The role of Russian oligarchs in the art market

Their names are Gennady Timchenko, Vladimir Potanin, Pyotr Olegovich Aven or Roman Abramovich: These Russian oligarchs, considered friends of Russian President Vladimir Putin, are on the West's list of sanctions as a reaction to Russia's war on Ukraine.

Among the world's approximately 2,200 billionaires, 4% of them are Russian, while 2% of the super-rich with assets of more than $50 million in 2020 are also from the country, according to the latest art market report by Art Basel and the UBS bank.

Having become rich after the collapse of the Soviet Union in the 1990s, they were soon welcome guests at the art fairs in Basel, Tokyo and New York. Auction houses also prized them as potential buyers, knowing that expensive trophy art was a way for these millionaires to display their wealth.

Oligarchs withdraw from museum boards of trustees

Now, some of their foreign assets are frozen. In London, for example, FC Chelsea owner Roman Abramovich had to relinquish control of his club.

Olegovich Aven, head of the Alfa Group, Russia's largest commercial bank, lost his place on the board of London's Royal Academy. The institution rejected a donation from Aven for the Academy's ongoing Francis Bacon exhibition.

Vladimir Potanin stepped down from the Guggenheim Museum's board of trustees. The privately financed New York city museum will have to find a way to compensate for the loss of the major benefactor's contributions.

With their millions, Russia's oligarchs have gained influence in the art world and shaped the global art market for years.

For example, Abramovich wrote art market history by buying in 2008, a few months before Lehman Brothers went bankrupt, a triptych by Francis Bacon at Sotheby's for the then record price of $86.3 million (€78.3 million) — also acquiring during that same period a painting by Lucian Freud at Christie's for $33.6 million dollars.

In 2006, Boris Ivanishvili, who gave up his Russian citizenship in 2011, bought Pablo Picasso's "Dora Maar au Chat" at Sotheby's for $95.2 million.

The London auction houses have not revealed how many of their recent March sales landed in Russian hands. But it remains clear that extremely rich Russians possess considerable assets from the art market.

Most of them are likely kept outside of Russia, preferably in bonded warehouses in Switzerland, Liechtenstein or Luxembourg, for example. "What is kept there is a great secret," notes German daily Frankfurter Allgemeine Zeitung (FAZ), "like so many things in the art business, which is characterized by discretion and a lack of transparency."

US Congress disclosed art market practices

Despite sanctions, it remains possible to move millions on the art market, as a report by the American Congress revealed in 2020.

Resourceful oligarchs have been using shell companies to do this, conducting offshore transactions or hiding behind an intermediate buyer.

The arts industry, according to the US report, is the "largest unregulated market in the United States."

The legislators there, but also in Europe, have meanwhile tightened their rules to prevent businesses from being used by criminal elements for money laundering.

Since then, new "Know Your Customer" (KYC) regulations have applied, requiring dealers to check the identity of their clients.

In addition to existing client identity checks, the KYC checklists of auction houses such as Christie's, Sotheby's and Phillips now require them to identify Russian clients and crosscheck them with the names of those who are targeted by sanctions.

Sotheby's, which, like Christie's and Phillips, has an office in Moscow, has stated that they "are closely following developments in connection with the sanctions lists and will comply with all applicable regulations." Christie's president, Dirk Boll, has assured they were also abiding by the guidelines. 

It is probably in the interest of the auction houses, as they would otherwise face a loss of reputation or penalties. 

Being Russian-owned, the auction house Phillips has faced particular criticism; amid calls for boycotts, it has been attempted to polish its image by donating the full net proceeds from its March London sales, $7.7 million, to the Ukrainian Red Cross.

Sanctions not an obstacle to art deals

Still, there have been past cases demonstrating how sanctions can be dodged.

Sanctions were already placed on oligarch brothers Arkady and Boris Rotenberg, considered close confidants of Vladimir Putin, in 2014, following the Russian occupation of Crimea.

But this did not detract them from trading artworks, as the "Panama Papers" revealed in 2017: They sold Magritte's painting "La Poitrine" for $7.5 million, as the trade journal The Art Newspaper recently recalled.

The international art market's ongoing gains from Russian oligarchs, despite all the sanctions, can hardly be estimated. The documentation of art deals in auctions and in galleries is too incomplete, especially in discrete private sales.

Nevertheless, the art world is likely to follow whether recognizable "trophy art" from oligarch owners will come onto the market at forthcoming auctions.

Meanwhile, amid the cultural backlash against Russia's invasion of Ukraine, some events are being canceled altogether, with Sotheby's and Christie's announcing on March 16 that they would not hold their upcoming London auctions of Russian art. 

This article has been translated from German.