Art scandal threatens to expose mass fraud in global art market

CNBC gets arty ahead of Art Basel Hong Kong
CNBC gets arty ahead of Art Basel Hong Kong   

Art collectors have long complained of being overcharged or underpaid by dealers in the famously opaque art market. Now, a scandal unfolding in Monaco and Singapore could shed light on the global market for multimillion-dollar art and possible manipulations by megadealers.

The case involves Yves Bouvier, the Swiss businessman and art dealer who operates giant storage centers in Switzerland, Luxembourg and Singapore that hold billions of dollars of art for the global rich. Bouvier was arrested in Monaco in February as part of an investigation into fraud. The case focuses on several works purchased by Russian billionaire Dmitry Rybolovlev, who claims Bouvier inflated or misrepresented prices by millions of dollars.

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On Thursday, a Singapore court ordered a freeze on Bouvier's assets, forbidding him from removing any assets or disposing of any assets outside of Singapore, according to local media reports.

Dmitriy Rybolovlev
Valery Hache | AFP | Getty Images
Dmitriy Rybolovlev

According to Forbes, one of the pieces was an Amadeo Modigliani sold by hedge-fund billionaire Steve Cohen. Rybolovlev bought the piece from Bouvier acting as the dealer for $118 million. Forbes said Rybolovlev later talked to Cohen's art adviser, Sandy Heller, and found Cohen sold the Modigliani to Bouvier for $93.5 million—giving Bouvier a more than $20 million mark-up, including fees.

The case also reportedly involves works by Leonardo da Vinci, Pablo Picasso and Paul Gauguin.

The Monaco attorney general's office is staying largely quiet on the case after the initial arrest. But lawyers and art dealers familiar with the discussions say the case could expand well beyond Bouvier and reach into the top galleries and billionaire collectors in New York, London and Hong Kong. It could widen to involve not only undisclosed mark-ups by dealers, but also tax fraud, global money laundering and possible bribery.

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"This is just the beginning," said one prominent art lawyer in New York who asked not to be named. "There will be a lot of big dealers and collectors involved."

Bouvier is a central player in the high-end global art market due to his large art-shipping company and holdings in storage facilities known as freeports. He is the largest client of a freeport in Switzerland, and owns freeports in Singapore and Luxembourg.

Freeports are massive, maximum-security storage sites often located near airports that allow the rich to store expensive valuables in duty-free zones. There is no customs duty payable when bringing art into the freeports and no sales taxes required when selling a work inside—taxes that could run into the millions of dollars for major works of art.

The freeports have come under scrutiny by regulators in recent years for their secrecy and tax benefits, though Bouvier has always denied that they're used for money-laundering or tax-avoidance.

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In an interview with Spears magazine, that ran earlier this year, Bouvier said the freeports solve a simple problem for today's big art collectors.

"Collectors have a problem: they buy too much," he told Spears. "They are addicts. They have space at home for one and they buy 10."

With his knowledge of the vast troves of art stored and shipped by top collectors, Bouvier also acted as a dealer, offering to buy and sell pieces for clients. He acted as the dealer for several works sold to Rybolovlev, who had been a client of Bouvier's for 10 years, according to the Rybolovlev family's attorney.

Art attorneys say that other dealers and galleries in New York also dealt frequently with Bouvier, representing possible buyers and sellers. And many collectors say they welcome a case that could provide transparency into a multibillion-dollar market that remains largely unregulated and offers little disclosure.

"Collectors have no way of knowing what pieces are really being bought or sold for," said one collector. "Maybe this case will break that open."

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