People 07-04-2015

Y. Bouvier | D. Rybolovlev: Understanding the stakes of the scandal

Yves Bouvier, the world’s largest art transporter with an impeccable reputation, has been accused of fraud by one of the world’s biggest art collectors, the highly mediatized billionaire Dmitry Rybolovlev. If the average Joe is shocked by this commission rate, then the art world is even more surprised by the unfolding facets of Yves Bouvier’s exterior professional character.


Understanding the scandal is one thing, predicting its consequences is another entirely…  

The story

THE PROTAGONISTS

Dmitry Rybolovlev, 48 years old, made his fortune by exploiting and modernizing potassium mines in the Ural Mountains which were used in the production of fertiliser via the company Uralkali. In 2007, the company was put on the London Stock Exchange and share value soared by 300% in just eight months, in sync with rocketing potassium prices. This is how Rybolovlev found himself among the world’s 100 richest. In the years that followed, he concealed his fortune from the Kremlin and his wife. Cue, divorce of the century. In 2010, when Elena Rybolovlev filed for divorce in Geneva, she realized that the majority of the couple’s assets were held in Virgo and Aries, two Cypriot trusts created “to protect [their] childrens’ future,” affirmed Dmitry. Amongst the assets was an extraordinary collection of 20th and 21st-century art. The Swiss justice system sided in favour of Mrs. Rybolovlev, granting her €3,295 billion, yet the case was appealed and remains ongoing.

To this day, Rybolovlev is a resident of Monaco and presides over AS Monaco football club of which he is a main shareholder; he continues to collect exceptional works of art.

Yves Bouvier, 52 years of age, took over his family’s transport and removals company Natural Le Coultre — established in 1983— in 1997. Bouvier specialized the company in a highly niche sector, art. He became the first leaseholder of Geneva’s Ports Francs, occupying 22% of the 130,000m² area and owns 5% of it himself. The canton of Geneva is the main shareholder of Geneva Free Ports, holding 86%.  Bouvier’s great success led him to develop his business model to Singapore, Beijing and Luxembourg, making him the world leader. Today he is the director of a fortune estimated at over €300 million, of which a substantial portion comes from another activity: selling works of art through his Hong Kong-based company, MEI Invest Ltd.

 


THE FACTS      

This is all part of a nasty surprise for Rybolovlev which came about when exchanging stories with Steven Cohen’s art advisor, Sandy Heller, on New Year’s Eve last year. One tale led Heller to divulge details Steve Cohen’s latest deal of Modigliani’s Nu au coussin bleu, which sold for $93.5 million. Rybolovlev had just acquired the artwork in question anonymously for $118 million and handed over $2.36 million in commission to his art broker, Yves Bouvier. Further doubt emerged when the Russian art collector discovered that Leonardo Da Vinci’s Salvator Mundi had previously belonged to Bouvier when reading The New York Times. Rybolovlev had acquired the work in May 2013 for $127.5 million, Bouvier had acquired it for $75 to 80 million.

The latter had just sold him a Rothko canvas, N०6 - Violet, Green Red, for $160 million of which $60 million was still to be paid. It was a good time to meet up in Monaco, and the sting was put in place. On February 25 this year, Yves Bouvier and Tania Rappo, his assistant in Russian dealings, were arrested on suspicion of “fraud” and “being complicit in money laundering” in the Principality of Monaco. Bouvier was released after paying €10 million bail and his assets were frozen in Singapore and Hong Kong.          

 

HAPPENING
Amedeo Modigliani, Nu au coussin bleu, 1916

 

Bouvier admits that he has made substantial gains, which is entirely legal in his capacity as asset carrier. For ten years, the Geneva-based dealer has sold over $2 billion worth of art to his Russian client, clearing him of $500 million in capital gains. Rybolovlev retorts that Bouvier was acting as a broker, based on a verbal agreement of a 2% standard fee of the sale price, as well as many documentsagreeing his role as proxy. Bouvier’s lawyer, David Bitton, affirms that this percentage corresponds to the “remunerated administrative fees, and not to commission.”

Looking ahead, the deal could lead to a penal process in Monaco, favourable turf for the Russian billionaire.  

 

The issues

MISTRUST OF THE OPACITY OF THE ART MARKET

This case is a direct consequence of the opaque nature of the circulation of information which characterizes the art market. In this instance, the margins are severely excessive at 70%. The gallery average is set between 30 to 35% and the average broker raises his margin between 10 to 15%.

This disparity explains Yves Bouvier’s unique situation. On the one hand, he knows exactly where to find various pieces through the warehouses he manages, their owners and their value; which on the other hand allowed him to evade the process of due diligence which each dealer is obliged to undergo before his client, proving the traceability of the work. This conflict of interest poses a clear ethical problem. “For us, a forwarding agent is not a dealer” explains Pierre Huber, founder of the Art & Public gallery, “the increase in capital gains, in this case excessive, leaves a bitter taste.” Bouvier is well-known and well-liked among art world circles, having improved their working conditions in a globalized market. He is also recognized for having supported the development of young businesses in the art market. Yet no one was aware of the fact that he was operating as a dealer in the high-end.

THE EXISTENCE OF FREEPORTS CALLED INTO QUESTION?

Another fear has a reason, questioning the credibility of freeports. These unique spaces facilitate the storage and transport of valuable artworks, and are not subject to VAT or import tax until they reach their final destination. They fulfil an essential role in a globalized market. Dealers are able to leave their stocks in these freeports and show pieces to potential clients without having to shoulder expensive transportation costs. Their critics however claim that these works can change hands a certain number of times without ever leaving the freeports and that companies are shielded by transactions in which the recipient does not have to be identified. Christine Sayegh, President of Geneva freeports and former socialist deputy claims “confidentiality does not equal illegality,” yet underlines that “federal control of finances 2014 report on freeports has already cracked down on fiscal evasion.” The 2009 law which demands a complete inventory of transferred goods bolsters the means that the customs already. Yet Geneva is just the tip of the iceberg, today the freeports template is developing successfully across Asia where morals haven’t yet been called into question.      
 
 
Whatever the outcome, the damage is done to Bouvier’s reputation and the art market. Marc-André Renold, professor at Geneva University’s Law faculty and UNESCO Chair in the International Law of the Protection of Cultural Heritage, has however highlighted that “this unfortunate case has nothing to do with the status of the free ports, there is no cause-effect relationship at all.” The root of the difficulty lies in the opacity of the art market; where rules that were applied to financial intermediaries were rejected during a discussion on the law of transferring cultural belongings in 2003. And also where colossal transactions were made on partial, fragmented and biased information.
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