The Art Law Review: Russia

Introduction

It is undeniable that the covid-19 pandemic has changed the landscape of the global art market in 2021. Furthermore, a significant shift has been made in the perception of the art industry as such. Traditionally considered elitist, the industry reinvented itself; a rapid technological transformation lead by professional players provided a level playing field and made a broad public discover the accessibility of art. This widely celebrated change has also led to a boom in the digital art market. The infamous sale of Banksy's Morons as digital art through non-fungible token (NFT) technology, as well as the sale of Everydays: The First 5000 Days NFT by Beeple for US$69 million left a long-lasting euphoria.

Many professional artists and amateurs have been inspired by those examples and immediately joined the digital art club. The cumulative effect of those events led to the extraordinary growth of online sales. The echoes of innovative changes quickly reached conservative institutional members, some of whom could not resist taking a risk to experience new endeavours. The State Hermitage Museum is an excellent illustration of an institutional player that turned a sparkle to fire: having partnered with a marketplace, it issued digitalised versions of Leonardo da Vinci's Madonna Litta, as well as two copies of works by Vincent Van Gogh, Claude Monet and Vassily Kandinsky with the use of NFT technology. The museum raised a total of almost US$450,000 via an online auction.2

The year in review

2021 has been quite remarkable for the Russian art market for a number of reasons.

Russian art remains in high demand with Sotheby's being a leader in this area. According to Sotheby's sales results from June 2021, it sold the two highest value lots of the season in both the Russian paintings and Russian works of art categories.3

In May 2021, a proposal to open a branch of St Petersburg's Hermitage Museum in the Barcelona port area was rejected by Barcelona City Council.

In July 2021, the Disartive Fair took place in the city of Nizhny Novgorod. During this very first offline fair of digital art, 10 NFTs were sold for a total of almost US$30,000.

In September 2021, the annual Cosmoscow International Contemporary Art Fair (the Cosmoscow) was held. According to Simon Rees, art director of Cosmoscow, the market is booming and a number of booths sold out during the fair.4 Furthermore, one of the most notable cases, a dispute between Dmitry Rybolovlev and Yves Bouvier, continued to develop outside Russia as at September 2021. The head prosecutor of the district of Geneva dismissed the last criminal complaints against Yves Bouvier in a US$2 billion dispute. However, Mr Rybolovlev announced that he would file an appeal.5 Another remarkable and truly historic event is an exhibition of French and Russian art at the Louis Vuitton Foundation in Paris. This event brings together 200 previously expropriated pre-revolutionary paintings from the Morozov Collection.6

In October 2021, the first NFT trophy, designed by the Russian Calligrafuturism artist Pokras Lampas for UEFA Euro 2020, was awarded. In addition, the current problems and trends of the Russian art market have been discussed during the Art Law Conference organised by Moscow State Law Academy named after O E Kutafin.

The legislator has made a few important steps towards further regulation of the circulation of Nazi-looted art and strengthening protection of cultural heritage. A wide use of new technologies in art requires the Russian legal system to keep up with this new world. Certain amendments and additions have been introduced on a legislative level in 2021. However, there are still quite a few issues to be addressed, especially in relation to sales with the use of NFT technology. A reliable legal ecosystem needs to be built to maintain and develop this fast-growing segment of the art market.

Art disputes

i Title in art

Contracts involving the transfer of artworks are subject to the general requirements of the Civil Code of the Russian Federation (the Civil Code), such as good faith and reasonableness of the parties, and a number of specific laws (e.g., imposing certain restrictions on cultural property and establishing import and export regulations). Although oral sales contracts are not rare, the written form of sales contracts is becoming increasingly common, especially in light of the significant growth of online transactions.

Because the registration of a transfer of title in art is not mandatory, the default rule provides that ownership commences at the moment of transfer of exclusive rights, unless otherwise established by law or contract.7 For online sales, title is usually considered transferred at the moment the acceptance is signed by both parties, provided that the price has been fully paid by the buyer. The transfer of exclusive rights to artwork is to be separately specified under agreement because (1) if the purchase is made directly with the artist and the contract is silent on the transfer of such rights, exclusive rights remain vested in the artist; and (2) if an original artwork is purchased from a person who has the exclusive right, but is not the artist, the exclusive right passes to the buyer, unless otherwise provided by contract.

