The Art Law Review: Russia

Introduction

The Russian and global art market shrank significantly in terms of volume in 2020; the Russian art market grew in 2019, while the global market decreased. The global volume of Russian art has been fixed at US$411.9 million. The world leaders in Russian art sales remain Christie's and Sotheby's auction houses, whose Russian weeks in London totally make 20 per cent of global annual volume of Russian art. Prior to the economic crisis brought on by covid-19, the domestic art market within the Russian Federation saw growth in 2018 (total sales value of US$7.2 million) and 2019 (total sales value of US$10 million), with 2019 witnessing the highest volume within the past six years.2

Notwithstanding the civil legislation that has recently been significantly developed, many art transactions related to old masters continue to be made on a 'handshake' only basis.

The market size, the restrictions on import and export of art and the prevalence of handshake deals all reflect the low volume of legal disputes in Russia.

The year in review

Avant-garde artworks by renowned Russian artists such as Chagall, Malevich and Rodchenko are in high demand; however, the market offer is limited. Recent cases show that the risk of fake or misattributed works is prominent. The most notable cases took place outside Russia, and include recent scandal around Igor and Olga Toporovski's lending of allegedly fake artworks to the Museum of Fine Arts in Ghent in Belgium for an exhibition entitled 'Russian Modernism 1910–30'. In January 2020, the Tribunale di Milano cleared Mr James Butterwick, a London-based Russian art dealer, of charges of defamation, which were brought by the organisers of the exhibition 'Russian Avant-Garde: from Cubo-Futurism to Suprematism', held in Mantua between November 2013 and February 2014. The ground of the claim was James Butterwick's expressed opinion that exhibited works lack any provenance or exhibition history.

Among the main trends is the positive practice of law enforcement of droit de suite and the key active role of the UPRAVIS organisation,3 a non-commercial partnership for the protection and management of rights in the art world. In connection with the high demand and relatively small supply of Russian art in the Western market, the state is strengthening control and introducing mechanisms aimed at preserving and protecting art and cultural property, by way of legal, administrative and organisational aspects. With regard to combating money laundering and the use of works of art for committing such crimes, control over transactions of works of art, requirement for a written form of the transaction and know-your-customer (KYC) checks have been strengthened.

Art disputes

i Title in art

There is no specific regulation on the legal status of artworks or on the acquisition and transfer of property rights for artworks. Hence, commercial relations with artworks are subject to civil law general requirements for civil rights objects with some restrictions in relation to cultural property imposed by the Russian Con­stitution and the Civil Code, including reference to specific laws and import and export regulations. Article 129 of the Civil Code specifies that 'civil rights objects' may be freely alienated or transferred from one person to another by way of universal succession (inheritance or re-organisation of a legal entity) or otherwise, if they are not limited in circulation. Oral agreements are not exceptional in the art market; however, the conventional method of sale is with a sales agreement.

Under Russian law, title is obtained at the moment of transfer, unless otherwise provided by law or under contract.4 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 provided agreement 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 (e.g., a gallery), the exclusive right passes to the buyer, unless otherwise provided by agreement.

There is no distinction of the title transfer by the auction, unless otherwise provided by the auction documentation. Title is usually transferred at the moment of sale; however, the actual transfer and payment take time due to formalities. Note that an auction house proposes its standard sale agreement with no possibility to negotiate, although a private sale agreement allows the parties to negotiate mutually beneficial provisions, including regarding the moment of title transfer.

Artwork transactions are not subject to registration. Provided private artworks or art collections are registered in the non-state part of the museum fund of the Russian Federation, Federal Law No. 54-FZ, as amended, on the museum fund of the Russian Federation and museums in the Russian Federation, dated 26 May 1996, does not prohibit transactions with such artworks; however, certain requirements are to be complied with.

