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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is founder and chair of the Antiquities Coalition
On February 23, a day before the second anniversary of the invasion of Ukraine and a week after the suspected murder of Alexei Navalny, President Joe Biden imposed over 500 new sanctions targeting “Russia’s war machine”.
Unfortunately, this strengthened sanctions regime is undermined by a major oversight: the exemption of the American art market, worth more than $30bn, from standard laws and regulations. This continues to give our adversaries an easy back door into the US, and with it the world’s largest economy.
It is now well documented that art provides a lucrative and untraceable funding source for blacklisted individuals and entities. Last year, Bloomberg revealed that Federal prosecutors were targeting major auction houses as part of a wider investigation into sanctions evasion by Russian oligarchs. Previously, in 2020, a Senate report had exposed how “key allies of the Russian state”, Arkady and Boris Rotenberg, laundered millions through the American art market in full evasion of existing sanctions.
A 2022 Treasury department study also cited the Rotenbergs when underscoring the pressing need for anti-money laundering (AML) and counter-terrorist financing (CTF) protections in the American art market. Yet for the most part, the US has failed to apply these regimes to art, despite similar steps being taken by the UK, EU and Switzerland.
The Rotenbergs are not alone. In April 2023, the Department of Justice unsealed a felony indictment charging Nazem Ahmad, a high-profile Lebanese collector turned Hizbollah financier, for using art and other luxury goods to evade terrorism-related sanctions.
The American art market is a black hole to law enforcement, because it is not required to assist the Federal government with preventing or detecting financial crimes, one consequence of the sector’s avoidance of money-laundering and counterterror laws. Congress or the Treasury department have already applied these rules to every industry of comparable risk and size, including dealers in precious metals, stones and jewels; sellers of cars, boats and planes; and even “ma and pa” pawn shops. Art thus remains the Wild West of the regulatory landscape.
As Senator Tom Carper, who spearheaded the bipartisan 2020 Senate report on the Rotenbergs with then-Senator Rob Portman, said upon its release: “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.”
In the four years since Carper issued that warning, Russia has not only failed to withdraw from contested territory, it has increased its aggression against Ukraine, the west and even its own citizens. And we have known all the while that art is one reason — admittedly one of many — why our efforts to fight back have failed.
It is crucial to US national security and economic integrity that Congress or the Treasury department finally act on their own earlier recommendations to bring art within the AML/CTF framework. But this is just a starting point.
The American government must also work with the art market and wider private sector to strengthen information sharing. We need to update guidance and training for law enforcement to include the unique risks and opportunities presented by the art market. And we need to use existing tools, including targeted record keeping, reporting requirements and alerts from the Financial Crimes Enforcement Network to better understand the threat.
Until we do, there is a real likelihood that collectors, dealers, and auction houses in the US may unknowingly continue to help further crime, armed conflict and even terrorism through the apparently legal purchase of art. This is too high a price to pay, even for a masterpiece.