There is no distinction of the title transfer by auction, unless otherwise provided by the auction documentation.

Pursuant to Article 460 of the Civil Code, the seller is obliged to transfer the goods to the buyer free of any rights of third parties, unless a buyer has agreed to accept the goods encumbered with the rights of third parties. Although the buyer is not under an obligation to inquire about the title, it is common to request that sellers provide certain representations in the contract. Otherwise, the buyer will bear all legal and financial risks associated with the acquisition of art.

ii Nazi-looted art and cultural property

The legislative framework aimed at the regulation and protection of Nazi-looted art and cultural property comprises the international treaties ratified by the Russian Federation, its own federal laws and relevant regulations. All three key international treaties on this subject (i.e., the 1954 Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict8 (the Hague Convention), including the 1954 First Protocol, the 1970 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property9 and the 1972 UNESCO Convention Concerning the Protection of the World Cultural and Natural Heritage)10 have been ratified by the Russian Federation. In accordance with Article 15(4) of the Constitution of the Russian Federation, these treaties are an integral part of Russian legal system.

While ratification of certain international instruments, such as the 1999 Second Protocol to the Hague Convention, is still under consideration, national legislative bodies made a few steps towards further development of legislation applicable to the circulation of 'trophy art' and the protection of cultural property.

First, on 11 June 2021, the State Duma (the lower legislative chamber of the Russian Parliament) adopted a few amendments to Federal Law No. 64-FZ on Cultural Valuables Displaced to the USSR as a Result of World War II and Located on the Territory of the Russian Federation, dated 15 April 1998 (Federal Law No. 64-FZ). Federal Law No. 64-FZ is central to the issue of circulation of Nazi-looted art. In particular, it defines categories of displaced cultural valuables, elaborates conditions of transfer of cultural valuables, expands on legal persons who are entitled to bring claims, maps out liability provisions, etc. The legislator introduced a new Article 161 to frame a system of Regulation on Federal State Control (Supervision) over the preservation and registration of cultural objects that fall within the scope of Federal Law No. 64-FZ. To further substantiate these umbrella provisions, on 30 June 2021, the government of Russia adopted Order No. 1093. The Order contains a Regulation on Federal State Control (Supervision) over the Status, Maintenance, Preservation, Use, Popularisation and State Protection of Cultural Heritage. This Act also authorises the Ministry of Culture of the Russian Federation, its territorial bodies and certain executive authorities of the constituent territories of the Russian Federation to supervise compliance with the legislative requirements imposed in respect of cultural heritage sites and buffer zones of cultural heritage sites to protect them from possible negative influences.

Second, on 9 March 2021, the Ministry of Culture of the Russian Federation approved the list of test questions to establish specialised knowledge required for the expert assessment of cultural property and preparation of expert reports. The introduction of this document confirms that careful consideration has been given to the quality of expert reports and the need to create a pool of professionals whose knowledge and expertise are duly affirmed.

Third, on 2 February 2021, the government of the Russian Federation issued Order No. 102, which approves a new Regulation on the Consolidated Database of Musical Instruments and Bows. It is suggested that this database will complement existing legal mechanisms, which allow the tracking of imports and exports of musical instruments and bows of cultural value. For instance, a number of fundamental rules originate from Federal Law No. 4804-1 on Export and Import of Items of Cultural Value, dated 15 April 1993.

In addition to elaborating the mechanisms related to the circulation of displaced cultural valuables and cultural property in the national legislation, another notable development came to Russia from the UNESCO World Heritage Committee. On 28 July 2021, the Petroglyphs of Lake Onega and the White Sea were added to UNESCO's World Heritage List. This property, located in the Republic of Karelia, shows 'significant artistic qualities and creativity of the Stone Age'11 and adds up to 18 other Russian cultural heritage objects to the list. Protection of cultural heritage on the national level is provided under Federal Law No.73-FZ on Items of Cultural Heritage (Monuments of History and Culture) of Peoples of the Russian Federation, dated 25 June 2002.

