Is the Curtain Coming Down on Criminal Schemes in the Art Market?

In early January, France’s highest court ordered a new trial for members of the art-dealing Wildenstein dynasty who escaped tax evasion charges in 2018. This new trial will be the third attempt to hold the Franco-American billionaires accountable for what French prosecutors have alleged was an expansive scheme to hide hundreds of millions of euros from authorities, including by stashing away valuable pieces of art. When authorities raided a vault at the Wildenstein Institute in 2011, they found 30 works of art that had been reported lost or stolen. The case involves a number of members of the prominent family whose art business was founded in Paris in the 19th century, including the international art dealer Guy Wildenstein, his nephew Alec, and his estranged sister-in-law Liouba Stoupakova.

The revisiting of the case against the Wildenstein’s, one of the biggest names in the art world, comes as famed auction house Sotheby’s is facing allegations that it helped one client evade taxes and materially assisted another in running a fraudulent scheme. Combined with the recently passed legislation allowing the U.S. to better regulate the art and antiquities market, are the days finally over when the art market was a Wild West-style grey zone allowing criminals of all stripes to flourish?

From Isaac Sultan to the Bouvier Affair, venerable auction house in trouble

Already financially shaken by the coronavirus pandemic, juggling $1 billion in long-term debt and facing a credit rating downgrade from Moody’s, Sotheby’s is also dealing with not one but two major legal battles. In November, the state of New York filed a lawsuit against the auction house for allegedly “fleecing New York taxpayers out of millions just to boost its own sales.” Specifically, New York is accusing Sotheby’s of accepting resale certificates from a collector—believed to be Venezuelan shipping executive Isaac Sultan—while perfectly aware that he did not intend to sell the works at Sotheby’s. According to New York Attorney General Letitia James, at least 29 Sotheby employees were fully conscious of the fact that the art collector was keeping the paintings in his private collection and was only using the resale certificates in order to evade taxes.

If found guilty, Sotheby’s might be staring down the barrel of a substantial fine—but even that could pale in comparison to the potential damages Sotheby’s faces in another lawsuit. The auction house has become embroiled in the so-called “Bouvier Affair.” The Bouvier Affair centers around a long-running dispute between Russian billionaire Dmitry Rybolovlev and Swiss art dealer Yves Bouvier. According to Rybolovlev, Bouvier received a 2% commission to acquire fine artwork as his agent, but in fact, was bilking Rybolovlev out of millions on each transaction through enormous undisclosed markups. Bouvier denies the charges, arguing that the arrangement with the Russian was clear from the beginning of their relationship.

In addition to bringing legal action against Bouvier around the world, Rybolovlev has also sued Sotheby’s for at least $380 million in damages, arguing that it “materially assisted” Yves Bouvier’s alleged fraudulent scheme. Sotheby’s, which participated in 12 out of the 38 transactions between Bouvier and Rybolovlev, is accused in court documents as having “instilled [Rybolovlev’s] trust and confidence in Bouvier and rendered the whole edifice of fraud plausible and credible.” In particular, Sotheby’s Vice President of Private Sales, Samuel Valette, has been singled out for apparently conferring with Yves Bouvier on the prices to be proposed to the final client. While the case is still ongoing, Sotheby’s has suffered early legal setbacks, including a rejected bid to dismiss the case and a court ruling declassifying some of the correspondence between Bouvier and Valette.

New antiquities legislation in the United States

The one-two punch of the Bouvier Affair and the New York Attorney General’s lawsuit has left Sotheby’s facing significant legal risks and will likely send a warning signal to other purveyors of fine art about the potential pitfalls of granting special favors to high-dollar clients. If the legal problems assailing the well-known auction house have made waves in the international art scene, a piece of American legislation promises a similarly broad impact on the sector.

When the U.S. Congress overrode former President Donald Trump’s veto in early January to pass the defense appropriations bill, the focus was understandably on elements of the law such as a 3% pay raise for U.S. troops. The newly passed bill, however, also has major implications for the art market. Spurred into action by an alarming U.S. Senate report which suggested that the art market is a hotbed for money-laundering and sanctions-busting, the newest defense act includes a number of provisions which drastically increase policymakers’ oversight over the heretofore patchily-regulated art and antiquities market.

Specifically, the legislation extends the U.S. Bank Secrecy Act to antiquities traders—meaning that they will have to comply with a number of anti-money laundering protocols that will make it harder for buyers and sellers to hide behind offshore entities or shell companies, as Wildenstein’s notably did—and directs the Department of Justice and the Treasury to carry out an assessment of how terrorists and money launderers are exploiting the international art trade. According to one art law attorney, the outcome of this evaluation is “a foregone conclusion” which will undoubtedly result in stricter measures being extended to fine art dealers as well as antiques purveyors.

Experts in the sector are hoping that the new legislation will close long-running loopholes that have made the art trade one of the last legal unregulated markets in the world. As the director of an association fighting against the illicit trade in antiquities noted, until the new legislation, small-time pawnbrokers were better regulated than major auction houses like Christie’s and Sotheby’s—a dichotomy whose flaws have been put on prominent display by Sotheby’s legal problems.

It remains to be seen whether the measures included in the defense bill will go far enough to crack down on the grey areas which the likes of Yves Bouvier and the Wildenstein family are alleged to have taken advantage of. What’s becoming clear, however, is that courts and policymakers alike are increasingly determined to ensure that the art market isn’t a haven for fraudsters.