How Dark Money Threatens Us All

At regular intervals we hear from authoritative sources that the art market serves as a leading vehicle for money laundering by bad guys of all stripes – drug kingpins, shady oligarchs, kleptocrats, terrorists and the like. The trade in art lends itself to such malpractice owing to the privacy and opacity of deals. Most recently, on July 19, the New York Times ran a huge article on the topic entitled “As Money Launderers Buy Dalis, U.S. Looks At Lifting The Veil”.

As with most reports of this kind, the reader is left unsatisfied and wondering exactly how it all works, why it still goes on and whether it matters to the rest of us. The answer is, yes, it does. The global art market is integral to the alternate dark money economy deployed by authoritarian regimes to stay in power and subvert Western-style democracies.

Last July, the U.S. Senate released a report with the kind of details that we rarely see. delineating how some $18 million was allegedly laundered via art for the prominent Rotenberg brothers, sanctioned Russian energy and construction oligarchs close to Putin.

We rarely see such details, especially in the newsmedia, because the details often concern litigation-happy oligarchs with ultra-powerful lawyers. (The Senate, thank goodness, cannot be sued so easily.) As ever, whatever story emerges, it’s always ‘the tip of the iceberg’, while the global art market is ‘valued at around $64 billion and the U.S. accounts for 44 percent of the share’. That’s the usual refrain and, as usual, baffling questions arise. If the market is so opaque, how can anyone know its overall size or America’s share of it? Above all, why should we worry and how does it affect us or what we care about?

I spent my early years as a journalist writing about the illicit art and antiquities world from the late 1980s onwards. I know whereof I speak more than most. It is a nefarious hall of cracked mirrors to be sure. But, again, so what – aren’t we talking about a rarified elite world of activity with no practical effect on our humdrum lives? Does it matter? Yes it does. It harms us greviously and fits the geopolitical concerns of this column precisely. Because as global dark money travels the world unhindered it feeds the alternate global economy of authoritarian regimes and finances their subversion of Western values and interests everywhere. This column has dwelt frequently on the topic of ‘odorless’ commodities, the political threat therefrom, currency substitutes such as oil, gold, uranium, cryptocurrency, narcotics and dark money havens such as real estate, big soccer teams and the like. Art is another such. Let us explore it further.

At the most basic level, you come in with a load of illicit cash to a complicitous art dealer who agrees to launder it. He uses your money to buy a painting (probably from himself) and sells the painting back to himself possibly using a shell company in between. During the transactions he has deposited the money in the bank. He then takes it out and returns it to you (minus his commission). Your money is now laundered. That’s with drug money clients or any clients who wish to stay totally dark. If you’re a big oligarch however, you create a shell company and it buys the painting from the dealer. The dealer gets the money and puts it in a bank, which means it is now laundered and in circulation. Another shell company buys the painting from the first shell company. The title of ownership can switch around between shell companies. At some point you can sell it back to the dealer or sell it at auction even, using the owning shell company as official seller. Anyone trying to figure out who owns the shell company has an interminable task because they’re often registered in off-shore locales with scant disclosure rules. More of that later. Those are just one or two simple examples. The biggest oligarchs can choose to act in broad daylight while using such methods on the side because an art collection or a yacht etc gives them respectability.

Somewhere in the process, say in the oligarch example, a painting becomes a currency substitute. You can sell shares in it to get ready cash or to maximize its value. This way you can help other oligarchs launder their money. Basically, the painting acts like the gold in Fort Knox during the gold standard. You are issuing paper money against the value of the painting in the vault. This is why the total dollar size of the global art market has exploded in recent years, and why it’s impossible to put a figure on it. Consider that just one painting such as ‘Salvator Mundi’, of controversial authorship, fetched half a billion dollars at auction. Unlike real estate or gold, there’s no registry for the public exchange rate of an artwork once it goes to ground and secretly changes hands between owners and dealers and investors. The work itself never needs to move. It can stay in a safe house, a freeport, or a vault throughout. You don’t know the true market value until an artwork goes to public auction, if it ever does. Even at auction the price can be artificially pumped by a cabal of operators who want the particular artist to gain value because they’ve bought into him/her privately elsewhere.