On 13 September 2021, the Supreme Court, in its ruling in Case No. 18-AD21-24-K413,12 upheld the judgments of lower courts, which found that seizure of archaeological items of historical, scientific and cultural value was made in line with Federal Law No. 73-FZ. The Supreme Court also established that all seized items shall be forfeited to the state and handed over to the Museum Fund of the Russian Federation.

iii Limitation periods

General terms for submitting a court application

Submission of a court application or filing a claim in art or art-related disputes in Russia follows general rules applicable to other categories of disputes (i.e., the general period of limitations, the same method of calculation of filing fees, etc.).

The period of limitation depends on the type of claim. For instance, if a claim arises out of a contract and the Civil Code is a law governing this contract, the period of limitation shall be determined according to the rules of Article 196 of the Civil Code. The general term is three years from the date to be determined pursuant to Article 200 of the Civil Code.13 Subsection 2 of Article 196 also provides for the cut-off limit of 10 years (i.e., it will not be possible to submit a claim upon the expiry of the maximum term). These provisions will also be applicable to claims brought by individuals who consider themselves owners (inheritors) of displaced cultural objects. On a separate note, it is noteworthy that a limitation period for claims of return of cultural objects that fall within the category of family heirlooms has not been set out. Therefore, it is likely that these claims will need to include a legal position as to the applicable limitation period and demonstrate that the suggested limitation period has not expired.

If a claim falls within the regulatory framework of the Criminal Code of the Russian Federation (the Criminal Code), the limitation period commences on a date of commission of a crime pursuant to Article 78(2) of the Criminal Code. The limitation period itself varies depending on the categories of crime: two years for minor offences, six years for a fairly serious offence, 10 years for a serious offence and 15 years for an extremely serious crime. The limitation period in administrative offences that fall within the scope of the Code of Administrative Offences of the Russian Federation is significantly shorter. For example, a one-year limitation period applies to the claim of alleged destruction of or damage caused to cultural heritage objects (monuments of history and culture) of the peoples of the Russian Federation.14

iv Alternative dispute resolution

The existing legal framework allows disputing parties to use the following methods of alternative dispute resolution: arbitration, mediation and negotiation.

Arbitration of art disputes is not explicitly prohibited in Russia as such, but it is important to ensure that potential or existing disputes are arbitrable. In this regard, Articles 4(6), 33(1) and 225.1 of the Arbitration Procedure Code of the Russian Federation, and Articles 3(3) and 22(1), (3) and (4) of the Civil Procedure Code of the Russian Federation, must be taken into consideration as they set out the categories of disputes that fall within the exclusive jurisdiction of state courts. Although none of the accredited arbitral institutions has a specific set of rules for the resolution of art disputes by arbitration, it is possible to opt for one of the conventional institutional rules fully or partially. Alternatively, the parties may agree on the application of the United Nations Commission on International Trade Law Arbitration Rules and conduct an ad hoc arbitration.

There are two main federal laws that set out a framework for arbitration in Russia: Law No. 5338-1 on international commercial arbitration, dated 7 July 1993, and Federal Law No. 382-FZ on arbitration (arbitral proceedings) in the Russian Federation, dated 29 December 2015.

Federal Law No. 193-FZ on alternative procedure of dispute resolution with participation of a mediator (mediation procedure), dated 27 July 2010, has been in force since 2011. This Law applies to disputes arising from civil, administrative and other public relations, including those regarding entrepreneurial and other economic activities, labour and family disputes. Mediation agreements must be made in writing either in the form of a separate agreement to mediate or as a mediation clause in the contract. The existence of a mediation agreement does not preclude the possibility of a referral to arbitration or litigation.

In general, mediation represents a time-effective and cost-effective alternative to litigation. Taking into account that one of the parties to disputes related to artwork and copyright often breaches a contract or provisions of applicable law unintentionally, as well as the existing statutory limitation of 60 days for the conclusion of mediation, it is likely that both parties will be willing to cooperate to find a mutually acceptable resolution of a dispute with the assistance of a mediator. Furthermore, it avoids the unnecessary involvement of lawyers, experts and witnesses, which often results in delays and extra expense.

