Page:2020-07-29 PSI Staff Report - The Art Industry and U.S. Policies that Undermine Sanctions.pdf/6

 3, 2019 for around $12.2 million; the artist's previous record for a painting sold at auction was $1.87 million for Keep It Spotless in 2008.

Secrecy is pervasive in the art industry. While the art market is not regulated by the BSA, it is governed by unwritten rules. A large number of art sales happen through intermediaries referred to as "art advisors" who can represent both purchasers and sellers. In a typical transaction, a purchaser may not ask who owns the piece of art they are purchasing; the seller may not ask for whom it is being purchased or the origin of the money. And in general an art advisor would be reluctant to reveal the identity of their client for fear of being cut out of the deal and losing the business.

Auction houses have voluntary AML polices. Because the art industry is not subject to BSA requirements, when a piece of art is sold, there is no legal requirement for the selling party to confirm the identity of the buyer or that the buyer is not laundering money through the purchase. While the four biggest auction houses have voluntary anti-money laundering ("AML") programs, the employees who facilitated art purchases in the Subcommittee's case study said they never asked the art advisor the identity of his client. Instead, the auction houses considered the art advisor the principal purchaser and performed any due diligence on the art advisor, even when it was well-known that the ultimate owner was someone else. With regard to the funds used to purchase art, the auction houses told the Subcommittee they rely on financial institutions to ensure the integrity of the funds, even though the auction houses interact directly with the buyer. But these voluntary AML policies are just for sales through the auction houses. As stated above, the majority of art sales are private transactions. A private dealer interviewed by the Subcommittee stated she had no written AML policies, tries to work with people she knows and trusts, looks for red flags, and relies on her gut. She also explained that her practices have significantly changed over the years and that she also relies on advice from AML lawyers.

Secrecy, anonymity, and a lack of regulation create an environment ripe for laundering money and evading sanctions.

Tracing the ownership of anonymous shell companies, including those involved in high-value art transactions, is difficult. That difficulty continues even though corporate secrecy suffered a blow in the spring of 2016 when the International Consortium of Investigative Journalists ("ICIJ") shocked the world by releasing information on 214,488 offshore entities from the Panamanian law firm Mossack Fonseca (the "Panama Papers"). One email chain included among the Panama Papers and made public described links between nine offshore companies to the Rotenbergs. The email chain listed Boris Rotenberg as the ultimate beneficial owner ("UBO") of Highland Ventures Group Limited ("Highland Ventures") and Arkady Rotenberg's son Igor as the UBO of Highland Business