Article 10(5) of the Civil Code specifies that good faith and reasonableness of the parties are pre­sumed. Article 302 of the Civil Code specifies that if the property was acquired for consideration from a person who did not have the right to alienate it, of which the acquirer has been unaware and could not have been aware (a bona fide purchaser), the owner has the right to reclaim the property from the acquirer in the event that the property was lost by the owner or the person to whom posses­sion of the property was transferred by the owner, or stolen from one or the oth­er, or the owner was deprived of possession by any other means outside their will. Conscientiousness is an internal criterion that reflects a person's lack of awareness of the illegality of action in acquiring the property.

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. The agreement of the parties on the release of the seller from liability in the event that the purchased goods are reclaimed from the buyer by third parties or on its limitation is invalid. A seller is expected to transfer free title and by interpretation of the law a buyer is not expected to inquire about the title. However, due to sensitivity of the artworks, the relationship between a seller and a buyer in the art and antiques market is built on the caveat emptor principle (i.e., the legal and financial risks associated with the acquisition of artwork are borne by the buyer). Hence, a buyer usually inquires about the title or asks the seller to provide certain representations under agreement.

ii Nazi-looted art and cultural property

The Russian Federation has ratified the 1954 Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict and the UNESCO 1970 Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property. These conventions directly prohibit the treatment of cultural objects as war trophies.

The main national law in this sphere is Federal Law No. 64-FZ on cultural objects transferred to the USSR as the result of the Second World War and located in the territory of the Russian Federation, dated 15 April 1998. The Law is based on international legal acts adopted during the period and upon termination of the Second World War.5

Provisions of the Law define that the transferred cultural objects (with certain exceptions) are the property of the Russian Federation.

Article 4 of the Law explains the notions of 'restitution' and 'compensatory restitution' as means of recovery of material damage brought to an injured state by an aggressor state.

Meanwhile, the Law also provides the possibility of exchange of the transferred cultural objects for Russian cultural objects beyond the boundaries of the Russian Federation, regarding which the Russian Federation had not made any restitution claims. Such an exchange shall be executed as an international agreement.

Regulatory control over import and export of the cultural objects, along with issues of retaining cultural heritage, development of international cultural cooperation, and mutual familiarisation of Russian Federation nations and other states with the cultural objects, is provided in Law No. 4804-1 on import and export of cultural objects, dated 15 April 1993.

iii Limitation periods

General terms for submitting a court application

Russian legislation does not define any special terms for presenting claims and court applications under dispute in the sphere of art.

Therefore, this is governed by the general period of limitations. The substantive law6 provides a subjective and objective term for court application. The subjective term is three years from the person becoming aware of the violation of the right. The objective term (in other words, the maximum term) is 10 years. This means that a period of limitation may not exceed 10 years from the day of the violation of the right that is protected under such term.

Special terms and the order of presenting claims on the return of cultural objects transferred during and after the Second World War are provided by Federal Law No. 64-FZ. The Law provides the possibility of presenting claims on the return of the transferred artwork exclusively on the state level. Claims to the government by natural persons and legal entities, municipal bodies, and social and other organisations or associations are not considered upon submission.

Note that for states – former republics of the USSR – the Law provides a simplified procedure for the return of cultural objects with no limitation periods for presenting claims.

State management bodies of other countries can present claims to the Russian government at any time, upon obtaining information on artwork in the Russian territory, but no later than 18 months from the day the Ministry of Culture publishes data on the values of the objects in question.7 Claims not presented by an interested state within the term defined will not be considered.

However, natural persons and legal entities may seek satisfaction of their claims in Russian judicial bodies. Natural persons who consider themselves owners (inheritors) of the transferred cultural objects may claim the return of the artwork by two means:

  1. addressing the government of their country, if the term for presenting claims to the government has not expired; or
  2. addressing judicial bodies in the defined order with actio vindicatio. Under such claims, the Russian legislation applies general provisions on the period of limitation, as discussed above.8

To successfully address a court, a claimant must prove the right of ownership for the claimed property.9

An exclusion of general rules applies to cultural objects that are family heirlooms (family archives, photographs, letters, honorary distinctions and awards, portraits of family members and their ancestors). Regarding family heirlooms, representatives of families that owned these previously may address the Ministry of Culture with an application for return. A period of limitation for this kind of claims is not defined, but return of heirlooms is made upon payment of costs for identification, expertise, storage, restoration and transportation.10

iv Alternative dispute resolution

Federal Law No. 193-FZ on alternative procedures of settlement of disputes with participation of a mediator (mediation procedure), dated 27 July 2010, has been valid in Russia since 2011.