The law also reflects the international principles of voluntary, mutual cooperation, equal rights of the parties, independence and impartiality of mediators. Mediators can perform their duties on a professional or non-professional basis. The parties can select mediators from the lists maintained by self-regulated organisations of mediators or associations of advocates, comprising art industry professionals, among others. As at October 2021, none of the accredited arbitral institutions or mediation centres had dealt specifically with art matters.

With respect to the enforceability of mediated settlement agreements, Article 12 of Federal Law No. 193-FZ provides an important threefold mechanism: (1) the agreement can be affirmed by a court or arbitral tribunal, depending on whether a reference to mediation followed commencement of litigation or arbitration; (2) if mediation was not preceded by litigation or arbitration, a mediated settlement agreement constitutes a civil law contract and, therefore, the non-performance or improper performance of the mediated settlement agreement will be subject to the laws applicable to non-performance or improper performance of contracts; and (3) if mediation was not preceded by litigation or arbitration, a mediated settlement agreement affirmed by a notary public constitutes an enforcement document.

One of the key art-related disputes of 2021, a matter related to the alleged breach of the contract concluded between the State Hermitage Museum and the singer Till Lindeman, was amicably settled out of court. The dispute arose in relation to the alleged breach of contractual terms, which covered the transfer of non-exclusive rights to images of the Hermitage for the creation of a video only , rather than for the production of commercial NFTs. Interestingly, the parties to the settlement agreement are the Hermitage and Twelve x Twelve marketplace, which acted as a platform for the sale of NFTs under the NFTill project.15

Fakes, forgeries and authentication

Fakes, forgeries and inauthentic art represent the seller's deceit and are subject to legal implications whether under the Civil Code or the Criminal Code. Civil rights shall be protected as specified under Article 12 of the Civil Code.

The seller usually provides certain contractual representations and warranties.16 The buyer, having relied on these representations, which are significant to him or her, along with a claim for compensation for losses or recovery of a penalty, is also entitled to rescind the sale, unless otherwise provided by contract. The seller shall be held liable provided he or she realised that the buyer would rely on the representations or had reasonable grounds for that assumption to be made. A person (the seller) who provided knowingly inaccurate representations cannot, as a ground of the release from liability, refer to the fact that the party to the contract (the buyer) relying on representations was imprudent and did not itself reveal inaccuracy.

If a buyer enters into the purchase and sale contract under fraud, he or she is entitled to bring a claim requesting the contract to be declared null and void under Article 179(2) of the Civil Code. Furthermore, parallel criminal proceedings can be initiated under Article 159 of the Criminal Code.

The duty to perform pre-contractual due diligence rests with the buyer. The scope of the due diligence varies but usually includes an expert's opinion on authorship and a technical examination of the artwork. Because of the need for a uniform standard applicable to the expert assessment of cultural property and the preparation of expert reports, in March 2021 the Ministry of Culture approved a list of test questions to establish specialised knowledge. This uniform standard may significantly reduce all relevant risks in the appraisal of an artwork.

The dealer's duty to act with due care covers compensation of losses for any misrepresentations, regardless of whether he or she was aware of these representations being false, if otherwise not provided by the contract. In the case of unfair behaviour or misconduct by the dealer, the buyer is also entitled to file a complaint with the trade or professional society of which the dealer is a member.

Provenance verification is usually carried out by experts or by a dedicated law firm, of which there are a few in Russia. As for authentication documents, there is no authorised body empowered to issue these. Therefore, authentication is largely based on the individual reputation of experts. Both museum experts and art connoisseurs can provide their personal opinions on an artwork's authenticity. However, the accountability of experts is a matter of continued debate. To promote experts' exchange of information, the International Confederation of Antique and Art Dealers of Russia and the CIS regularly updates a list of experts who are trustworthy in the eyes of the professional community.

To protect bona fide purchasers from the mass distribution of fakes and forged art, a number of projects continue to be developed within the Russian art market, along with the establishment of new artists' foundations aimed at protecting the legacy of artists and encouraging the wide use of catalogues raisonné.

Art transactions

i Private sales and auctions

The legislative framework that applies to private sales and auctions comprises the general provisions of the Civil Code. In particular, an auction is recognised as one of the forms of sale under Article 447(4) of the Civil Code. This Article defines that the winner of the bidding at an auction shall be the person who has offered the highest price. Furthermore, it is explicitly elaborated that an auction with only one participant is considered invalid.

