Confusion Reigns in Developing Art Case
In the murky world of art, there is a buzz right now about the strange case of Vladimir Scherbakov, a Russian oligarch and former Soviet era politician. He has allegedly fallen victim to a price rigging scheme strongly reminiscent of the infamous Bouvier Affair. In fact, it now seems there could be more links to Bouvier than was at first thought.
Several media outlets have published a list of some of the paintings that were in Scherbakov’s collection. They include: “Le Rio de la Salute” by Claude Monet; “Naked Man and Woman” by Pablo Picasso; “Summer Harvest Time” by Breugel the Younger; “Woman Dreaming of Escape” by Joan Miró; and Francis Bacon’s “Study From the Human Body After Muybridge”.
Yet, impressive as the collection sounds it doesn’t seem to have made Scherbakov happy.
For a Few Hundred Million Dollars More
Have you ever fallen for deception? Imagine you are a billionaire looking for a respectable hobby. You develop an interest in art and decide to create a collection. Naturally, you are aware of the dangers ahead, such as forgeries: most notoriously, convicted forger Wolfgang Beltracchi sold his own paintings as if they had been created by acclaimed masters.
But you try to take have all necessary precautions An amiable art market insider is more than willing to help for a humble commission. Your collection grows and everyone seems to be happy… well, up until the point you realize you have been defrauded of several hundred million dollars.
That is, more or less, the predicament Scherbakov and his son Sergey face.
The former is a wealthy industrialist hailing from the Kaliningrad region of Russia and currently residing in Switzerland. Once a high-ranking Soviet government official, Vladimir Scherbakov made his fortune in the auto-manufacturing business.
According to the court papers that the Swiss press has referenced: at some point, the Scherbakovs approached Thierry Hobaica, a French-born Swiss, to facilitate the creation of the collection. Hobaica, who had previously been employed by Galerie Jan Krugier, Ditesheim & Cie, became an independent art dealer after the death of his patron Krugier in 2008. He was eager to offer his services to the Scherbakovs for a 5% commission fee from each purchase. Such a scheme initially sat well with his employers as it relieved them of any necessity to personally engage in talks and draw unwanted attention.
Again, according to the published reports: sometimes the buyers would find the price offered by Hobaica excessive and ask him to negotiate a reduction. The intermediary did his best to oblige and often came back with a better deal. He even proposed to give up his entire commission on several occasions.
While such generosity may have touched the hearts of his customers, they clearly had no idea the selling prices were grossly inflated, and the contractually-agreed commission was a mere trifle Hobaica would gladly sacrifice to make a more lasting impression.
However, irregularities in Hobaica’s business model certainly made the collectors wonder, especially his extensive use of front offshore companies such as Servin International, New Creation Company Ltd, Simon Lee Gallery Ltd, Edouard Malingue Fine Art Ltd, United Trade Development Company Ltd, East Pacific Development Company Ltd, Hamilton Galleries Ltd, Egerton Management Ltd and other entities predominantly based in Hong-Kong. Hobaica kept saying he had been using those not for the purchase of art pieces, but just as a “smokescreen” to protect the real acquirer. When he stopped all transactions through Servin International, he failed to provide an adequate explanation as to why. The Scherbakovs grew more and more suspicious until they finally saw, so to speak, the bigger picture.
In 2015, an official complaint was filed in Geneva. Since the collectors refuse to talk to the press, the exact amount of damages they are seeking remains unknown. The collection, totaling 40 artworks, has an estimated value of $607 million.
Hobaica, who denies any wrongdoing, claims he only pocketed $31 million over the course of his employment as the Scherbakovs’ agent. Of course, the actual figure may be several times higher.
A Study in Deception
The plaintiffs appear to have a case here. Three years ago, a German court ruled in favor of the buyer in a similar situation. A certain Achenbach was hired by a gallerist named Albrecht to purchase 21 artworks on his behalf. Again, the intermediary’s commission was a fixed 5%. But Achenbach, having paid only €24 million for the paintings, issued a €33.6 million invoice to his client. The court stated that the intermediary had a legally binding obligation to inform the collector of the purchase’s actual circumstances and that he was not entitled to realize capital gains. Achenbach was found guilty of fraud and mismanagement.
Still, there is much more to the Scherbakov affair than meets the eye. As talented and capable as Thierry Hobaica may be, a number of reporters and analysts have speculated that he may be just a straw man.
The Swiss media and other observers including well known chroniclers of Russian oligarchs, have suggested that the real mastermind pulling the strings could be Yves Bouvier himself.
According to court papers seen by Tribune de Geneve Bouvier is the owner of many offshore entities, which Hobaica used in his dealings with the Scherbakovs. At a certain point, Hobaica even formally recruited him as a fiduciary. The entire Scherbakov collection was stored in Bouvier-owned specialized facilities.
Bouvier himself maintained a relatively low profile until a legal battle with yet another Russian billionaire Dmitry Rybolovlev, the controversial former potash mogul, thrust him into the spotlight in 2015.