This procedure can be applied to relations arising from civil, administrative and other public relations, including those regarding execution of entrepreneurial and other economic activity.

The basis for application of the procedure is the mediation agreement. An agreement can be made either by conclusion of a separate document or as a mediative clause in the general agreement.

As for the disputes related to artwork and copyright, mediation can provide more effective and prompt results than a standard judicial hearing because in such disputes a violator often acts unintentionally. Correspondingly, both parties aim for prompt resolution of a dispute, without any extra expenses for expertise, witnesses and other purposes. It is also important that mediation is more efficient than a judicial hearing. Pursuant to Article 13 of the Law on mediation, parties independently agree on the term of this procedure.

The presence of a mediative clause in an agreement does not rule out the possibility of addressing a court by any party.

The procedure is carried with the fulfilment of principles of voluntary participation, confidentiality, cooperation and equal rights, detachment and independence of a mediator.

Currently there are no specialised alternative dispute resolution organisations or other institutions dealing specifically with art matters.

Mediators can be selected from self-regulated organisations of mediators or associations of advocates, comprising art specialists.

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 representations and warranties under agreement.11 The buyer, having relied on such 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 agreement. The seller shall be held liable provided he or she realised that the buyer would rely on such representations or had reasonable grounds for such assumption to be made. A person (the seller) who provided a knowingly inaccurate representations cannot, as a ground of the release from liability, refer to the fact that the party to the agreement (the buyer) relying on representations was imprudent and did not itself reveal inaccuracy.

If a buyer enters into the sale under fraud or material delusion caused by misrepresentations given by the seller, he or she has the right, instead of rescission, to demand that the agreement is declared null and void.

If fraud is committed (false statements leading to sale or sale of fakes, forgeries or inauthentic art), the buyer can also open a criminal case under Article 159 of the Criminal Code.

When entering into a relationship with an auction house, a buyer is to be aware and solicit professional legal advice for auction house guarantees in respect of counterfeit clauses.

The caveat emptor principle places the onus on a buyer to perform due diligence before entering into an artwork sale agreement. Before parties proceed with an art transaction, a pre-step authentication (i.e., an expert's opinion on authorship (artist, art school, period, etc.)), followed by a technical examination of the artwork are usually to be completed. Instituting an examination helps to reduce the risks and to receive appraisal of an artwork. The national standard of the Russian Federation, entitled 'Expertise of works of art. Paintings and Graphics. General requirements', came into force in 2017. This standard has no mandatory power, its goal is to be a benchmark of sorts for the art market. Depending on whether a buyer wants to invest time and money into the authentication and examination, or wishes to skip such procedures, he or she may still complement the experts' statement with certain seller's representations under an agreement. If a breach takes place, a buyer shall be entitled to remedies and protections as mentioned above.

A dealer acting in the interest of the buyer has a duty to act with due care. If representations are provided by a person in the course of entrepreneurial activity, such dealer must compensate losses of any misrepresentations, regardless of whether he or she was aware of such representations being false (regardless of fault), if otherwise is not provided by agreement of the parties. In the case of unfair behaviour or misconduct by a dealer, a buyer is also entitled to approach the trade or professional society of which the dealer is a member and file a complaint. It is expected that well-known players in the art market are unlikely to blemish their reputation with doubtful deals.

The reputation of an expert becomes one of the most important factors that lend confidence in art transactions. In Russia there is no state-authorised entity that is empowered to issue a guaranteed authentication document. State museums are no longer authorised to render any services in the field of commercial expertise and authentication for art market stakeholders. However, it is not prohibited for museum experts and art connoisseurs to supply their personal opinions on an artwork's authenticity. Whether an expert can be held accountable for such opinion on authenticity is a matter of continued debate. The International Confederation of Antique and Art Dealers (ICAAD) of Russia and the CIS (Moscow) publishes on its website a list of experts who are trustworthy in the eyes of the antique and art market community. ICAAD adopted the Code of Professional Ethics for Antiquary and Art Dealers, which is regarded as the minimum moral and ethical standard of the Russian antique community.

