Prior to Putin switching titles, Bank Rossiya had aggressively moved into media ownership. It purchased a stake in a television network, which Putin then made a national broadcaster. The bank also grabbed Ren TV, whose reputation for crusading journalism ended under its new ownership. Publicly, Bank Rossiya also owned 16 percent of Video International, one of Russia’s biggest advertising wholesalers. International Media Overseas also held a 12.5 percent stake in the company, worth about $10 million a year in dividends to Roldugin, according to a bank account form found in the Mossfon files.
Cyprus was a focal point for much of the Bank Rossiya network’s offshore activity. The country, a doorway into the European Union, was so corrupt, one could buy shell companies that came with an open bank account already attached, no questions asked. Russians with money had flocked to the island’s banks for years. It was also where Sandalwood’s piggy bank, RCB, was located. But in 2012 Cyprus began to slip into financial crisis. As the island’s overleveraged financial institutions tumbled into default, the Bank Rossiya executives began to move their companies to other jurisdictions and providers. They were not alone. Direct investment by Russians in the BVI during this period increased eightfold as their compatriots fled Cyprus.
In a series of loan assignments, Sandalwood Continental transferred the rights to hundreds of millions of dollars to another BVI-based company, OVE Financial. The new owner often received the right to these loans for $1. OVE Financial was registered to Mossfon’s Panamanian competitor, the law firm Morgan and Morgan. Rather than work out of Cyprus, OVE Financial did business in the more stable tax haven of Luxembourg.
Around the same time, three shell companies made huge payments into Sunbarn Limited, another Mossfon-Rossiya creation. Arkady Rotenberg, Putin’s childhood martial arts friend, appears to have controlled the companies doing the paying, perhaps in response to government contracts to build a proposed $40 billion natural gas pipeline between Russia and Europe. The pipeline deal failed to materialize. Still, when the U.S. Treasury Department sanctioned the brothers to penalize Putin for his invasion of Ukraine in 2014, the Russian leader opened the spigot to more contracts for the Rotenbergs. For those in Putin’s inner circle, the Russian leader rewards loyalty with protection and opportunity. In 2016, Arkady Rotenberg placed first on the Forbes list of Russian state contractors with a haul of $8.2 billion’s worth of projects.
The files show that the men around Putin have started to move some of their wealth to their children. Arkady Rotenberg, for example, has transferred ownership of a number of his secret offshore companies to his son Igor. A Reuters report indicated that the Russian leader himself was setting the example. Not long after Putin’s daughter married Shamalov’s son at the Igora ski resort, the younger Shamalov, barely thirty, managed to borrow about $1.3 billion from state-controlled Gazprombank. He used the money to acquire a 21 percent stake in one of Russia’s largest petrochemical companies. Within a year, the stake had grown in value to at least $2 billion.
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AS PUTIN AND his cronies transfer billions of dollars to their children, ordinary Russians struggle to survive. In a country rich in natural resources, Russia has a GDP per capita of about $9,000. The economic situation has forced many Russians to seek work abroad, people like Vladimir Kraevoy, a sixty-three-year-old machinist. In 2011, Kraevoy joined the crew of the Russian cargo ship SS Ross. He signed a six-month contract that paid him $3,000 a month—a small fortune for most Russians.
The Ross was owned by the Damelo Group, a BVI company created by Mossfon in 2004, through an intermediary in the United Arab Emirates. According to Mossfon’s files, through this offshore company and others, four Russians owned the Ross and several other ships. They added an additional layer of secrecy by shuffling the registration of their ships among small Pacific island nations like Tuvalu and Kiribati, which required little information or regulation for the ships that flew their flags.
Instead of economic opportunity, Kraevoy found himself a prisoner aboard a slave ship. The captain of the Ross stripped Kraevoy and the other crewmen of their identification documents. The ship itself had no air-conditioning. The sailors baked as it sailed through the Persian Gulf. Vermin infested the cabins. Food and water were scarce, soap nonexistent. The captain physically abused sailors who complained and refused to pay them.
