Russian Oligarchs Use High-Value Art to Launder Millions, Evade US Sanctions, Senate Report Claims

July 29, 2020 Updated: July 30, 2020

Russian oligarchs have bought and sold millions of dollars worth of art to evade economic sanctions imposed by the United States in the wake of Russia’s 2014 invasion of Ukraine and illegal annexation of Crimea, according to a bipartisan Senate investigation made public on July 29.

The report by the permanent-investigations subcommittee of the Senate Committee on Homeland Security and Governmental Affairs Committee found more than $130 million going to Russia after being generated through high-value art sales and other transactions in the United States.

The individuals behind the activity were brothers Arkady and Boris Rotenberg, close associates of Russian President Vladimir Putin. The report also said Arkady Rotenberg’s son, Igor, participated in and benefited from evading sanctions imposed by then-President Barack Obama.

“It appears the Rotenbergs continued actively participating in the U.S. art market by purchasing over $18 million in art in the months following the imposition of sanctions on March 20, 2014,” the report stated.

“Shell companies linked to the Rotenbergs also transferred over $120 million to Russia during a four-day window between President Obama’s March 16, 2014, executive order stating that the U.S. would be sanctioning certain Russian individuals and the Treasury Department specifically naming the Rotenbergs as sanctioned on March 20, 2014.

“In addition, certain Rotenberg-linked shell companies continued transacting in the U.S. financial system long after Arkady and Boris Rotenberg were sanctioned. The subcommittee determined these Rotenberg-linked shell companies engaged in over $91 million in transactions post-sanctions,” the report stated.

While President Donald Trump extended sanctions for another year when they were set to expire earlier this year, the subcommittee said the evidence it turned up on the Rotenbergs cast doubt on the measures’ effectiveness.

“To date, Russia has not withdrawn from Crimea and has even expanded its military operations in surrounding waters,” the report noted.

When the subcommittee sought to understand why the sanctions failed to prevent the Rotenbergs from continuing to profit handsomely from their activities in the United States, the report said investigators “uncovered a complex set of facts involving shell companies with hidden owners, intermediaries who mask purchasers and sellers, and lax money-laundering safeguards in the U.S. art industry.”

Investigators said they feared if “wealthy Russian oligarchs can purchase millions in art for personal investment or enjoyment while under sanction, it follows that their businesses or hidden resources could also continue accessing the U.S. financial system.”

The heart of the problem uncovered by the subcommittee, according to the report, is that the U.S. art market is largely unregulated and the U.S. banking system is unprepared to stop the laundering of funds generated by its often secretive sales and purchases.

“It is shocking that U.S. banking regulations don’t currently apply to multimillion-dollar art transactions, and we cannot let that continue,” said Sen. Rob Portman (R-Ohio), in a statement accompanying release of the report. Portman is chairman of the subcommittee.

“The art industry currently operates under a veil of secrecy, allowing art advisors to represent both sellers and buyers, masking the identities of both parties, and as we found, the source of the funds.  This creates an environment ripe for laundering money and evading sanctions,” Portman said.

“It is alarming and completely unacceptable that common-sense regulations designed to prevent money laundering and the financing of terrorism do not apply if someone is purchasing a multimillion-dollar piece of art,” Sen. Tom Carper (D-Del.), the ranking minority member of the subcommittee, said in the statement with Portman.

“As a result, criminals, terrorists, and wealthy Russian oligarchs like the Rotenbergs are able to use an unregulated art industry, as well as real estate and other investments, to hide assets, launder funds, and evade sanctions,” Carper said.

The art industry isn’t covered by the Banking Secrecy Act and is thus not required to maintain anti-money-laundering (AML) and anti-terrorism-financing controls for sales and purchases. Similarly, the report stated, private art dealers aren’t subject to those financing regulations; large auction houses such as Sotheby’s have voluntary AML controls in place.

“One private dealer told the subcommittee she had no written AML or sanctions policies and instead relied on her gut and worked with people she knew,” the report stated.

“She also explained that questioning the identity of the buyer and the source of funds in an art transaction was not done in the art industry, nor would the dealer for the purchaser want to provide that information.”

Contact Mark Tapscott at Mark.Tapscott@epochtimes.nyc