Laundering Drug Money With Art
forbes.com What's Hot Now Martha Lufkin for The Art Newspaper
A Connecticut art broker is awaiting sentence after pleading guilty to involvement in a money-laundering scheme intended to exchange illegal drug proceeds for art. Two New York art dealers charged in the case have not been scheduled for trial.
The federal indictment charges Shirley D. Sack, 74, and Arnold K. Katzen, 63, with conspiring and attempting to sell two paintings for $4.1 million in cash to an undercover agent posing as a drug dealer.
According to the defendants, the paintings in question are Amedeo Modigliani's "Jeune femme aux yeux bleus," valued at around $2.5 million, and a pastel by Edgar Degas, "La Coiffure," valued at around $1.6 million. These were seized by the U.S.
"Katzen and Sack indicated to the undercover agent that they could resell the paintings overseas as part of the money-laundering scheme," said the U.S. Attorney for the District of Massachusetts, Michael J. Sullivan. The undercover sting investigation, apparently prompted by an informant's tip, was conducted by the U.S. Customs Service and the FBI.
The U.S. alleged that the Connecticut art broker, Alan M. Stewart, who pleaded guilty in December 2001, acted in the money-laundering transaction. The defendants face maximum sentences of 20 years in prison and $250,000 fines.
Under U.S. law, it is a crime to conduct a financial transaction involving the proceeds or represented proceeds of an illegal activity with intent to conceal the nature and source of the illegal proceeds.
The indictment says that Sack and Katzen promoted themselves as fine art dealers who were "capable of selling various works of art to be paid for in cash, as a way to launder money earned through illegal drug trafficking. The pair "offered to resell overseas any works of art first sold by them," the indictment says. One of the acts alleged as part of the conspiracy was the purchase of a cash-counting machine to sort out any counterfeit bills from the millions the pair expected to receive, the indictment says. The conspiracy took place in New York, Connecticut and Massachusetts, the U.S. says.
The allegations were supported by an affidavit of a U.S. Customs agent, which states that he had received information about Sack.
According to the affidavit, Sack, seeking a buyer for a $12 million painting supposedly by Raphael, stated that she did not care "if the money was drug money, Russian organized crime money or mafia money; she just needed a buyer," and gave the name of Alan M. Stewart as her agent.
In March 2001 in Boston, meeting with an undercover agent posing as a drug dealer who showed interest in buying the putative Raphael, Stewart said he could move cash, exchange cash for gems in addition to art, and handle the resale of the Raphael, the agent's affidavit says. Eventually, the deal shifted to the Modigliani and Degas, the affidavit says, and Stewart fell out of the transaction.
Meeting with the undercover agent in May 2001, Katzen suggested exporting the Modigliani and Degas out of the U.S. for resale, which could take "six months to one year," the indictment says. Katzen proposed to the agent that they build up an inventory in Europe to be marketed "creatively" and that they establish a long-term relationship in moving "large amounts," the indictment says. To assure the would-be buyer, documents were sent to establish authenticity, the indictment says.
The dealers met the undercover agent at the Ritz-Carlton Hotel in Boston, where they had stored the paintings, and confirmed that the bill of sale was made out to a "straw" company, Universal Investments.
The curtain closed at the Boston Seaport Hotel, where in the final scenes of the crime, according to the indictment, Sack and Katzen "unwrapped and displayed for the undercover agent the Modigliani and the Degas," and put the money-counting machine to work, counting $300,000 in cash.
At that point, apparently federal agents arrested the dealers and seized the paintings.
Sack discussed transferring the proceeds from the resale to an offshore account, the agent's affidavit says, and the dealers explained that the buyer would see a net loss in funds. When the undercover agent mentioned normally paying "10% to 15%" to launder money, Katzen said the works could easily be sold at a 10% discount, the affidavit says. Katzen said he would move the money very, very slowly, the affidavit says, and told the agent he had a client in Europe who was ready to buy the Modigliani "under these circumstances."
The Saudi Prince, The "Goya" And The "Foujita" Four people, including a Saudi prince, were recently indicted on narcotics charges in Miami. The indictment cites one of the defendants with money laundering and seeks forfeiture of two works of art in connection with the deal. The oil paintings, seized by the U.S. in New York, are "Bandits attacking a coach" attributed to Francisco de Goya and "Buste de jeune" attributed to Tsuguharu Foujita. Both works are also known by other titles. The indictment charges one José Maria Clemente with financial transactions designed to conceal the source of illegal drug proceeds.
At a hearing in Miami in July 2002 on whether another of the defendants, Doris Salazar, should be freed on bail, Assistant U.S. Attorney Jacqueline Arango gave a glimpse of the government's case.
She alleged that in 1999 a drug transaction took place in which two kilos of cocaine were flown from Caracas, Venezuela, to Paris on a private jet owned by Nayef Al-Shaalan. He is believed to be "a Saudi Arabian prince who is not in direct line for the throne" and who was also Salazar's lover and owner of Cannes Bank in Switzerland, Arango said.
The deal was to yield about $20 million in cocaine proceeds as Al-Shaalan's 50% share, Arango said. She described Clemente as a Spaniard and banker in Switzerland who was the drug group's "European money launderer" who had been "organizing their drug money and laundering it through banks in Europe and Switzerland."
The drug deal was planned on a trip organized by Prince Al-Shaalan to an encampment in the Saudi desert, featuring tents, Humvees [all-terrain vehicles], and "horses and camels," Arango said.
In Paris, the cocaine was taken to "a nice villa in the suburbs of Paris," Arango said. A seizure of 190 kilos of cocaine off the Spanish border led authorities to the stash in France, she said.
Arango said that two cooperating witnesses were "very involved in," and that Prince Al-Shaalan and Clemente knew "a lot" about, "the art world," saying that "some of their investments were made in art." As a result of a money-laundering debt, the "two paintings arrived in Miami" to repay a drug debt, she said.
The paintings were sent "in respect to a money-laundering transaction," which was "related to this drug deal," she clarified, adding that "it was the money-laundering debt that Clemente was repaying." The U.S. Drug Enforcement Administration believes that oil paintings are "a way in which drug dealers launder money. It is an investment for their drug transaction proceeds," she said.
Telling the court that Salazar might flee if allowed out on bail, Arango said that Salazar had various different passports and a number of original oil paintings at her house. But at a later detention hearing on August 7, Arango said that the oil paintings had been examined and were found to be worthless reproductions.
Of the four defendants, Salazar is in federal custody in Miami; Clemente was arrested in Spain in mid-December and is awaiting extradition, either to Switzerland or the U.S.; Ivan Lopez Vanegas was arrested in early February in Columbia and is awaiting extradition to the U.S., while Prince Al-Shaalan has not been arrested.