Page:2020-07-29 PSI Staff Report - The Art Industry and U.S. Policies that Undermine Sanctions.pdf/5

 surrounding waters. The Subcommittee sought to understand why the sanctions have not been more effective and, after reviewing a number of suspect transactions, launched a narrow investigation into high-value art. 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 Subcommittee's investigation 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.

The art industry is largely unregulated. The art industry is considered the largest, legal unregulated industry in the United States. Unlike financial institutions, the art industry is not subject to Bank Secrecy Act's ("BSA") requirements, which mandate detailed procedures to prevent money laundering and to verify a customer's identity. While the BSA does not apply to art transactions by art dealers and auction houses, sanctions do. No U.S. person or entity is allowed to do business with a sanctioned individual or entity.

The art industry has been enjoying a boom. According to the 2019 Art Basel and UBS Global Art Market Report, world-wide art sales hit $64.1 billion in 2019. That report found the United States was the world's largest art market comprising 44 percent of global sales, or around $28.3 billion. The art industry is generally divided into sales at public auctions and by private dealers. In 2019, sales at auction houses made up 42 percent of total art sales, while the remaining 58 percent of sales were through private dealers. The four biggest auction houses by sales—Sotheby's, Christie's, Phillips, and Bonhams—are selling art for sizeable amounts. In November 2017, Leonardo da Vinci's Salvator Mundi sold at auction at Christie's in New York for over $450 million. In May 2019, Christie's New York sold Jeff Koon's Rabbit for over $91 million, the highest price ever paid for a piece by a living artist. Even during the COVID-19 pandemic, an online auction at Sotheby's brought in $234.9 million in total sales, including $84.55 million for Triptych Inspired by the Oresteia of Aeschylus by Francis Bacon. In turn, the auction houses report large annual sale numbers. Sotheby's reported $4.8 billion in sales for 2019, while Christie's reported $2.8 billion in sales for just the first six months of 2019.

Investors have taken notice. Deloitte's 2019 Art and Finance Report noted that "artnet's Index for Top 100 Artists produced an 8 percent Compound Annual Growth Rate between 2000 and 2018, compared with 3 percent for the S&P 500." For example, Banksy's Devolved Parliament sold at Sotheby's in London on October