Artist foundations and catalogues raisonnés are considered guardians in terms of authentication of artworks, reputation of artists and preventing the mass distribution of fakes and forged art. Taking into account the evolving trend of fake Russian avant-garde works being placed in overseas exhibitions,12 the risk of fake or misattributed works is high, making authentication and technical examination of paramount importance. A Russian avant-garde research project was established to encourage and advance the wider understanding through the scholarly application of research into art history and technology; there are also artists' foundations to protect artists' legacy.

Art transactions

i Private sales and auctions

The Russian legislation does not provide special regulations governing auction sales and private deals in the sphere of art. As such, one shall be guided by general provisions of the Civil Code. The basis for conclusion of an agreement at an auction is provided in Articles 447 and 448 of the Civil Code. Selling items 'by samples' and by remote methods are provided by Article 497 of the Civil Code.

Law No. 2300-1 on protection of customer rights, dated 7 February 1992, governs the relations of the parties to a sale and purchase agreement concluded remotely, including by way of catalogues, booklets and photographs.13 The Law is applied when a party to an agreement is a customer (natural person) who buys items in private interests or a seller (a legal entity or a sole proprietor).

Subject to October 2019 amendments to the Civil Code, an online form completed to conclude a remote deal is eligible as a written form. Article 434 of the Civil Code provides that a written agreement can be concluded by composing one document (including electronic) signed by parties, or by exchanging letters or electronic documents. This is important because non-fulfilment of a written form for a deal results in voidance; additionally, a written document (agreement) will be necessary for executing and obtaining permission for export, which certifies the right of ownership for works of art.

ii Art loans

In Russia, there is a detailed procedure for the provision of objects of art by state museums and private collectors for temporary use in foreign countries. Statutory regulation of this procedure is provided in the following legislation:

  1. Federal Law No. 54-FZ, of 26 May 1996, on the Museum Foundation of the Russian Federation and museums in the Russian Federation;
  2. Federal Law No. 4804-1, of 15 April 1993, on the import and export of cultural valuables;
  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 export of items from museum collections for exhibition abroad is made with the permission of the Ministry of Culture of the Russian Federation, which is obtained by providing the following to the Ministry of Culture:

  1. the museum's application for permission for the export and reimport of its items, which should state the name, location and timing of the exhibition, as well as the involved partners;
  2. the written consent of superior agencies of executive power in the appropriate governmental department;
  3. a copy of the agreement between the sending and accepting parties, in Russian and other relevant languages, with notarised translation. The agreement must be signed on every page by the contracting parties, and must provide:
    • confirmation that items will be accompanied by a museum representative who will be present during the installation and deinstallation of the exhibition;
    • details of mandatory medical insurance;
    • confirmation of a police escort during the land-based transportation of items within the foreign state; and
    • financial obligations of the foreign partner;
  4. a copy of the insurance policy (including evaluation details), accounting for transportation, installation, exhibition and deinstallation (e.g., nail to nail or wall to wall insurance); note that insurance for items belonging to the state may only be acquired from Russian insurance companies (in limited cases, when a museum sends certain items to an international exhibition or an accepting party provides state guarantees of financial responsibility (indemnity), the Ministry of Culture may decide that these items can be insured through a foreign insurance company or via indemnity);
  5. guarantees of state or municipal bodies of the accepting party regarding the safety and integrity of items during their stay in that territory, as well as a guarantee of the timely return (translated into Russian);
  6. a list of items, including catalogue data;
  7. an extract of the museum's committee's protocols on the state and the establishment of the insurance value of temporarily exported cultural property (alternatively, it is possible to submit an expert opinion on the classification of the items as cultural property); and
  8. a sealed set of colour photographs of the exported items with annotation on the back of each photograph.

