Sotheby's and Christie's, two of the biggest names in London's art market, have cancelled their annual Russian art auctions this year. This is in response to the tragedy unfolding in Ukraine and the ever-increasing sanctions imposed on those wealthy Russian individuals that could be key clientele of the auctions. It is straightforward for famous auction houses to cancel high profile events such as these auctions, but how will the rest of the art industry comply with the recent sanctions?
Knowing the identities of buyers and sellers of high-end art has always been a tricky affair in this secretive industry. This has been a challenge for a long time and governments and law enforcement have been targeting the art world with increasing regulations such as the EU's 5th Money Laundering Directive. In the US, the Treasury concluded in February 2022 that there was a long-standing culture of privacy in the industry, which made it attractive for illicit activity.
The difference right now is the risk that sanctioned parties could use this lack of transparency to their advantage. While bank accounts are frozen and yachts impounded, could selling a Francis Bacon suddenly seem appealing?
Galleries, dealers, and intermediaries in the industry must consider the risk of violating sanctions in the coming months. On top of the usual due diligence, parties should consider the contextual factors.
- Would this artwork normally be on the market?
- Does the sale need to close in an unusually short timeframe?
- Does the price indicate a firesale?
Financial institutions must also carefully scrutinise high value transactions in the art industry and consider whether they know enough about the parties to minimise the risk of sanctions violations. Existing monitoring may not be sufficient.
Essentially, all art market participants need to be alive to the greater risk of using art as a vehicle for illicit activity. Intermediaries must carry out additional due diligence, and bring in forensic experts to assist, if anything about the transaction suggests that assets may belong to a sanctioned individual or entity.