Article 448(1) of the Civil Code elaborates that an auction can be open and closed. A closed auction is conducted by invitation only. The results of an auction should be formalised in a written contract in accordance with Article 448(6) of the Civil Code.

Article 497 of the Civil Code allows the parties to conclude a contract for the sale of goods remotely. This contract shall be considered to be performed at the moment of delivery of the goods to the place specified in the contract. Alternatively, if the place of transfer of the goods is not determined by the contract, the contract is considered concluded from the moment of delivery of the goods to the place of residence of the customer (natural person) or to the location of the customer (legal entity).

In addition to the above-mentioned provisions of the Civil Code, Law No. 2300-1 on consumer rights protection, dated 7 February 1992, will apply if a customer is a natural person who purchases art. In an attempt to further develop a legislative framework aimed at the needs of customers who are natural persons, the Russian government adopted Order No. 2463 of 31 December 2020, which came into force on 1 January 2021. It establishes certain rules of sales of goods under retail purchase and sale contracts that fall under the regulation of No. 2300-I. In particular, it elaborates sellers' responsibilities to remote purchasers, explains when an obligation to transfer the goods arises, introduces a duty of the seller to provide a confirmation of conclusion of retail contract and imposes a duty to respond to the customer's claim.

ii Art loans

The temporary use of art in foreign countries requires museums and collectors to follow certain statutory regulations, including, but not limited to, the following legislation:

  1. Federal Law No. 54-FZ on the Museum Foundation of the Russian Federation and Museums in the Russian Federation, dated 26 May 1996;
  2. Federal Law No. 4804-1 on the import and export of cultural valuables, dated 15 April 1993;
  3. Russian Federation Government Decree No. 827 of 5 June 2020 on the approval of rules for the purchase, collection, exhibition, accounting, maintenance and transportation of weapons with cultural value, by state and municipal museums;
  4. departmental acts of the Ministry of Culture; and
  5. local acts of museums on the registration of the transfer of art objects for exhibition in foreign states.

The Ministry of Culture is authorised to grant permits for the export of items from museum collections. In addition to the application, the museum must also:

  1. specify the name, location and timing of the exhibition, as well as the involved partners; and
  2. provide the written consent of superior state agencies and a copy of the contract between the sending and accepting parties. There are certain mandatory provisions that must be reflected in the contract, including:
    • confirmation that items will be accompanied by a museum representative who will be present during the installation and deinstallation of the exhibition in the foreign state;
    • confirmation of a police escort during the land-based transportation of items within the foreign state;
    • details of the financial obligations of the foreign partner;
    • a copy of the insurance policy acquired from a Russian insurance company; and
    • a sealed set of colour photographs of the exported items with annotation on the back of each photograph.

Furthermore, there is a variety of specific requirements applicable to the export of items to which copyright applies, as well as to cultural property. For instance, it is necessary to provide documented verification of the author's or copyright holder's consent. For the temporary export of cultural property by non-state (private) companies and individuals, the permit application must include, among other things, two colour photos of each item, copies of documents confirming the right to own or use the temporarily exported cultural property and a copy of the exporting individual's identity documents. In some cases, an expert opinion classifying the objects as cultural property will also be required.

All applications must also include the proof of payment of an export permit state fee, with the exception of applications filed by the state or municipal organisations.

It is important to mention that Article 35.6(5) of Law No. 4804-1 explicitly prohibits the use of temporarily exported cultural property as security for the fulfilment of obligations of their owners both in the Russian Federation and abroad. In 2005, the Swiss government decided to release a seized collection of artworks worth US$1 billion, which was loaned by the Pushkin State Museum of Fine Arts. The Swiss government's decision was based on grounds of national interest, and the artworks were returned to Russia.

In Russia, temporarily imported cultural property of foreign states enjoys judicial immunity, meaning that it is not possible to apply security measures to the cultural property and use it for the purposes of enforcement of a court decision.17

iii Cross-border transactions

The commercial turnover of cultural property is regulated on the interstate and national level. On the national level, the basic legislation comprises the Constitution of the Russian Federation, Federal Law No. 3612-I on fundamentals of the Law of the Russian Federation on Culture, dated 9 October 1992 (as amended), Law No. 4804-1, the Criminal Code of the Russian Federation of 13 June 1996, and by-laws and instructions of the relevant competent authorities introducing the regulation and protection of cultural property, containing certain restrictions on the circulation of cultural property.

