When a Russian Billionaire Gets Ripped Off – A Peak Inside the Opaque World of High End Art

It’s hard to feel bad when a guy worth $10 billion gets ripped off, but the story of Russian billionaire Dmitry Rybolovlev being taking for a ride by his “trusted” art dealer, Yves Bouvier, is certainly fascinating. There are two aspects of the story I find particularly interesting. First, the increased use of “freeports” around the world by the super rich in order to buy, sell and hold assets tax free. This is merely another example of how billionaires often avoid taxes entirely, while the nine-oligarch wealthy, the middle class and the poor are nickel and dimed for virtually everything. Liberty Blitzkrieg covered freeports back in 2013 in the article, Introducing “Freeports” the Latest Way for Oligarchs to Store Their Assets. Here’s an excerpt:

Passengers at Findel airport in Luxembourg may have noticed a cluster of cranes a few hundred yards from the runway. The structure being erected looks fairly unremarkable (though it will eventually be topped with striking hexagonal skylights). Along its side is a line of loading bays, suggesting it could be intended as a spillover site for the brimming cargo terminal nearby. This new addition to one of Europe’s busiest air-freight hubs will not hold any old goods, however. It will soon be home to billions of dollars’ worth of fine art and other treasures, much of which will have been whisked straight from collectors’ private jets along a dedicated road linking the runway to the warehouse. 

The world’s rich are increasingly investing in expensive stuff, and “freeports” such as Luxembourg’s are becoming their repositories of choice. Their attractions are similar to those offered by offshore financial centers: security and confidentiality, not much scrutiny, the ability for owners to hide behind nominees, and an array of tax advantages. This special treatment is possible because goods in freeports are technically in transit, even if in reality the ports are used more and more as permanent homes for accumulated wealth. If anyone knows how to game the rules, it is the super-rich and their advisers.

The other aspect of today’s article I found interesting, is just how completely opaque the super high end art market is. So much so, that it appears quite easy to rip off billionaires for tens of millions per painting.

From Bloomberg:

In this arena, billionaires often bid against each other without even knowing it, frequently through offshore companies. Rather than flaunting art on their villa walls, investors are increasingly stashing it in freeports, where it can appreciate tax-free before being sold again, tax-free. The value of the works is often hard to assess, determined mostly by what a buyer’s willing to pay. What Rybolovlev paid for No. 6 was a record for a Rothko, whose large canvases have soared in value. In February, Qatar Museums, according to widespread reports, bought Paul Gauguin’s When Will You Marry? for $300 million, the highest price ever paid for a work of art. (Qatar Museums did not respond to calls for comment.)

The deal that sparked his feud with Rybolovlev began in late 2011, when Bouvier started negotiating to buy Modigliani’s Reclining Nude. On Dec. 23, he e-mailed Mikhail Sazonov, a financial adviser to Rybolovlev, according to the Monaco complaint. The owner of a “very important painting” might put it on the market, Bouvier wrote. “For financial and tax reasons, I think he’s going to sell.”

Unknown to Rybolovlev, the owner was Cohen, who had consigned the painting’s sale to now-defunct New York art dealer Giraud Pissarro Ségalot. The dealer sold it to Bouvier for $93.5 million, plus a commission of about $2.5 million, according to an affidavit filed by Sazonov in Singapore. In January 2012, Bouvier’s Hong Kong–based company, MEI Invest, presented Rybolovlev’s trust with an invoice for $118 million, leaving Bouvier with $22 million after the New York dealer’s commission.

The blockbuster deals kept coming. In early 2013, Bouvier told Sazonov that Leonardo da Vinci’s recently discovered, masterful oil-on-walnut painting of Christ, Salvator Mundi, was up for sale. In May of that year, a Rybolovlev trust agreed to pay $127.5 million for the painting. Rybolovlev questioned the price he’d paid after reading a New York Times article—citing unnamed dealers—that said the da Vinci was sold by a consortium for $75 million to $80 million, according to the Monaco complaint. Bouvier declined to discuss the details, citing the investigation.

In the summer of 2014, as he was gearing up for the Luxembourg opening, Bouvier presented Rybolovlev with an opportunity to buy a work by one of America’s most important postwar artists: Mark Rothko. Christie’s had sold his Orange, Red, Yellow at auction for a record $87 million in 2012. Bouvier had found a private collector who wanted to sell No. 6 (Violet, Green and Red), one of the abstract impressionist’s most famous works. He began negotiating with Rybolovlev on the price.

After some back and forth, the two men settled on €140 million, making it one of the most expensive paintings ever sold. Rybolovlev agreed to sell a Modigliani sculpture, Tête—which he’d bought via Bouvier in 2012—for €60 million as a partial payment for the Rothko. “I convinced the seller of the importance of Tête by Modigliani, and he agrees to take it in part exchange for 60m euros,” Bouvier wrote to Sazonov on Aug. 4, 2014, the complaint says.

Unknown to Rybolovlev, the seller of the Rothko was Cherise Moueix, the wife of Christian Moueix, a French winemaker who oversees Château Pétrus. She declined to comment. Bouvier told the Monaco prosecutor that he bought the Rothko from Moueix through an intermediary for $80 million plus an unspecified commission—roughly €80 million less than the Russian agreed to pay at the time.

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