by Don Thompson
Beginning in 2013, Meissner’s son Konrad—then seventy-six—attempted to reclaim six paintings seized from his father. The most significant was an oil-on-wood, Four Chestnuts (1705), also known as Still Life with Chestnuts, a still life by Dutch artist Adriaen Coorte (1665–1707). In support of his claim, Konrad offered a photograph of the painting when it was hanging in the Meissner home before the Stasi seizure. In 1988, Kunst & Antiquitäten consigned Four Chestnuts to Christie’s Amsterdam; the work sold for $77,000. The buyer, Swiss dealer David Koetser, resold it to New Yorker Henry Weldon shortly thereafter for $145,000.
In 2013 Weldon’s widow, June, petitioned a Munich civil court to uphold her title to the Coorte, arguing that her family had purchased it in good faith. At that point the painting’s value was estimated at $2.2 million. Weldon died in 2014; her heirs were pursuing the case as this book was being written.
Weldon’s lawyer Anthony Costantini offered the argument that the Stasi seizure was a legal action by a sovereign government. The action might be repugnant, but under East German law it was legal. Whether Christie’s, or Koetser or the Weldons knew of the seizure—and June Weldon said she and her husband did not—was irrelevant. The seizure “was done … as a tax forfeiture proceeding.” Costantini said, “This is not like a Nazi like Goebbels taking something and placing it on his wall.”69
So compensation for owners or their heirs of Stasi-seized art is not assured. Some museums and individuals have voluntarily returned about 1,800 of the paintings to claimants. For the 8,000 remaining paintings and most of the other objects, recovery has appeared unlikely.
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Then there are five decades of art seizures by the Cuban government. That government maintains that on the day it took power in 1959 it nationalized all private property in Cuba, and that at that point everything belonged to the state. The seizures began immediately; “people’s street courts” were set up to try citizens who had associated with the previous regime. Some were permitted to avoid execution (or trial) and board an exile ship to Florida if they first signed over their homes, businesses and personal possessions to the new state. In later years paramilitary groups raided Cuban homes and seized art and other valuables.
The best of the twentieth-century seized art went to Cuba’s museums, notably to the Museo Nacional de Bellas Artes in Havana. Jesús Rosado Arredondo, former registrar of the Museo, reportedly claimed that 60 to 70 percent of its fifty thousand artworks came from confiscations after the revolution. Other seized paintings were hung in state buildings or in the homes of government officials. Some were sent to the West for sale, mostly to Europe and usually consigned to auction by Cuban embassy officials.
After the Soviet Union cut its support to Cuba in 1988–89 there was a time of austerity which Cubans call the período especial. This brought an increase in sales of seized art. Most was sold in Europe. One consignment was a Jean-Léon Gérôme painting, Entry of the Bull (1886), from the Museo. In November 1989 it was sold at Christie’s London for £330,000 ($504,000). The auction catalogue included the notice, “United States citizens are advised that the sale and purchase of this lot may contravene US regulations in regard to property emanating from Cuba.”
Some art was sold to tourists or diplomats through state galleries in Havana. In 1992, while my son Neil and I were on vacation in Cuba, we wandered into one of these state-run enterprises where there was a large and spectacular René Portocarrero on offer for $40,000. This was well below its market value in the West. I thought at the time the asking price must have reflected a concern as to authenticity.
The most publicized attempt to recover seized Cuban art had the Memorial Library at the University of the State of New York as a plaintiff. The library promotes education about the Holocaust. In 2016 it was seeking to recover works taken from the Havana home of Olga Lengyel, an Auschwitz survivor who passed away in 2001 and bequeathed her estate to the library. She had works by Picasso, Degas and Van Gogh, some which had not been seen for fifty years. Estimates of their 2016 value ranged from $200 million to $500 million.
Lengyel was born in Hungary, daughter of industrialist Ferdinand Bernat-Bernard, who assembled his art collection in Paris in the 1930s. In 1944, Lengyel and her family were arrested and sent to Auschwitz-Birkenau; she was the only family member to survive the camp. A book Lengyel wrote after the war about her experiences, Five Chimneys: A Woman Survivor’s True Story of Auschwitz, was thought to be the basis for William Styron’s novel Sophie’s Choice and the 1982 movie of the same name.