On the interstate level, it is necessary to take into account provisions of international treaties that have been ratified by Russia, as well as certain mandatory rules applicable in light of Russia's membership of regional political blocks. These international commitments often contain mutual agreements and regulations regarding the import and export of cultural objects, as well as requirements for the transportation and protection of these objects.

For instance, Russia is a participant of the UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property, concluded in Paris in 1970 and ratified by the Russian Federation in 1988, and the Hague Convention, which was ratified by the Russian Federation in 1956.

Russia's membership in the Eurasian Economic Union (EAEU) imposes an obligation to comply with the 'Provision on the order of import to the customs territory of the Customs Union and export from the customs territory of the Customs Union of cultural objects, documents of national archive foundations and originals of archive documents', approved by Decree No. 30 of the Board of the Eurasian Economic Commission on 21 April 2015. Subject to this Provision, cultural objects being transferred over the customs boundary of the EAEU must be declared. To export cultural objects for commercial purposes, a licence issued by an authorised state body of a country member of the EAEU in the territory of which a declarant is registered is mandatory, unless the art object is being exported by natural persons for private use.

If art objects are being transferred to or from countries that are not members of the EAEU, the transaction will fall within the scope of Law No. 4804-1 (revised on 28 December 2017).

Preparation for cross-borders transaction also requires the establishment of whether the object is a cultural object or a cultural object of special value. The criteria are provided in Decree No. 1425 of 14 September 2020, approved by the government of the Russian Federation.

When entering into a contract, parties may choose the law that will apply either to the entire contract or parts thereof. In the absence of such an agreement, the conflict of laws provisions will be taken into account.

Residents and non-residents pay taxes on income of natural persons obtained from the sale of property, in particular artwork. If an artwork was sold in Russia, the tax must be paid. However, the amount of tax is different for residents (13 per cent of income) and non-residents (30 per cent of income). Any natural person who spent not less than 183 calendar days during 12 consecutive months in the territory of the Russian Federation can be considered a tax resident of the Russian Federation. Furthermore, if a resident's or non-resident's annual income exceeds 5 million roubles, a 15 per cent rate applies from 2021. However, the income of the seller (natural persons) is exempted from taxation if a period of more than three years has elapsed between the purchase and sale of the work of art.

If cultural objects were purchased abroad, a buyer is exempt from VAT on import to Russia, irrespective of the status of a declarant and the purpose of the importation, including for resale in Russia. The only condition for obtaining this benefit under the law is verifying the status of the artwork by providing customs bodies with an expert statement containing conclusions on classifying the object as having cultural value.

To avoid double taxation, Russia has entered into a number of international agreements. These agreements apply to residents of one or both state parties to the agreement, and relate to taxes defined in the text of the agreement.

iv Art finance

Russian financial institutions have not yet developed a detailed framework that may serve as a basis for art finance. It is relatively common for large corporations and banking institutions to invest in art; however, loans secured by art are not yet common in Russia.

Only a small number of insurance companies provide art insurance in Russia due to the comparatively small art market and the low number of players in the market. However, insurance companies are naturally involved in shipment services for art.

There are some art investment advice companies operating in Russia, which mostly deal with private individuals, private banking or family offices. It is very likely that the demand for art investment advice has decreased in light of the pandemic; however, it may be the case that most art investment advice companies have reshaped their services to address the increased interest in digital art and NFTs. Personal shopping services are not widespread in Russia as they largely depend on personal relationships between art experts and their clientele.

Russian anti-money laundering legislation has been developing in line with the recent global trend of legislation aimed at the enhancement of transparency of financial operations within the art market. In addition to the statutory regulation of anti-money laundering, such as within the Federal Law on Anti-Money Laundering and Countering Terrorism Financing (the AML Law) and the Criminal Code, a significant step was taken by the Supreme Court in 2015. In its Resolution No. 32, dated 7 July 2015,18 the Court confirmed that sales of artworks and antiques involve a high risk of money laundering.