For many years, the Swiss-born Bouvier was primarily known as the operator of his family business Nature Le Coultre, which specializes in the transportation and storage of precious goods and works of art. He met Rybolovlev in 2002 and from 2003 to 2014 acted as his art advisor and agent. According to the Russian’s claims, Bouvier enjoyed a 2% commission from every purchase. During a seemingly fruitful partnership, they managed to put together a truly magnificent collection of 37 masterpieces. The highest-priced works include Gustav Klimt’s “Water Serpents II” (for which Rybolovlev paid $183.8 million), Leonardo’s “Salvator Mundi” ($127.5 million), Paul Gaugin’s “Otahi” ($136.5 million), and Amedeo Modigliani’s “Nude Lying on a Blue Cushion” ($118 million). It was precisely the Modigliani nude that spelled an abrupt end to their collaboration. As reported by Forbes, in 2014 Rybolovlev met Sandy Heller, an art advisor to another prominent art collector, who mentioned that his client had recently sold the painting to a “mystery buyer” for $93.5 million, alleging he did not know the buyer was Bouvier. As Rybolovlev knew too well he had paid $118 million for the nude, he immediately realized what had been going on over the past ten years.
The disgruntled billionaire launched litigation against Bouvier in Switzerland, Monaco and other jurisdictions. Rybolovlev claims the art-savvy Swiss scammed him of more than $1 billion. Sotheby’s, one of the world's largest brokers of fine art, jewelry and other collectibles, has been accused of aiding and abetting Bouvier in the price-rigging scheme. Rybolovlev has alleged that Bouvier originally paid Sotheby’s $80 million for the da Vinci, but charged him $47.5 million more, a mark-up of almost 60%. Sotheby’s had “helped Mr Bouvier to mislead and induce our clients,” the Rybolovlev lawyers told Bloomberg last December, “into purchasing artworks at grossly inflated prices relative to the prices at which Mr Bouvier had obtained the works from Sotheby’s or other sellers.” More than a third of the artworks Bouvier sold to Rybolovlev, including da Vinci’s “Salvator Mundi”, were first traded to Bouvier by Sotheby’s. When Rybolovlev resold the works – many at substantial losses except for the da Vinci – the net financial result was a loss to Rybolovlev of $13.8 million. The initial sellers of the Leonardo masterpiece, who discovered in the press the amount paid by the Russian for the painting, now consider themselves cheated of $47.5 million. The house claims it had no idea that when it traded with Bouvier he was re-selling the same works immediately to Rybolovlev at a 50% mark-up or more.
Bouvier maintains he acted as an independent dealer free to set his own price and the 2% was not the deal commission. Bloomberg reports one of Bouvier’s lawyers as claiming the 2% covered “administrative costs, including insurance, transport and condition reports and, in some cases, escrow accounts between down payment and final payment.” “I will be clear,” Bouvier told The New Yorker. “If I buy for two and I can sell for eleven, I will sell for eleven.” One has to wonder if these were the exact words he had said to Rybolovlev before their partnership started.
A Jack of All Trades
Interestingly, Bouvier’s range of activities is not limited to art and antiques. The other businesses he has invested in include luxury apartment developments, as well as soft-drinks, precious metals and even helicopter companies. These have either been sold or are in bankruptcy. Art galleries in Singapore and Europe, with which Bouvier has been associated, have also gone under. He sold out of his inherited family business Nature Le Coultre in 2017. Perhaps his termination of activities in his native Switzerland is no coincidence as he is currently under investigation for tax evasion by Swiss authorities. Bouvier could be liable for as much as $145 million in back taxes including debts on proceeds from the sales of artworks. Bouvier, an official Singapore resident since 2009, allegedly continued to live in his home country while enjoying undue tax breaks.
The parallel investigations of Bouvier have uncovered a network of more than 170 entities in more than a dozen jurisdictions, through which he is accused of moving the profits he made from his art dealings with his clients. The so-called “freeports” are reported to be Bouvier’s true passion. These are “artistic hubs” grouped into specialized facilities that offer services and rental facilities to art collectors, museums and companies. His freeport business started in Geneva many years ago and expanded into Singapore in 2010 and Luxembourg in 2014. Bouvier’s associates in these businesses are Alexandre Camoletti and Jean-Marc Peretti. Camoletti was identified as one of the lawyers of Bouvier’s freeport company in 2015. Peretti, a Frenchman of Corsican origin, and Olivier Thomas, another Bouvier associate, were once accused of stealing two Picasso paintings, subsequently sold to Rybolovlev, from the artist’s daughter, Catherine Hutin-Blay. The New Yorker article quotes a colleague of Bouvier as saying, “...to build freeports you need to be a billionaire... Rybolovlev was the billionaire whose money was building the freeports.” Since the cash river from the Russian mogul ran dry, Bouvier’s pet project has reportedly not been doing too well. Sources in Luxembourg say the freeport is struggling to break-even with high costs and a heavy bank mortgage.
EU Parliament Suspects Money Laundering in Two Freeports
A European Union parliamentary investigation of the two freeports in Europe, Geneva and Luxembourg, reported late last year that “lack of control” at the freeports is “enabling money laundering and untaxed trade in valuables.” The two deputies who led the investigation between July 2016 and December 2017 are Werner Langen (Germany) and Ana Gomes (Portugal). They issued their report to the European Parliament on November 16. The report concluded: “storage facilities of this type could be used to launder money as they circumvent international transparency rules.”
As the investigation by prosecutors, police, and journalists in the USA, Switzerland, Luxembourg, and France progresses, new names of agents, accountants, and managers of the offshore art sales system involving Bouvier continue to surface. When all the dots are connected, the Bouvier Affair may go down as the biggest deception the art market has ever seen.