The key questions about the impact of sanctions on the art market, answered by our crack legal experts

As the fallout from Russia’s tragic invasion of Ukraine continues to unfold and the list of sanctioned oligarchs grows by the day, many in the art world are wondering how to navigate over this ever-changing terrain without landing themselves in legal hot water.

To help shed some light on the complex and often misunderstood topic of legal penalties, we’ve answered a sample of the most common questions we’ve received from customers and others in the United States and around the world.

I run a gallery in Chelsea and I think one of our biggest buyers from Russia could be put on the OFAC sanctions list. What does that mean?

Good question. The US Treasury Department’s Office of Foreign Assets Control (OFAC) administers and enforces sanctions against individuals, companies, and even countries in accordance with US foreign policy objectives. These sanctions programs vary in scope and, in the case of Russia, include not only specific oligarchs, but also entities they may own or control. The bottom line is that doing business with a sanctioned party is against the law and subject to substantial fines and even imprisonment.

How long has OFAC been around?

OFAC was the successor to a US Treasury Department formed after World War II, but the Treasury Department has used sanctions as a foreign policy tool since the War of 1812. Clearly, the US government has extensive experience deploying this economic weapon against people he deems to be bad actors.

I am a European art consultant working with a wealthy Russian client living in Monaco. If he ends up on the OFAC sanctions list, I won’t have a problem with the US government if I continue to work with him, will I?

Not so fast. OFAC’s regulations are very broad and, in our view, deliberately worded vaguely to allow the US government wide latitude in enforcement. They apply to all U.S. citizens (regardless of where they live), anyone living or doing business in the United States, and all U.S. corporations and their overseas branches. Even if you are not US, US sanctions could affect any activity you perform on your client’s behalf that relates to US companies or individuals.

This means that you would not be legally allowed, for example, to buy a painting for your client from an American gallery at a European art fair, to sell a sculpture on his behalf in the Hong Kong branch of a American auction house, or perhaps even to receive payment from it. in US dollars, since dollar transfers pass through the US banking system. And because any U.S. company doing business with you on behalf of your sanctioned client risks its own serious legal issues, you might have trouble finding insurance for its work or hiring a shipper with U.S. ties.

The other issue to keep in mind is that different countries and entities around the world maintain their own separate sanctions lists. So even if your client is not on the OFAC list, they may be on the UK Sanctions List, the EU Sanctions List or one of many other lists.

A group hold placards outside the Ukrainian Foreign Ministry during a protest calling on the European Union to impose additional sanctions against Russia on February 21, 2022 in Kyiv. (Photo by Chris McGrath/Getty Images)

How about working with a company owned by a US-sanctioned individual?

It’s a non-starter. OFAC has a rule that prohibits dealings with any company in which a sanctioned individual or group of individuals has a combined ownership interest of 50% or more. UK regulations are even stricter and prohibit transactions with entities controlled by sanctioned parties, regardless of the percentage they hold.

How on earth would I know if a sanctioned party owns 50% or more of XYZ Corp? The company will certainly not publish this information on its website.

Excellent question. We tell our US customers to do an initial search for the entity and anyone they know connected to it through the publicly available (and free) site. OFAC’s online database. You won’t get an email notification or Google alert if your client is added to the list, so you’ll have to do a manual search and keep an eye on the paperwork. If there are any red flags – and in the case of Russians we mean this literally and figuratively – we advise customers to upgrade and use a larger paid database such as World-Check or RiskScreen. And given the situation, we might also suggest contacting a firm dedicated to compliance in this area, such as Corinth Consulting in London.

Our Chicago gallery just received a stunning antique cabinet on consignment that would be perfect for a Russian collector. The dealer we’d like to send it to is in Belarus and certainly isn’t on any sanctions list here in the US or anywhere else. Can we ship it to him?

Nyet. On March 11, 2022, the U.S. Department of Commerce restricted the transfer of all U.S.-origin luxury goods, including antiques, to Russia and Belarus. The same prohibition applies to jewellery, vehicles and other shiny objects prized by the oligarchs.

US President Joe Biden announces a ban on US imports of Russian oil and gas on March 8, 2022. (Photo by JIM WATSON/AFP via Getty Images)

US President Joe Biden announces a ban on US imports of Russian oil and gas on March 8, 2022. (Photo by JIM WATSON/AFP via Getty Images)

I am an art consultant based in New York. I know I can’t sell Picassos to Putin, but could I partner with a Beijing-based consultant to manage the collection of a US-sanctioned Russian mining magnate? The Chinese are not sanctioning anyone yet.

No chance. OFAC specifically prohibits people from doing indirectly, such as through an intermediary, what they legally cannot do directly, so this type of workaround would definitely lead to legal issues for you. You have to be careful not to even facilitate a transaction with a sanctioned person.

I have a supplementary question. If we are paid in crypto in China by the sanctioned Russian collector, the US government would never know of my involvement, so no harm, no fault. What do you think?

China has banned crypto, but even so, we’re not here to help people escape the law. If you send us your address, we could send you socks if you end up in jail.

So I really can’t do any do business with someone on OFAC’s sanctions list?

Did you pay no attention here?

Don’t answer a question with a question. Concretely, what should I do if my collector client ends up on the sanctions list?

You must cease doing business with him, or acting directly or indirectly for him or an entity he owns or controls. Full stop. Don’t stop negotiating with him. Do not take funds from him or send funds to him or to any third party for his benefit. Do not even engage in commercial e-mail correspondence with him or third parties regarding his business.

So what’s the takeaway here?

We basically advise our clients to consider sanctioned parts as functionally dead to the world. And when in doubt, we tell customers not to proceed. The risks of violating ever-changing regulations in this area are simply not worth it.

This article is by Thomas C. Danziger, Esq. with Joan Gmora, Esq., attorneys at the New York firm Danziger, Danziger & Muro, LLP, specializing in art law. Some facts have been changed for customer confidentiality or are made up from scratch. Nothing in this article is intended to provide specific legal advice.

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