The key here is that, particularly with the contemporary category, nobody knows the true value of anything resembling art since there’s no sure way determining it. There’s no commonly agreed measure of skill or quality or beauty as a universal criterion. With gold and oil and real estate, despite their usefulness as anonymous parking spaces for money, global markets do establish value based on need. Not so with contemporary art, a commodity that nobody actually needs. As such, the artwork is merely symbolic, not unlike cryptocurrency and the latest such vehicle is the NFT or Non-Fungible Token. Here is a report that says NFT trades have reached $2.5 billion

Essentially, NFTs are only digitally-made visual images that exist in a kind of digital vault against which digital copies are sold. They occupy the no-man’s-land between art and cryptocurrency. And that, increasingly, is where art is going.

This all meets the proverbial need for secrecy among oligarchs. It’s not uncommon for the interchange of shares or ownership to occur over a handshake, and not just with art. Examples aplenty exist of disputes that go to court (very often in London) over just such paperless ‘honor-bound’ deals turning sour between post-Soviet oligarchs. The famous case of Boris Berezovski comes to mind, he who fell out with Putin and (allegedly) killed himself a year after losing a lawsuit in 2012 worth billions with Roman Abramovich, the famous owner of Chelsea football club. The decisive factor amid these shifting deals and disputes is not so much any given oligarch’s portfolio of assets but the underlying guarantor of their financial position, the political power in the source country of their wealth. For Russians, it’s their relationship with Putin. In Turkey, it’s Erdogan. In Venezuela, it’s Maduro. For Ukrainians, it rather depends on the amount of funds you’ve invested in politicians.

If you fall out of favor politically, not all the assets in the world can save you because all too often the title to them, where formal title exists, was acquired dubiously in the first place through cronyism, bribery or kleptocracy in a country with scant rule of law. Therefore, all too easily, ownership can be legally assailed in foreign courts until you go broke. And, equally, what you own, say, in Russia can be summarily taken away from you. Which is why most people tend to assume that oligarchs who still continue to prosper at home and abroad are agents of their national regimes. Unless, that is, they’re extensions of Moscow influencing the political life of their own post-Soviet country, or beyond. And here’s where it concerns the rest of us. Oligarchs who park their money in art or real estate or somesuch, must sooner or later act as instruments of an alternative political order hostile to Western democracy and rule of law.

What exactly does this mean in practice? It means exploiting and thereby subverting the very institutions of freedom that uphold our lives – through disinformation, by infusing foreign funds into our political and judicial systems, by tying up our courts, by feeding big bucks into the law fraternity and using it to stifle free speech in various ways, by stealthily spying on us all and using it to leverage journalists and politicians. Stifling our free speech? Yes see, for example, the London lawsuits against author/journos who wrote investigative books about Putin and others. Here’s one example. Spying on everyone? Yes, even through our celphones.

The West seems finally to be waking up to the threat of dark money. In the last month, legislatures have launched a slew of initiatives to address the problem. Here is a list of them by a top policy advisor to the Helsinki Commission, Paul Massaro

He begins, June 2, Congress announces the Caucus against Foreign Corruption and Kleptocracy. Next day, President Biden declares corruption “a core US national security issue”. Several more items follow, including a June 13 declaration by the G7 to go after inter alia “corruption, shell companies,,, the ability of illicit actors to hide wealth, including in real estate”. The list goes on, at one point citing by name Ukrainian oligarch Dmytro Firtash, now residing in Austria, who among other things is said to have allegedly used his Moscow Gazprom money to influence politics in Ukraine. All these initiatives sound active and dynamic but the proof of the pudding comes when they’re applied in practice – where they often fall short because of endless legal obstacles funded by oligarchs’ huge litigation warchests.

the GuardianAre our courts a playground for bullies? Just ask Catherine Belton | Nick Cohen

ReutersNFT sales volume surges to $2.5 bln in 2021 first half

POLITICOCongressional probe: Russian oligarchs using art to evade sanctions

NytimesAs Money Launderers Buy Dalís, U.S. Looks at Lifting the Veil on Art Sales



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