At 423 feet, the Ross was compact, with two large cranes in the middle and three enormous cargo holds belowdecks. While working on a diesel engine in the stern, Kraevoy took a bad fall. Despite docking at several different ports, the captain denied his request to seek medical care. Instead, he forced Kraevoy to fulfill his duties, including turns at night watch. Within a month, the machinist was dead. Another crewmate, Edward Bordachenko, went missing from the ship after complaining to the Russian Seafarers’ Union about the conditions aboard the Ross. His body was never discovered. Bordachenko’s wife is convinced her husband was thrown overboard. When the captain refused to pay the rest of the sailors, they managed to escape and sought refuge at the Russian embassy in Kuala Lumpur.
Russian police issued an arrest warrant for the ship, but the owners simply changed its name to MV Nerei and continued sailing. The men also owned, through a separate Mossfon company, the SS Veles. This ship they abandoned in the Philippines, stranding a crew that included twelve Russians, eight Indians, and one Ukrainian, without paying them for their work. The owners declared bankruptcy and walked away from the company.
In May 2012, Russian prosecutors filed charges against two of the owners, Vladimir Bobrov and Gleb Klokov, for “use of slave labor with the threat of violence” and “slave labor, which entailed the death of a person.” The men were detained but to date have avoided trial or prison.
8
THE ART OF SECRECY
Just as Switzerland excelled at stashing the money of foreigners in its banks, the alpine nation performs a similar service for art. The art trade in Switzerland is a multibillion-dollar business. At its center is the Geneva Freeport, more than 600,000 square feet of storage space in an industrial area west of the city. There, in the main complex, behind security fencing, stands a row of multistory gray-red warehouses. They contain approximately 1.2 million pieces of art, everything from Roman antiquities to an estimated one thousand Picassos. Together the goods inside the Geneva Freeport are conservatively valued at more than $100 billion. Unlike a museum, nobody ever sees all these treasures together. They are locked away in vaults, the contents of which, in many cases, are known only to their owners.
For another layer of anonymity, one can, as many Freeport customers do, create an offshore company based in the BVI or a similar secrecy jurisdiction, and rent a vault under the company name. In Switzerland, there is no obligation to disclose the beneficial owner of an offshore company. The Freeport will not ask for the identity of the owner behind the company. Yet it is the financial benefits of the Freeport, even more than the secrecy, that draw people to this drab, visually unappealing setting. As long as the art resides within the Freeport, it is tax free. One can buy a painting at auction in New York, ship it to the Geneva Freeport, and no government will collect a cent until it leaves the confines of this concrete tax haven.
While the Geneva repository is the oldest, other freeports specializing in art can be found in Luxembourg, Monaco, Singapore, Beijing, and Delaware. They are popular with the wealthy and the unscrupulous. In 2016, Italian police pried open crates in the Geneva Freeport that had sat for fifteen years in a vault rented by an offshore company. Inside they found a priceless collection of looted Roman and Etruscan artifacts stockpiled by a bankrupt English art dealer sentenced to jail for lying about his assets in court. Authorities fear there are more such cases waiting to be revealed. There is no way to know for sure, as inventory is not consistently tracked.
The freeports do not stop at merely storing art. Sales are conducted within their walls as well. Sometimes, the art simply shifts from a seller’s vault to a buyer’s and cash is transferred
between the bank accounts of shell companies. The art itself never leaves the premises.
Government officials around the world fear this may allow for money laundering. Conceivably money launderers could create fictitious sales between separate offshore companies with the same owner. The companies would then buy and sell items within the freeport at an inflated cost to give the extra cash a clean provenance. Transactions could even involve items that do not actually exist, with the freeport providing a patina of legitimacy to the arrangement. Whether these practices occur and with what frequency is unknown.