When exporting items to which copyright applies, it is necessary to provide documented verification of the author's or copyright holder's consent. In the transfer of exclusive rights, a separate agreement must be concluded.

Museum items being exported abroad must be transferred and stored responsibly by the exhibition curator.

For the temporary export of cultural property by non-state (private) companies and individuals, the following must be attached to the permit application:

  1. the agreement with the accepting party, containing the terms and conditions for the temporary export of cultural property;
  2. cultural property originating from the non-state part of the Museum Foundation of the Russian Federation must be insured for the duration of the export period (alternatively, a document on the state guarantee of financial compensation, issued by a foreign state, may be included);
  3. a copy of the exporting individual's identity document;
  4. copies of documents confirming the right to own or use the temporarily exported cultural property;
  5. two copies of lists detailing and describing the cultural property;
  6. two colour photos of each item; and
  7. in some cases, an expert opinion classifying the objects as cultural property.

Note that applicants, with the exception of state and municipal organisations, must also pay the state a fee for an export permit.

There are no special regulations providing immunity for artwork on loan, although some rules can be found in Federal Law No. 4804-1, of 15 April 1993, on the import and export of cultural valuables; for example, Article 35.6(5) of the Law states that: 'Temporarily exported cultural property cannot be used as security for the fulfilment of obligations of their owners both in the Russian Federation and abroad'.

The authors are aware of one case in which a Swiss company aimed to recover the millions of US dollars that it had lent to the Russian Federation by seizing a collection of artworks worth US$1 billion, on loan to a Swiss museum from the Pushkin State Museum of Fine Arts, in 2005. The Swiss government ordered the release of the works on grounds of national interest, and the artworks were returned to Russia.

Temporarily imported cultural property belonging to foreign states enjoy judicial immunity in the Russian Federation: immunity in respect of measures to secure a claim and immunity in respect of enforcement of a court decision in accordance with Russian Federation legislation on jurisdictional immunities of a foreign state and property of a foreign state.14

iii Cross-border transactions

The commercial turnover of cultural property is regulated on the interstate and national level. On a 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.

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 in the Russian Federation in 1988, and the 1954 Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict, which was ratified by the Russian Federation in 1956.

Conventions contain mutual agreements and regulations regarding import and export of cultural objects, as well as requirements for their transportation and protection.

As Russia is a member of the Eurasian Economic Union (EAEU), when trading with third countries it is governed by 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 in mandatory order. To export cultural objects for commercial purposes, a licence is necessary, which is issued by an authorised state body of a country member of the EAEU in the territory of which a declarant is registered (in the Russian Federation this body is the Ministry of Industry and Trade of Russia).

If a piece of art is being exported by natural persons for private use, a licence is not required; nevertheless, it is necessary to provide a permissive document issued by a corresponding body of the state in the territory of which a declarant is registered (the Ministry of Culture).

Transfer of art objects over the state boundaries of the Russian Federation to or from countries that are not members of the EAEU is regulated by Law No. 4804-1 (revised on 28 December 2017).

Meanwhile, the Law differentiates the notions of cultural objects and cultural objects of special value. The difference is that free export of cultural objects of special value is prohibited from the territory of the Russian Federation without obligations on reimportation.

Criteria of classification of movable objects as cultural objects and classification as cultural objects of special value are provided in Decree No. 1425, of 14 September 2020, approved by the government of the Russian Federation. The document becomes valid on 1 January 2021.

When entering into an agreement, parties may independently define the applicable right for the entire agreement as well as for its parts. In the absence of such an agreement, parties apply the right of the country that is the residence or main place of activity of the party executing the agreement at the moment the agreement is concluded. For sale and purchase agreements, it is defined that such a party is the seller.

The term 'tax resident of the Russian Federation' is defined in the Tax Code as any natural person physically in the Russian territory for not less than 183 calendar days during 12 consecutive months. Therefore, the status of resident is assigned to a foreign citizen who has lived in Russia for the stated period of time.

