eNewMexican

In Santa Fe mayoral race, cash matters

Candidates downplay importance of fundraising, but political observers, recent history say it can make or break campaign for city’s top elected office

By Sean P. Thomas sthomas@sfnewmexican.com

Everyone knows in the rough-and-tumble world of politics, money matters.

The question, at least in terms of the upcoming Santa Fe mayoral election, is this:

Just how much?

The race between incumbent Alan Webber, Santa Fe City Councilor JoAnne Vigil Coppler and onetime congressional candidate Alexis Martinez Johnson is continuing to take shape, but Webber’s proven ability to raise money — or his opponents’ ability to negate that advantage — may be the telltale factor come this fall.

Though the best-known candidates in the three-person contest brush aside the importance of money in the race, many observers are watching their fundraising efforts as much as their positions on issues facing the city.

“Money is information,” said University of New Mexico political science professor Lonna Atkeson. “Money is speech. How can it not be an important factor?”

Still, the two leading candidates — Martinez Johnson declined to be interviewed — downplay the issue, preferring to talk about their ability to connect to voters.

Webber demurred on the subject of fundraising, in part because he said he sees the race coming down to relationships and the issues facing Santa Feans.

“I know the popular notion is [money] is what it all revolves around, but I think campaigns are about ideas,” Webber said. “In my case, I have been committed to a conversation with the community about the issues they are concerned about.”

The federal agents who raided a drug dealer’s house in a suburb of Philadelphia found marijuana and, to their surprise, $2.5 million in cash stashed in a secret compartment beneath a fish tank.

But they were even more surprised to discover so much art — 14 paintings on the walls and another 33 stacked in a storage unit a few miles away from the home of the dealer, Ronald Belciano. The artists included Pierre-Auguste Renoir, Pablo Picasso and Salvador Dalí.

“That jumped out at us,” said Brian A. Michael, special agent in charge for Homeland Security Investigations Philadelphia. “That amount of artwork was not something you come across in every investigation.”

It turned out, Belciano used the art to launder some of his drug cash, purchasing the works from an established gallery near Philadelphia’s Museum Row.

In 2015, he was sentenced to more than five years in prison for dealing drugs and for laundering the illicit proceeds by taking advantage of one of the art market’s signature features — its opacity.

Billions of dollars of art changes hands every year with little or no public scrutiny. Buyers typically have no idea where the work they are purchasing is coming from. Sellers are similarly in the dark about where a work is going. And none of the purchasing requires the filing of paperwork that would allow regulators to easily track art sales or profits, a distinct difference from the way the government can review the transfer of other substantial assets, like stocks or real estate.

But now authorities who fear the Belciano case is no longer an oddity, but a parable of how useful art has become as a tool for money launderers, are considering boosting oversight of the market and making it more transparent.

In January, Congress extended federal anti-money-laundering regulations, designed to govern the banking industry, to antiquities dealers. The legislation required the Department of the Treasury to join with other agencies to study whether the stricter regulations should be imposed on the wider art market as well. The U.S. effort follows laws recently adopted in Europe, where dealers and auction houses must now determine the identity of their clients and check the source of their wealth.

To art world veterans, who associate anonymity with discretion, tradition and class, not duplicity, this siege on secrecy is an overreaction that will damage the market. They worry about alienating customers with probing questions when they say there is scant evidence of abuse.

Their concerns are great enough that lobbyists for the dealers’ association and major auction houses have been trying in Washington to shape the evolving policy on this and other regulatory measures. Since 2019, the lobbying bill for Christie’s, Sotheby’s and the dealers’ association has approached $1 million.

Recent studies have projected substantial tax evasion by the richest Americans, which led to President Joe Biden’s plan to boost audits. While there is no evidence of widespread cheating involving art, experts say it’s clear the secrecy of the market creates vulnerabilities for an enforcement system that rarely conducts audits and relies heavily on the willingness of collectors to make plain their profits.

“The only ones who know,” said Khrista McCarden, a professor at Tulane Law School who specializes in the tax code, “are you, the art gallery and God.”

A history of whispered names

The secrets of the art world sometimes tumble out at places like the Eden Rock hotel on St. Barts, where at a lunch in 2014 overlooking the turquoise waters of St. Jean Bay, Russian billionaire Dmitry E. Rybolovlev, a collector, was introduced to Sandy Heller, a New York art adviser. Naturally, the conversation turned to art and money.

Rybolovlev had paid $118 million for a Modigliani nude from an unknown seller. Heller confirmed that the seller had been his client, hedge fund manager Steven A. Cohen. But something was off. Cohen had charged only $93.5 million, Heller said.

Rybolovlev had used an art adviser, Yves Bouvier, to make that and many other purchases, totaling nearly $2 billion. It turned out Bouvier was buying the works at one price and flipping them at huge markups to his client.

