on private airplanes and their yacht. When Elena gave birth to a second daughter, Tania was asked to be godmother. Meanwhile the Rappos escorted the Rybolovlevs as they began making the rounds, helping them get into an exclusive golf club and chaperoning them to society events. As the Rybolovlevs expanded their real estate empire internationally, Tania Rappo also introduced Rybolovlev to real estate brokers abroad (at his request, she says).
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Rybolovlev says he heard through the grapevine that Rappo had gotten richer, acquiring apartments in Paris, London, and Monaco during the years he had known her. Her explanation, he says, was that she had come into a windfall thanks to her family's sale of real estate in Bulgaria. Rybolovlev also said she had given money to Bouvier to invest in the Singapore free port (which Rappo denies), and Bouvier had made her a fortune.
He told Swiss publication Le Temps that Rybolovlev owes his company “tens of millions of euros,” while claiming that the oligarch set him up after failing to cough up the cash for Rothko’s No. 6 – Violet, Green, and Red. “[Rybolovlev] couldn’t pay the balance of the last painting he bought from my company, the most beautiful Rothko in the world.” Invited by the buyer to chat, Bouvier “fell into an ambush” as he was detained and handcuffed by eight police officers.
The Responsible Art Market, or RAM, is an industry-supported not-for-profit organization which describes itself as ‘”[r]aising awareness of risks faced by the art industry and providing practical guidance on establishing and implementing responsible practices to address those risks.” On its website, RAM provides both an Art Transaction Due Diligence Toolkit, as well as Guidelines on Combatting Money Laundering and Terrorist Financing (“AML Guidelines”). The AML Guidelines are similar to the protocols set forth by the Basel Institute, but provide slightly more concrete detail. They set forth eight basic principles:
Bouvier, of course, denies all accusations, claiming to have found out about the complaint as he was arrested. An art market insider explained to Forbes that it’s common for intermediaries to take their cut directly from the selling price, which in most cases isn’t illegal, unless certain conditions are violated. Forbes reached out to three different lawyers connected with Bouvier (David Bitton, Luc Brossollet, and Charles Lecuyer) but wasn’t able to get a response.
While pretty much all art could be scandalized, some are more susceptible to scheming than others. Digital artist Daniel Temkin points out that digital art, which doesn’t need to be shipped or stored because it has no physical manifestation, is particularly ripe for your risky business. To make it easy for you, Temkin has created an "online auction house, offering net art by internationally renowned artists and their impersonators" called NetVVorth. The art experiment/tongue-in-cheek criminal resource hosts a series of counterfeit works created by legitimate net artists. “The collection is offered to expose net art as a viable investment to serious collectors by establishing a shadow market, proving its ability to hide illicit profits and transfer them easily around the globe. All works are supplied with provenance papers. All sales are in Bitcoin. The true counterfeiter is identified only to the owner of the piece.” The collection includes roughly 35 works. Pick your favorite. (And if you hate digital art, like most collectors, you can always hire an art consultant who can help you pick out some “reeeeeal” art.)
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.
Bonhams and Christie’s were also forced to pull smaller objects from their March sales this year, after they were alleged to have passed through the hands of two notorious antiquities smugglers, Giacomo Medici and Gianfranco Becchina. Both had been convicted of trafficking in looted objects, for which Medici was sentenced to 10 years in prison and paid a 10m euro fine – the largest ever imposed for such a crime by Italian prosecutors. Polaroid photos of an immense cache of objects in his Swiss warehouse apparently identified a second or first century BC jug offered for £4,000-£6,000 ($6,700-$10,000) at Christie’s, and a third century pottery pyxis (cosmetic pot) offered for £3,000-£5,000 ($5,000-$8,400) at Bonhams. Earlier this year, the US government seized a $4m (£2.4m) ancient Roman statue in a New York warehouse – it too had passed through Becchina’s hands.
The following year, in 2013, an even more high-profile laundering case surfaced when a Jean-Michel Basquiat painting worth $8 million was found in a crate at Kennedy Airport on its way from London. The crate went through customs with a valuation of $100, though it contained Basquiat’s 1982 painting Hannibal (commodities valued under $200 aren’t required to be declared at customs.) The painting had been bought and shipped by Brazilian Banker Edemar cid Ferreira in an elaborate scheme to launder over $50 million that was illegally obtained when Ferreira’s bank, Banco Santos, went bankrupt. In 2004, Ferreira went $1 billion in debt after his financial empire, much of which was built on embezzled funds, collapsed. During his reign over Banco Santos, he had bought 12,000 pieces of art. In 2006, Ferreira was sentenced to 21 years in prison for bank fraud, tax evasion, and money laundering. But before his arrest, $30 million of his art collection was smuggled out of Brazil. The scheme was uncovered when Hannibal was found at JFK. According to court papers, the painting was originally bought for $1 million in 2004 by a Panamanian company called Broadening-Info Enterprises, which was later discovered to be owned by Ferreira’s wife, Márcia.
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For the next few years Rappo's relationship with Rybolovlev was status quo. It was not a friendship, she says: "I had affection for her. I never had affection for him... He's a block of ice." However, she continued to be a liaison between Rybolovlev and Bouvier; and she continued to receive introduction fees from Bouvier, an arrangement for which she says she received around 5 percent whenever a deal closed. She and Elena stopped speaking for a reason Rappo won't divulge.
The problem isn’t their argument that seller’s should reveal themselves. It’s the slapdash evidence and flawed logic they use. The story’s biggest problem begins with the lede where it is argued that real estate sellers are transparent. Several graphs deeper in the story it is revealed that real estate transactions that are on a par with major art transactions are, in fact, not transparent. How do we know that? Because the Times tells us about a pilot program that requires transparency. Here’s the opening graph:
In this light Trump’s sprawling empire with deep ties to corrupt Russians looks less like a thriving real estate business, but something a bit more nefarious. Deniability was so built into the way he operated that his lawyers didn’t want him signing his own financial disclosures. The Donald’s Sergeant Schultz cavalier approach to business and political conflicts of interest mirror Russian oligarchs. In 2015, as Trump began to eat up air time on American political talk shows in the same way that a starving man eats his first meal in days, Putin may have sensed an opportunity…
I also learned to drink in Russia, because if you didn't drink with them they didn't trust you. So I learned to buy the icons like this [holds a hand over one of his eyes to show how drunk he was]. I really learned the basics there. The Russians are very educated. I had a great time, which made me forget that this was my university. This was the first time I learned about big smuggling. There was a black market and I became an outlet who had the possibilities to market everything in the West.
Further, and as noted, other traditional vehicles for laundering money have become less attractive, thereby driving those who need a mechanism to launder large sums into the arms of the art world. As we repeatedly have blogged, one of the most time-honored and relatively convenient vehicles for laundering — real estate — is under intense scrutiny and now is subject in the U.S. to the Financial Crimes Enforcement Network (“FinCEN”)’s ongoing Geographic Targeting Orders (these require U.S. title insurance companies in many parts of the U.S. to identify the natural persons behind legal entities used in purchases of residential real estate involving $300,000 or more and performed without a bank loan or similar form of external financing).