For actual art transfers, an entire business has developed to allow participants to remain anonymous and minimize fraud. Firms that operate within the freeports hold the purchase price in escrow and act as custodians of the work of art. At the right moment, they oversee the exchange, ensuring that neither party gets burned. Some companies even have laboratories within the freeport where they will test the authenticity of a painting or perform restorations.
The freeports are only one example of the secrecy upon which the art business thrives. Worldwide the art trade is valued at $30 billion annually, and more than half of all art sales are private. Every participant in the business finds the secrecy world useful. Anonymous companies help art dealers, who connect buyers and sellers, to avoid red tape and paperwork. Dealers trade in nonpublic knowledge as much as the art itself—what is for sale, who wants to buy, and for how much. Hiding ownership allows the middlemen to control that information. Auction houses such as Christie’s and Sotheby’s benefit from secrecy as well, obscuring the identity of those behind sales to increase bids or guarantee prices. Finally, the buyers and sellers themselves employ offshore companies to hide their activities from everyone from the taxman to relatives to business associates.
Beyond secrecy, there are multiple ways tax havens, freeports, and anonymous companies are useful to the art business. Basing operations in a tax haven makes financial and logistical sense because a single painting can transit multiple countries from purchase to destination. It also provides a degree of protection in case of litigation. Freeports offer climate-controlled state-of-the-art secure storage and minimize insurance premiums. An expensive painting hanging at home costs more to insure.
Mossfon’s files contain some of the biggest names in the art business, customers who used the firm’s companies to buy and sell art, often to move it to freeports. The amount of identifiable art activity in the files is likely only a fraction of what actually took place. The vast majority of companies Mossfon sold had little contact with the firm afterward. Since no public registries exist of freeport owners, it is difficult to know how many Mossfon companies kept valuables there or were otherwise involved in the art business.
Art has always been a convenient way to store and transport value. When banks fail and blood runs in the street, people grab their art and jewelry before they flee. A small painting worth millions can fit in a suitcase. Art is also a storehouse of emotion in a way that cold cash can never be. More so than yacht purchases or real estate acquisitions, many of the art deals found in the Mossfon files come freighted with messy family dramas and the burden of a tumultuous personal history.
The freeport concept itself dates to the nineteenth century, when so-called bonded areas were utilized for temporary storage of commodities such as grain, tobacco, and industrial goods. They gradually transformed into tax-free treasure troves to house art, antiques, jewelry, watches, and vintage wine for the uberwealthy. Today more than 65 percent of the articles stored in the Geneva Freeport are art and antiques.
The switch from dry goods to luxury items parallels a behavioral shift in art collecting that accelerated with the emergence of an empowered and mobile global elite. In the past, art patrons donated their collections to museums in the places where they lived. National tax systems provided incentives for such donations—for example, through charitable tax deductions. Today, the wealthy are less tied to a single location or tax regime. In 2014, 76 percent of collectors purchased art as part of an investment strategy. Works of art that once decorated mansion walls as showy status symbols or as the joyful passions of knowledgeable collectors serve instead as investments to be hoarded, often in secret, while their value increases. This change in the art business is revealed in the Mossfon files.
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THE LARGEST SINGLE collection of Picassos in private hands, outside of the Picasso family, is believed to reside in the Geneva Freeport. The paintings belong to the Nahmad family, Syrian Jews who pioneered the commodification of fine art, buying paintings and holding them in the Geneva Freeport until they reached an attractive sales price. The family was also a longtime Mossfon customer, dating back to the days of Antoni Guerrero’s Geneva office in the early 1990s.
The Nahmads made their first fortune speculating on currencies. Their conversion into art entrepreneurs began in the 1950s, led by Giuseppe Nahmad, the oldest of three brothers. Giuseppe, known as Joe, owned apartments in Rome, Milan, Portofino, and London, the walls of which he filled with fine art. It was part of an extravagant and acquisitive lifestyle that prompted his friends to nickname him “Farouk,” after an ostentatiously wealthy Egyptian ruler whose collection of everything from rare coins to luxury cars was legendary.
