“The economic beneficiary is automatically known by these tenants," Dauvergne continues, "and they, in turn, are in direct contact with the financial intelligence unit'' of Luxembourg.
In Switzerland and the U.S., disclosure of beneficial ownership (the name of the ultimate, physical owner), is not required. An owner can be a holding company or other legal entity, providing opportunity for a sanctioned individual to hide behind a shell company. So, while many shippers and free ports say they require a driver’s license or passport on file for whoever is authorized to move the artwork, that identification could, in theory, be that of a U.S. representative for an offshore corporation that is ultimately controlled by a sanctioned individual.
“An authorized signatory for a closely held company is exactly that: a shadow director who’s just paid to sign documents,” says Rena Neville, a founder of the art market anti-money laundering consultant Corinth Consulting. “Free ports know who signed for the storage, but they don’t know who’s owning or controlling the entity.”
It’s a concern raised by the U.S. Treasury Department in a study published last month on money laundering and terror financing through the art world.
“Shell companies can be used as financial conduits for the transfer and holding of funds and assets, allowing the ultimate natural person owner(s) to avoid giving their names to dealers who may screen for sanctions risk,” the report reads.
Nowhere to Go
Several experts say Russians sanctioned in response to the invasion of Ukraine are unlikely to take fresh advantage of free ports.
“Presumably, a person who’s hit the sanctions list would want to move their art out of harm's way,” says Thomas Danziger, a New York-based art lawyer who’s also a financial partner in Delaware Freeport. “But anyone who helps that kind of move, if it’s prohibited, would be crazy to be involved in it. You’re not going to get a shipper to help move the work, you’re not going to get a lawyer to help with the transaction; no insurance company will engage.” So, he continues, “you can probably take a minivan yourself and drive the art into the countryside, but that’s about it.”
Free ports, he adds, don’t make princely sums from storing priceless artworks. “They’re not getting millions to store a Monet, they’re getting paid a couple hundred bucks a month,” he says. “Why would they possibly risk criminal and civil penalties?”
There is, however, a high likelihood that Russians who already have work in storage will leave it, rather than attempt to move or sell it. “If you’re in a Swiss free port at the moment, I would absolutely not go anywhere near it,” says Neville. “Because it’s unlikely in your name. It’s a Secret Company LLC, owned by another Secret Company LLC, so no one’s going to know who it is.”
And unless an artwork is highly discounted, there aren’t usually collectors lining up to buy it from a sanctioned individual. “It’s not that easy to sell art in a week,” says Hoffman. “I know you can discount it very quickly and so on—and no doubt there will be one or two people thinking along those lines—but we haven’t seen anything like that or been made aware of it.”