News:

Invoice A059521/01 has a dark secret. The invoice, addressed to the International Art Center, a Panama-based shell company operating out of Switzerland, is dated June 25, 1996. This is the invoice from the day that London-based auction house Christie’s sold Modigliani’s 1918 Homme Assis. The painting, also known as Seated Man With A Cane, was once owned by a Jewish art dealer named Oscar Stettiner, but was seized and auctioned off during the Nazi occupation of France. The painting, worth as much as $25 million, was once displayed by the Nahmad Gallery in New York. 

Leaked documents from Mossack Fonseca, a Panama-based fiduciary firm, have shed light on the dark side of the art world—a market that negotiates pricing, shell company transactions, and storage in secrecy. Given that the values of most privately traded works are never publicly disclosed, artwork makes the perfect vehicle for money laundering and tax evasion.

The Panama Papers database shows numerous invoices and letters of sale involving the auction house Sotheby’s. The documents, incorporated in Panama, the British Virgin Islands, and other tax havens, show that Mossack Fonseca agents served as directors. They also indicate that Sotheby’s attempted to identify beneficial owners of companies; however, its questions were not answered. In 2008, Sotheby’s noted the painting’s spotty ownership history, identifying Stettiner as one potential owner, but it still offered the painting for sale at an auction. By 2011, the painting was still owned by the International Art Center—the lawsuit and negative media publicity effectively scared off any buyers from purchasing the looted work of art.

The painting popped up once again in a document dated Nov. 30, 2011, from UBS Wealth Management. The firm had faxed a fill-in-the-blank legal statement to Mossack Fonseca for the U.S. District Court for the Southern District of New York in an attempt to distance the Nahmad family from the International Art Center. The letter claimed that the center, not the family, owned the painting. 

The billionaire Nahmad family owns the U.S.-based Nahmad Gallery and other art-related interests. Although the family attempted to deny its ownership of the center, investigations of the leaked documents show that not only was the company created in September 1995, but also that four members of the Nahmad family—Davide, Giuseppe, Ezra, and Hilal—are shareholders in the company. 

Philippe Maestracci is acting on behalf of his grandfather’s estate in the lawsuit against the Nahmad family and is seeking the return of the painting to his family. 

One-Eyed Due Diligence

In an interview, Christie’s claimed that that the provenance, or ownership history, of its art is thoroughly investigated “by consulting public and private archives, publications, lists of confiscated works, and academic experts.” The business also stated that catalogues “are submitted to the Art Loss Register before each sale.” However, following a series of stock responses about issues such as money laundering and looted art, Christie’s has politely disengaged from the controversy. 

The Art Loss Register, the world’s largest database for lost art, claimed that it searches “all auction catalogues and private sales for Christie’s to identify before sale any items [that] are registered as stolen, fake, missing, [or] looted.” 

When contacted by the African Network of Centers for Investigative Reporting in regard to its vetting process and whether the contentious origins of the Modigliani painting were discovered prior to its sale in 1996, the Art Loss Register did not respond; neither did Christie’s.

Christie’s alleges that vetting provenance is a “separate issue from financial due diligence.” It claims its highly skilled compliance team is on top of financial checks and is trained to detect money laundering, monitor transactions, and screen risks.

In practice, however, ownership history is hard to untangle from financial due diligence. Tax havens provide sovereign-backed secrecy about beneficial owners and financial flows; opaque shell entities are often owned through anonymous owners, known as bearer shares; intermediaries represent companies and conceal ownership. Moreover, banks like UBS provide numbered accounts to powerful clients that do not identify owners by name. All of these practices combine to form an impenetrable veil over ownership history.

“The gaps,” said a U.S. art lawyer who wished to remain anonymous, “are not overlooked. They are part of the system. [They] make the system safe and attractive for investors with serious cash. People don’t want to put up a ‘steal from me’ sign.” Art auctions maintain private databases “when it’s a private sale or done through paper companies.” There is “zero information available out there, how that transaction took place. Connecting the dots is much harder.” 

All in all, said insiders, authenticity is prioritized, while beneficial owners and sources of funds are not.

Free, but Hidden

While auction houses must maintain a degree of transparency through catalogues, at least regarding pricing, private collectors do not. Letters of sale from private collections often state “a private collection” as provenance; therefore, the owner’s name remains undocumented. 

Additionally, private collections are usually housed in freeports, where collectors can store works tax and disclosure free for an unlimited period of time. The financial opacity of the art world is an open secret. Even Sotheby’s confirmed in its annual report that it is impossible to measure the movement of art, because “privately owned dealers and auction houses do not publicly report annual totals for auction sales, revenues, or profits and the amounts reported may not be verifiable.” The Nahmad family, for instance, stores its collection in the state-of-the-art Geneva Freeport, the world’s oldest and largest facility. Described as a clearing house for international art, the freeport holds over 1.2 million pieces of art, alongside gold, silver, and other valuables. More than half of the world’s art—whether traded through auctions or private sale—makes a pilgrimage through the freeport each year. 

Dark Places

The sale of art can take several forms: consignment to an art dealer, sale to an auction house, or sale to a collector or museum. Most sellers and buyers use multiple forms—for instance, buyers often depend on one or more broker to help them build collections for their legacy or as a form of tax-free investment. 

This was the case with another Modigliani piece, Nu Couché au Coussin Bleu. It was purchased from a dealer at $93.5 million and was then directly sold to another at a $24.5 million mark-up. The buyer, a Russian billionaire named Dmitry Rybolovlev, allegedly lost over $1 billion to Yves Bouvier, a Swiss-based art trader. 

Rybolovlev learned of the inflation from the original seller, who happened to be a guest at the same dinner party. For his part, Bouvier claimed that he was a seller, not a broker, and it was within his rights to determine the selling price. In total, Bouvier has been accused of artificially inflating the cost of more than three dozen works of art. Allegedly, his profits are located in freeports in Luxembourg and Singapore. 

Documents from the Panama Papers help connect the dots of Bouvier’s complex offshore network, such as Fine State Limited, which may have performed a role in his art shipping, buying, selling, and storage businesses. Xitrans, the entity that Rybolovlev used to to hide his wealth from divorce lawyers and to buy works by artists such as Picasso, Monet, and Van Gogh, is named in the papers as well.

While standing on the promenade of Zurich’s beautiful Limmatquai River, an art lawyer disdainfully told me, “If a new public type of registry or more stringent rules are meant to protect the super rich, well, that’s not the kind of protection they want or need.” Frankly, he said, discretion is what the industry is all about. Who said all rich people—or businesses—must have lawful intentions? 

The lack of transparency is not exceptional to the art world. It speaks to the same issues that underscore global corruption and illicit financial flows: the use of tax havens and freeports, the lack of mandatory information exchange, and the absence of corporate country-by-country reporting. By and large, the wealthy simply cherry pick jurisdictions that allow them to cast a veil over their illicit activities and protect their assets. 

It is this veil that blocks the light from coming in.  

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Khadija Sharife is the author of "Tax Us If You Can: Africa" (Pambazuka, 2011), an investigative editor at the African Network of Centers for Investigative Reporting, and a World Policy Institute fellow.