Lengyel moved to New York, became a US citizen, then moved to Havana in 1954. In 1960 she fled the Cuban revolution and returned to New York. She submitted a claim for the property left in her apartment, but received no response. If any of the art is ever moved outside Cuba, the library intends to claim title.
A longer-running example of recovery efforts comes with the story of Cuban art history professor Manuel de la Torre. His collection was seized after he left Cuba. In 2004, at age eighty-seven, he attempted to retrieve some of it, specifically La Hamaca (1941), a painting by Cuban artist Mariano Rodriguez. In 1971 the work had been sold to Spanish diplomat Jesús Navascués, who was posted to Havana.
After Navascués’ death in 1997, his family consigned the painting for sale at Sotheby’s. La Hamaca was purchased for $145,000 by New York art collector Violy McCausland. In 2001 she consigned the work to Sotheby’s, with a published estimate of $150,000 to $200,000. Just before the auction, de la Torre saw an image of La Hamaca in a Sotheby’s advertisement. He claimed ownership and then sued.
Sotheby’s cancelled the auction and repurchased the painting from McCausland at the original price. The auction house claimed it had no evidence that the painting was stolen or acquired illegally by Navascués. De la Torre’s son said Sotheby’s offered to return the painting only on the condition that he and his relatives not discuss the case with representatives of the press, and that they grant Sotheby’s exclusive future rights to auction the painting. The family refused.
There are two versions of the resolution of the case. One is that the painting was returned to de la Torre’s family in 2005, after his death. The second is that Sotheby’s made a cash payment to the family.
At the same time that Manuel de la Torre was suing Sotheby’s, the Fanjul family—with a similar claim over the Joaquín Sorolla y Bastida painting Castillo de Málaga (1909)—tried a cute ploy. They filed a complaint with the US State Department citing the Helms-Burton Act, which provides penalties for executives of companies that traffic in confiscated Cuban property claimed by a US national. The family claimed that Sotheby’s and its executives had established a pattern of “trading with the enemy” through their sales of expropriated Cuban property. The outcome was quick. Sotheby’s settled with the Fanjuls, and made a public commitment to not sell any nationalized Cuban artworks. Immediately after, Christie’s made the same commitment.
In early 2015, with improved diplomatic relations between the US and Cuba, it was hoped the Cuban government might negotiate compensation for confiscated assets. This happened after eastern European countries abandoned Communism. However, Cuban officials simply restated their offer that claimants could apply to a Cuban court for restitution. No one viewed this approach as hugely promising. That left pending expropriation claims by six thousand us, Canadian and European nationals whose assets, or those of their families, were taken after the revolution.
The US government has told Cuban Americans that it cannot demand compensation for victims who were not US citizens at the time of the seizure. The difference between Cuban claims and those for Nazi-looted art is that no Western country ever recognized the Nazis as a legitimate government. The London Declaration of 1943 declared as invalid all transfers of property made under duress from the Nazi regime. Cuba had diplomatic relations with the United States at the time most art seizures took place, and the us government, under what is called the “Acts of State” doctrine, considers expropriation of proper
ty from Cuban citizens to be legal. The exception is expropriation where the art or other goods were owned by anyone who was at the time a us citizen.
Any such state-owned Cuban property entering the US in a cultural exchange and not given prior government immunity is subject to seizure. In 2016, the Bronx Museum of the Arts applied for a grant of immunity for art loaned by Cuban museums for an exhibition. The museum hoped for a Presidential Order granting immunity from any seizure of the art. It was determined that the president lacked authority to override an embargo affirmed by Congress.
Whether taken by the GDR, Cuba or any other government, there are tens of thousands of works of confiscated art. A purchaser must exert caution when reviewing provenance. Looted art may come with falsified provenance documents or there may be gaps in provenance—in 1933–45 for European art, or after 1960 for Cuban art. Art is like other property with regard to the need to research ownership, except that its mobility and value makes the effort more necessary.