Residents and non-residents pay taxes on income of natural persons obtained from the sale of property, in particular artwork. If a piece of art 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). In other words, if a foreign citizen who is not a resident sells a piece of art owned by him or her, in Russia, he or she pays 30 per cent of the obtained income. Tax is not collected from a buyer of art. If a resident (whether or not a Russian citizen) sells a cultural object in the territory of Russia, he or she must pay the relevant tax (13 per cent of his or her income). The 13 per cent tax is also paid by Russian residents for sales outside Russia. In 2021, the 13 per cent rate will increase to 15 per cent for natural persons whose income exceeds 5 million roubles.

If more than three years elapse between the purchase and the sale of an art object, the income of the seller (natural persons) is exempted from taxation.

For a certain category of Russian and foreign legal entities making deals on disposal of property, the Tax Code defines the obligation on payment of income tax at 20 per cent.15

To avoid double taxation, the government and several foreign states have concluded corresponding double taxation agreements (of avoidance). Such agreements are applied to persons who are residents of one or both states party to the agreement, and relate to taxes defined in the text of such agreements.

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 a piece of art by providing customs bodies with an expert statement containing conclusions on classifying such object as having cultural value.

iv Art finance

The Russian art market has not yet been developed to the level of a professionally structured finance market; therefore, purchases are made by buyers' personal funds. Corporate collections do take place in Russia; large corporations and banking institutions historically invested in contemporary artists, although this is no longer the case due to the economic situation.

Loans secured by art are not common in Russia; however, there are a few professional art pawnshops. The process combines art appraisal and expertise provided by duly licensed third-party companies. Provenance verification is usually carried out either by experts or dedicated law firms.

Only a few 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. Hence, the demand and the market volume has significantly decreased because of the covid-19-related economic crisis. Personal shopping services are not popular in Russia; these services, as well as curators' services, mostly depend on personal relationships between art experts and their clientele.

In 2018, the EU tightened its anti-money laundering rules, directly targeting the art market by adopting Directive (EU) 2018/843. This signified the development of a global trend to enhance financial transparency in the art market. In January 2020, the new rules took effect in all EU countries. The Russian Federation legislation for anti-money laundering has been developing in line with global trends. In Russia, statutory provisions targeting anti-money laundering can be found in the Federal Law on Anti-Money Laundering and Countering Terrorism Financing (the AML Law) and in the Criminal Code. The AML Law is 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 KYC 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. Resolution No. 32 of the Plenum of the Supreme Court of the Russian Federation on judicial practice in cases of legalisation (laundering) of funds or other property acquired by criminal means, and on the acquisition or sale of property knowingly obtained by criminal means, dated 7 July 2015, classifies the sale of artworks and antiques as an activity with a high risk of money laundering.

Artist rights

i Moral rights

Since 2008, all the general provisions regulating legal relations in the sphere of intellectual property and exclusive rights have been defined in Part 4 of the Civil Code. Moral rights of authors of art, despite not being named so in the applicable Civil Code, are personal non-material rights, and include:

  1. right to being admitted as an author of an object (right of authorship);
  2. 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. 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. 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 an agreement to another person, simultaneously with a disposal right.

Such rights cannot be alienated and are protected for an unlimited period. Waiving such rights is nominal. In practical terms, this means that transfer of right of ownership for a material carrier, in which a result of intellectual activity is expressed, does not lead to loss of personal non-property rights of authors of art objects.

Any transformation of the result of intellectual activity that discredits the honour, dignity or goodwill of an author, as well as attempts of these, empowers an author demanding protection of his or her honour, dignity or goodwill, recovery of damage and compensation of moral damage.

ii Resale rights

Together with personal non-material and exclusive rights, authors of art objects own the resale royalty right. The resale right may not be alienated but transfers to heirs of an author for the period of validity of an exclusive right for an object.16 The Russian Supreme Court has also stated multiple times that the resale right is a part of inheritance.17

In the Russian legislation, the resale right is regulated by Article 1293 of the Civil Code.

From 1 June 2018, amendments made to the Civil Code are valid. Subject to the last update, the right for obtaining profit as interest rate of the price of resale of the original work occurs for an author at each resale of an original, in which the auction house, art gallery, art salon or shop participates as a mediator, buyer or seller.