Joe Nahmad was willing, on occasion, to push the limits of the law in pursuit of his business interests. He was arrested, briefly imprisoned, and fined in Italy in 1957 for possession of $70,000 worth of stolen British pounds. Four years later, tax officials investigated him for failing to pay taxes on $92 million in stock market trades. Experiencing a cash crunch in the early 1960s, Joe had his younger teenage brothers, Ezra and David, sell some of his art. The two were so successful, they started buying paintings cheaply in Paris and flipping them in Milan, where they fetched higher prices. It was the launch of a business model.
In the ensuing years, the three brothers gained a reputation for sharp elbows and creative financing. In the process, they put together a billion-dollar collection and became pillars of the global art market. Auction houses approached them for paintings to help fill out their sales. When the market dipped, the Nahmads would buy, keeping prices stable. Aside from a sexual harassment complaint and a grandson’s involvement in an illegal Russian gambling ring run out of New York’s Trump Tower, the family largely avoided controversy—that is, until accusations over a painting stolen by the Nazis dragged them into court, and the Panama Papers exposed their secret business activities to a global audience.
The brothers registered their first Mossfon company, Swinton International, in 1992, but they were likely using the offshore world well before then. Swinton was followed by International Art Center three years later, though this company may have existed previously in another jurisdiction. A document in the Mossfon files mentions a company with the same name purchasing the pastel Danseuses by Edgar Degas in October 1989.
Initially, the brothers owned International Art Center through bearer shares, but in 2001 a resolution signed by Mossfon’s nominee directors issued one hundred shares in the company and granted them to Joe. However, both companies operated jointly, with all three brothers participating. At different times David and Ezra had power of attorney over the companies’ bank accounts at the Swiss bank UBS and at Citibank. In 1995, Swinton International authorized David to sell five paintings, including a Matisse and a Picasso. Several of the paintings subsequently went to auction at Sotheby’s, with the catalog identifying them as from a private collection.
The following year, the Nahmads, through International Art Center, purchased an oil painting at auction at Christie’s for $3.2 million. The 1918 painting by Amedeo Modigliani, known as Seated Man with a Cane, is a portrait of a dapper gentleman with a thin mustache, sporting a stylish hat. The man appears to be Georges Ménier, the scion of a dynasty of Belgian chocolatiers, who was chummy with the artistic elite of the day. As with many of the particulars involving the painting’s past, even this fact is in dispute.
The Christie’s catalog entry detailing the provenance of the painting was sketchy and should have raised a red flag. It began with an anonymous sale sometime between 1940 and 1944. During this period, the Nazis and their collaborators, particularly in France, were busily despoiling Jews of their art collections. Jews like Oscar Stettiner, an art dealer who fled Paris to escape the German invasion. The collection he left behind was seized and sold for the benefit of the Nazis. Among the paintings appears to have been Seated Man with a Cane.
Immediately after the war, Stettiner filed a claim to begin the process of recovering the painting, only to die a few years later with the petition still pending. In the meantime, the work had been purchased by an unscrupulous gallery owner. Christie’s provenance didn’t have that part of the story. Instead, the auction house claimed that the portrait went to a J. Livengood. He passed it down to his descendants, who finally offered it for sale in 1996 through Christie’s. In fact, Livengood was the husband of the gallery owner’s daughter and was too young to have purchased the painting as claimed by Christie’s.
After buying the work, the Nahmads tucked the Modigliani away in the Geneva Freeport to appreciate in value. The painting only left their vault twice to be exhibited and once in 2008 for an aborted auction where it failed to fetch the baseline price set by the Nahmads. Years after the brothers bought the painting, Mondex Corporation, a Canadian-based art recovery outfit, stumbled upon the backstory of Seated Man with a Cane while researching another work of art.
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