CHAPTER FOURTEEN
FREEPORTS AND TAX PLOYS
“I doubt you’ve got a piece of paper wide enough to write down all the zeros.”
—Nicholas Brett of AXA Art Insurance, on the value of art stored in the world’s freeports70
“Art is transportable, unregulated, glamorous, arcane, beautiful, difficult … Its elusive valuation makes it conducive to extremely creative tax accounting.”
—Nick Paumgarten, art journalist71
ART COLLECTORS WITH ACCESS TO VIP LOUNGES AT THE ART BASEL FAIRS IN Basel, Miami or Hong Kong might wonder why the Luxembourg Freeport or the Singapore Freeport pay to become major fair sponsors. Each has a booth alongside more obvious sponsors UBS (Union Bank of Switzerland), BMW and Ruinart Champagne. Collectors also wonder what becomes of the high-priced art sold at fairs or at evening auctions. Often no publication reports either purchaser or destination. The answers to those questions are related.
Close to the main runway at Findel airport in Luxembourg is a warehouse that could be an Amazon Fulfillment Center. There is a private road linking the aircraft taxiway to the building. This is the Luxembourg Freeport. “Free” refers to Freeport users being exempt from local customs inspection, duties and taxes.
The Luxembourg Freeport, the one at Changi airport in Singapore, and others in Switzerland and China are repositories for paintings, precious metals and data storage. Apart from private collectors, art-storage clients include auction houses, museums, galleries and art investment funds. Storage fees are not published. At the December 2014 Basel Miami fair, representatives of the Singapore Freeport told me it would cost $7,000 to $10,000 a year for a small space adequate for ten paintings.
The early version of the freeport was the bonded warehouse. This was used to house commodities and manufactured goods in transit to other countries. When applied to bonded warehouses, a tax exemption was valid only for goods making a brief stop before reshipment. In today’s freeports there is no time limitation. A painting can be flown in from another jurisdiction and stored for decades without attracting taxation, so long as it does not enter the host country.
If customs officials require freeport users to document items moving in or out, it is usually only with a general category code—“artworks,” “jewellery” or “gold.” The only obvious concern is with storage of drugs or weapons. The former are identified by sniffer devices. Weapons are more difficult to detect without inspection, but the size and weight of the shipment may cause suspicion. Each freeport offers multiple layers of security, with access to rooms by biometric reading. Firefighting involves sucking oxygen from the air while releasing inert gas that does not damage art or other valuables.
Luxembourg’s government says its freeport scheme is an important component of its efforts to support a population of 576,000 with an economy based in large part on the provision of unique financial services. Those include hosting close to 150 banks from twenty-seven countries, and being the registered tax headquarters for 40,000 companies—one for every eight citizens. The Deloitte Touche consulting firm team that negotiated the Luxembourg freeport arrangement offered the justification that the freeport would facilitate competition with London and New York in art finance, which involves corporate or personal loans with paintings as collateral.
Prospective buyers view art in a private gallery in the freeport. They finalize a purchase using electronic money transfer, then move the art from the seller’s storage area to the purchaser’s, or take it with them. Seller and buyer can arrive and depart without ever having technically entered Luxembourg. Sales or profit taxes are due in the destination country or the residence countries of the purchaser and seller, with self-reporting. Swiss and Singapore banks exchange funds transfer information with other countries, but movement of goods into or out of freeports is not covered under international agreements.
The value of goods stashed in freeports is certainly in the hundreds of billions of dollars. Consider the size of the structures: the Luxembourg Freeport is the size of eleven football fields; Singapore’s, seven fields; Beijing’s, eighteen; Geneva’s, ten. Most have expansions underway or planned. All except Beijing were close to full at the time of writing. When giving talks, I used to quote the accepted estimate that there were “a million” quality artworks stored in the major freeports. However in May 2016 a New York Times article quoted a Swiss audit estimate that there were 1.2 million artworks in the Geneva Free Port alone.