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

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 the Russian legislation, the following rights 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 profit from using such right.

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

The civil legislation defines that initially an exclusive material right for an art object arises in its author, and is valid throughout his or her life and for 70 years after his or her death. An author may decide how to dispose of his or her work appropriately: to conclude an agreement on alienation of an exclusive right for an artwork, or transfer to another person a certain amount of rights for use of an artwork (licence agreement).

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 works, 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 state him or her in a will.

Trusts, foundations and estates

Russian Federation legislation on the holding and administration of art collections can be found in 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. Private and corporate collections can be found in Russia and collectors may choose the appropriate legal structure, depending on the purpose of collecting and the tax implications. Ownership and management of art collections can be achieved via direct ownership by either private or corporate collections, non-commercial organisation (fund, non-commercial partnership), closed investment fund of artworks, limited liability company or inheritance fund after death of a testator. There is no notion of trusts in Russian law, although many wealthy Russians 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'. Such 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. Regarding foundations, the Tax Code does not provide peculiarities of taxation. 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 activity.

Russian art collectors acquiring art abroad are to consider the UK Unexplained Wealth Order, which is a legislative initiative governed by the Proceeds of Crime Act 2002. Such orders can be initiated outside any civil or criminal case in relation to a lifestyle that appears to the competent authorities to be incompatible with the known, official level of income of a respective person. In parallel with the Order, there is a procedure for freezing funds in bank accounts, personal property, etc., for which, again, only reasonable suspicion is required.

Russian law does not contain special provisions regarding the inheritance of artworks and art collections. Nevertheless, for estate planning it is worth seriously considering having a full inventory of inherited property, including works of art and cultural property.

In accordance with Russian civil law, inheritance is carried out by will, by inheritance contract and by law. Since 1 September 2018, the provisions on the inheritance fund have been in effect. With the help of the inheritance fund set 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 aims. The fund can be established for a specified period or indefinitely in accordance with the terms of fund management. To set up an inheritance fund, it is necessary that the will includes the testator's decision on the establishment of the fund and the charter of the fund, as well as the conditions for managing the fund.

Since 1 June 2019, inheritance provisions have been complemented with the joint will of spouses and any inheritance contract.

In Russia, the freedom of will is limited by the rules on the compulsory 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 dependents of the testator, can apply for the compulsory 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.

There is no inheritance tax; pursuant to Article 217(18) of the Tax Code, income in cash and in kind received from individuals by way of inheritance is not subject to taxation (exempted from taxation), with the exception of remuneration paid to heirs (successors), 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

The art market in Russia clearly has a potential that is dependent on alteration of the legislation. Remaining closed for export and import, the market has obvious restrictions in terms of development of the private sector.

The release of Second World War art pieces will be resolved sooner or later as the dialogue at a government level continues.

Footnotes

Footnotes

1 Matvey Levant is a partner and Tatyana Alimova is an attorney at Levant & Partners Law Firm. Yulianna Vertinskaya provided independent legal counsel.

4 Article 223 of the Civil Code.

5 Article 2.

6 Article 196 of the Civil Code.

7 Published on www.lostart.ru.

8 Article 196 of the Civil Code.

9 Item 36 of Decree No. 10 of the Plenum of the Supreme Court and the Decree No. 22 of the Plenum of the Supreme Arbitration Court on certain issues arising in the judicial practice when solving disputes regarding protection of right of ownership and other material rights, dated 29 April 2010.

10 Article 19 of Law No. 64-FZ.

11 Article 431.2 of the Civil Code.

12 The Ghent and Mantua exhibitions discussed in Section II and the 2016 Goncharova case, in which the Ministry of Culture of the Russian Federation prevailed in an arbitration court proceeding against UK publisher Antique Collectors Club Ltd in regard to the book Goncharova: The Art and Design of Natalia Goncharova by Anthony Parton. The book was consequently withdrawn from sale in Russia.

13 Article 26(1).

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

15 Chapter 25 of the Tax Code.

16 Item 3, Article 1293 of the Civil Code.

17 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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