Bouvier has said it was always clear he was operating as an independent seller who could buy the art and resell on his own terms. But in the legal battle that has ensued, Rybolovlev has castigated not only his former adviser, but the art world itself.

“If the market were more transparent, these things wouldn’t happen,” he said.

What is the origin of such secrecy? Experts say it likely dates to the earliest days of the art market in the 15th and 16th centuries when the Guilds of St. Luke, professional trade organizations, began to regulate the production and sale of art in Europe. Until then, art was not so much sold as commissioned by aristocratic or clerical patrons. But as a merchant class expanded, so did an art market, operating from workshops and public stalls in cities like Antwerp, Belgium. To thwart competitors, it made sense to conceal the identity of one’s clients so they could not be stolen, or to keep secret what they charged one customer so they could charge another client a different price, incentives to guard information that persist today.

The market is less secretive than it once was. Auction houses, for example, today publish estimates of prices they expect artworks to achieve. But so much about it remains opaque, which lends an air of mystery and romance to a world where values and profits can rely on something as capricious as a fleeting consensus on genius.

Auction catalogs say works are from “a private collection,” often nothing more. Paintings are at times brought to market by representatives of owners whose identities are unknown, even to the galleries arranging the sale, experts and officials say. Purchasers use surrogates, too. When Rybolovlev sold Leonardo da Vinci’s Salvator Mundi to Crown Prince Mohammed bin Salman of Saudi Arabia, for example, it was bought by a friend of the prince, which obscured who was shopping.

In these circumstances, the galleries rely on the integrity of the agents, with whom they have long done business. Sometimes the buyers and sellers are not individuals at all, but shell companies, opaque investment structures often designed to conceal identity.

“The variety of frauds in the art world is almost infinite, and that is facilitated by the fact that the art world operates with a secrecy that no other investor would dream of operating in,” said Herbert Lazerow, a professor at the University of San Diego School of Law.

Following Europe’s lead

The federal government is considering using a law designed to combat money laundering at financial institutions to further regulate the art market. The law, the Bank Secrecy Act, requires banks to report cash transactions of more than $10,000, highlight suspicious activity and understand the identity of their customers and where their wealth comes from.

Congress has authorized Treasury officials to tailor the regulations to fit the antiquities market, which has long been burdened by worries about illicit artifacts trafficked from countries like Syria and Iraq. Now dealers of ancient treasures like Roman marble statues or Egyptian reliefs will be treated like financial institutions, and federal regulators will study whether the restrictions should be extended to the broader art market.

Antiquities dealers are concerned about the cost of complying with the so-called AML (anti-money-laundering) regulations. They say they already know their customers well enough to know they are not engaged in illicit activities.

Auction houses have already responded to the changes in Europe with more thorough vetting of their customers in the United States, too. Christie’s says sellers at its New York auctions must fully disclose their identity. For buyers, it says it verifies the identity of any agent and works to identify the sources of funds when there is any suggestion of risk.

But last year, Senate investigators found gaps in the policies the art market has in place. Auction houses and dealers were cited for having allowed two Russian oligarchs, close to President Vladimir Putin and under sanctions, to buy and sell art using shell companies fronted by an art adviser. The subcommittee concluded that the auction houses, in transactions between 2011 and 2019, did not determine who the real owners were despite professing to have adopted safeguards.

Sen. Rob Portman, R-Ohio, a sponsor of the report, said “the art industry cannot be trusted to self-police.”

“While the auction houses claimed to have robust anti-money-laundering programs, we found that the actual employees who facilitated the transactions never asked who the art intermediary was buying the painting for or where the money was coming from,” he said in a statement.

Even if the tighter rules were adopted, the names of buyers and sellers would not become public. But dealers and auction houses would need to determine who they are dealing with in case of law enforcement inquiry.

Aiming a cannon at a mouse?

How much money laundering involves art? No one seems to have quantified it, though many experts agree the art market is a natural place for it to flourish. “Pieces are portable, there is a high level of secrecy around who owns what and the value that they’re paying, and it’s debatable in some ways,” said Nienke Palstra, a researcher at Global Witness.

Still, the number of prosecutions that have been made would not, by itself, suggest the problem is ubiquitous.

Some experts say enforcement efforts have simply been too anemic to detect laundering, and that the size of the problem will become apparent if dealers and auction houses are required to report suspicious activities.

“You don’t know what you don’t know,” said Peter Hardy, a former U.S. prosecutor.

In cases where people fail to report the profits from art sales, some advisers think the banking system is able to flag possible tax evasion. But other experts said the ranks of IRS and other regulators were too thin to follow up on the millions of banking alerts that come in each year.

“They get so many reports, they could not possibly follow up on all of them,” said Julie Hill, a University of Alabama School of Law professor.

FRONT PAGE

en-us

2021-06-20T07:00:00.0000000Z

2021-06-20T07:00:00.0000000Z

https://enewmexican.com/article/281633898196697

Santa Fe New Mexican