The AML Law was complemented by multiple regulations and by-laws issued by the Federal Financial Monitoring Service, the Ministry of Finance, the Bank of Russia and other governmental authorities. The AML Law specifies that measures against money laundering can also be found in other federal laws, including, but not limited to, laws on investment funds and non-profit organisations. Under the AML Law, due diligence for both legal entities and physical persons must be undertaken: companies, irrespective of their size, are to implement policies, procedures and controls, including know-your-customer and supplier due diligence procedures.

The AML Law does not currently address specific issues in terms of the art market and artwork circulation. However, a number of Russian legislative acts provide that, among the business activities in which a client can be assigned 'high risk', are activities related to the sale, including commission, of art, antiques, furniture, cars and luxury items.

Artist rights

i Moral rights

Despite not being explicitly named in the Civil Code, moral rights of authors belong to the category of personal non-material rights, and include:

  1. the right to being recognised as the author of the work (right of authorship);
  2. the right to name, which means right for free use or permission to use an object or work under one's name, under a pseudonym or anonymously;
  3. the right to sanctity of an object or work – prohibition of amending or corrupting an object is reflected as a right of an author to the sanctity of works; and
  4. the right for publication of a work. Meanwhile, an author may independently bring his or her new work into the world, and transfer this right under a contract to another person, simultaneously with a disposal right.

These rights cannot be alienated and are protected for an unlimited period. Furthermore, waiver of such rights is purely nominal. In terms of legal consequences, this means that transfer of right of ownership for an artwork will not result in the loss of the author's personal non-property rights.

Any transformation of the result of intellectual activity that discredits the honour, dignity or goodwill of an author, including an attempt to discredit, entitles an author to claim protection of his or her honour, dignity or goodwill, as well as the recovery of damage caused by the breach and compensation of moral damage.

ii Resale rights

Together with personal non-material and exclusive rights, authors of art objects also have a resale right pursuant to Article 1293 of the Civil Code. The resale right may not be alienated but transfers to the author's heirs and is effective during the period of validity of an exclusive right for an object.19 The Russian Supreme Court has also stated multiple times that the resale right is a part of inheritance.20

In addition, the author's right for obtaining profit at the interest rate of the price of resale of the original work occurs at each resale of an original, be it formalised by an auction house, art gallery, art salon or other players in the art market.

Subject to the previously applicable revision of item 1 of Article 1293 of the Civil Code, an author of an original artwork may expect to obtain profit from resale only where a legal entity or sole proprietor acted as an intermediary.

The above-mentioned legal entities or sole proprietors are obliged to provide data necessary for payment of reward immediately to an artist, or an organisation representing his or her interests. UPRAVIS organises and manages these rights on a collective basis for creators of fine art. Due to UPRAVIS' active efforts, Russian artists and heirs of late artists obtain rewards for the resale of original artwork and other art objects.

iii Economic rights

Subject to Russian legislation, the following economic rights of authors are recognised:

  1. personal non-material rights of an author; and
  2. exclusive rights, which means material rights allowing an author of an artwork, a right holder and heirs that obtain material, to gain profits from using such right.

While personal non-material rights may not be alienated, the law provides the possibility for the alienation of exclusive rights.

Initially, an exclusive material right for an artwork belongs to its author, and is valid throughout his or her life and for 70 years after his or her death. An author may also decide how to dispose of his or her artwork: to enter into either a contract for the alienation of an exclusive right for an artwork, or a licence contract transferring a certain scope of rights over the use of his or her artwork to the licensee.

Subject to the laws of the Russian Federation, a right of authorship and a right of an author to name (i.e., personal non-material rights) may not be alienated or transferred, including by inheritance. Nevertheless, an inheritance includes exclusive rights for an artwork and a right for obtaining profit from using the result of intellectual activity (resale right).

Heirs obtain the right for publication of an author's artwork, if the latter had not made it himself or herself. Exclusions are cases when publication is prohibited by an artist himself or herself through a will or other certain written document.

Along with rights, heirs who accepted inheritance are also obliged to keep authorship and the name of the author. A testator may select a certain person who will bear this obligation, and name him or her in a will.