There are lots of reasons other than tax considerations to store art in a freeport. Having run out of wall space in the owner’s several homes is one. Whatever the motive, even modest estimates of the amount of art in storage raise the concern that were any substantial portion to suddenly be offered for sale, it would be more than enough to trigger an art market implosion.
One major collection that has been publicized as stored in a freeport is that of the Nahmad family. They operate two galleries in New York and two in London. The brothers reportedly have 4,500 artworks valued at $3 billion in the Geneva Free Port. Another such collection is (or was) that of the Wildenstein family, fifth-generation operators of the Wildenstein Gallery in Paris, New York and London. Following the death of the father, Daniel Wildenstein, French tax authorities announced that among the Wildenstein assets uncovered at the Geneva Free Port were nineteen Bonnard paintings valued at €65 million ($80 million).
It was assumed that the Geneva Free Port always enjoyed extraterritorial status. This assumption was dispelled, initially with the Wildenstein search, for good in April 2016 when Swiss federal police raided the freeport and seized a Modigliani estimated to be worth $35 million, but with disputed ownership. The painting, Seated Man with a Cane (1918), was owned by David Nahmad through a Panamanian company called International Art Centre. It was the subject of litigation in New York Supreme Court over a claim that it had been looted by the Nazis during the Second World War, and that the rightful owner was Phillip Maestracci, grandson of the previous owner.
The Freeport of Culture at Beijing’s Capital airport opened in 2014. It comes with an interesting backstory. When the Beijing facility was proposed, a similar freeport was planned for Moscow. Clients reported that they were comfortable with security and confidentiality in China, but would not be in Putin’s Russia. The Moscow expansion was shelved. Other tax-free warehouses have since been planned or constructed in Shanghai, Chengdu and Xiamen.
Art stored in freeports creates a dilemma for insurers. Art is insured on a global basis, and insurers are not always informed when works are moved. Some insurers, concerned about a plane crash rather than theft, ask clients to report the identity and value of art they store in freeports.
At least one freeport (I was sworn to secrecy as to its location) may offer a quite different service. It is developing a proprietary blockchain software system to register art ownership and provenance. Blockchain is the technology developed to support Bitcoin, but its importance is considered greater than that of the currency. Think of a blockchain as an e
ncoded ledger that records changes of ownership of an asset, with records spread over several computers and protected from tampering. It is a distributed account book that only authorized participants can access. It is not a blue-sky idea: Microsoft offered a blockchain service in 2015. Blockchains are considered secure; despite thousands of attempts by governments and individuals, Bitcoin has been successfully hacked on only two known occasions.
A blockchain would permit art in a freeport to be listed, along with its provenance and documentation, and sold, including overseas money transfer, without either seller or purchaser ever travelling to the freeport. The proceeds could be stored as a “virtual currency” in the blockchain, sort of an art-Bitcoin, for use in future transactions. Or the proceeds could be used to purchase gold stored in the freeport. If several freeports collaborated in the same blockchain, art could be transferred among them. The possibilities are intriguing.
How does someone wanting to acquire or dispose of art anonymously do so? One requirement is an agent, usually a lawyer who is legally entitled to offer client confidentiality. The hypothetical situation that follows is an amalgam of possibilities described to me by specialists, and information from testimony in a Florida hearing where the head of the wealth management division of USB was indicted for assisting Americans he met at Basel Miami to launder money. (The indictment was dropped following an agreement between the US Internal Revenue Service and the Swiss government.)
Say we have an eastern European buyer, Ivan, who wants to purchase a $40-million Warhol. He considers it not a good investment in terms of rate of return on capital, but as a store of value, part of a portfolio of assets that could be easily and quickly liquidated if required. For political or tax reasons, Ivan desires to keep both the transaction and the source of funds confidential. Ivan retains a Swiss lawyer, Gerhardt, to arrange the transaction. Gerhardt retains art dealer Heidi to bid on the Warhol at Christie’s London. Heidi knows only that the bidder is represented by the Swiss lawyer. Gerhardt provides Heidi with a letter of credit guaranteed by a private Swiss bank. She presents the document to Christie’s and indicates her intention to bid.