Trusts, foundations and estates

Russian Federation legislation on the holding and administration of art collections includes the Civil Code, the Federal Law on investment funds, the Federal Law on limited liability companies, the Federal Law on the museum fund of the Russian Federation and museums in the Russian Federation, and the Tax Code. Individual and corporate collectors may choose the appropriate legal structure, depending on the purpose of collecting and the relevant tax implications. Art collections can be owned by individual or corporate collectors, non-commercial organisations, investment funds or limited liability companies.

There is no notion of trusts in Russian law, although wealthy citizens still prefer trusts operating in foreign jurisdictions. However, before settling a trust outside Russia, the resident should consult the Tax Code provisions in respect of a controlled foreign company (CFC) and 'controlling persons'. These provisions apply to taxation of non-resident organisations or structures without formation of a legal entity under the control of Russian residents recognised as tax residents. Taxation of CFC profit is made indirectly, through the company's founders and controlling bodies proportionally to their share of participation in the structure. The Tax Code does not provide peculiarities of taxation with regard to foundations. Calculation and payment of taxes is regulated by general rules defined for non-commercial organisations (NCO). One of the main requirements stated for NCOs is to keep separate accounts for commercial and non-commercial activities.

Russian law does not contain special provisions regarding the inheritance of artworks and art collections. Nevertheless, for estate planning it is worth considering having a full inventory of inherited property, including artworks and objects classified as cultural property. Inheritance can be carried out by will, by inheritance contract or by law. With the help of the inheritance fund set up after the death of the testator, it is possible to exclude the negative fragmentation of assets, as well as separating the collection from the business assets and preserving it, setting charitable goals. The fund can be established for a specified or indefinite period of time. To set up an inheritance fund, it is necessary for the will to include the testator's decision on the establishment of the fund and the charter of the fund, as well as the terms and conditions for the fund management.

In Russia, the freedom of will is limited by the mandatory rules on the share attributed to certain persons, despite the will. Minors or disabled children of the testator and his or her disabled spouse or parents, as well as disabled dependants of the testator, can apply for the mandatory share; the latter, regardless of the content of the will, inherit at least half of the share that would be due to each of them in the case of inheritance by law.

The income received from individuals by way of inheritance is not taxable, except for remuneration paid to heirs (successors) or authors of works of science, literature or art, and remuneration paid to the heirs of patent holders of inventions, utility models and industrial designs.

Outlook and conclusions

Taking into account the use of recent technology innovations in art, as well as the significant growth of interest in the art industry among the wider community, a more sophisticated legal framework may serve as a stimulus for qualitative development of the industry in Russia and contribute to the cohesion between domestic and international players.

Footnotes

1 Matvey Levant is managing partner and Tatiana Polevshchikova is counsel at Levant & Partners Law Firm.

7 Article 223 of the Civil Code.

8 The 1954 Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict was ratified by the USSR on 4 January 1957 (https://en.unesco.org/protecting-heritage/convention-and-protocols/states-parties). The Russian Federation is a party to this Convention as a successor of the USSR.

9 The 1970 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property was ratified by the USSR on 28 April 1988 (https://en.unesco.org/sites/default/files/liste_etats_partis_convention_1970_en.pdf). The Russian Federation is a party to this Convention as a successor of the USSR.

10 The 1972 UNESCO Convention Concerning the Protection of the World Cultural and Natural Heritage was ratified by the USSR on 12 October 1988 ((https://kgiop.gov.spb.ru/en/st-petersburg).

11 Decisions adopted during the extended 44th session of the World Heritage Committee, p. 397, https://whc.unesco.org/archive/2021/whc-21-44com-18-en.pdf.

13 Article 200(1) of the Civil Code elaborates on the date of commencement of this term (i.e., on the day a person learned or should have learned about the violation of his or her right and about the appropriate respondent).

14 See Articles 7.14.1 and 4.5(1) of the Code of Administrative Offences of the Russian Federation.

16 Article 431.2 of the Civil Code.

17 Article 26.2(3) of Federal Law No. 4804-1, of 15 April 1993, on the import and export of cultural property.

19 Item 3, Article 1293 of the Civil Code.

20 See Decree No. 9 of the Plenum of the Supreme Court on judicial practice regarding cases of inheritance, dated 29 May 2012.

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