‘Rubles cleared of risks’ Cryptocurrency transactions are banned in Russia. But this didn’t stop the State Hermitage Museum from earning nearly $450,000 from an NFT auction.
In September, Russia’s State Hermitage Museum raked in almost $450,000 by auctioning off famous paintings from its collection in the form of NFTs (non-fungible tokens). Despite the fact that cryptocurrency transactions are prohibited in Russia, the state museum still managed to collect the money from the sale of these digital reproductions. To do so, the Hermitage relied on the services of an intermediary, which transferred the money through a chain of third parties based abroad, according to a new report from BBC News Russian.
St. Petersburg’s State Hermitage Museum held an NFT auction from August 31 to September 7, with the help of the world’s largest cryptocurrency exchange company — Binance. Digital reproductions of five paintings were put up for auction: Leonardo da Vinci’s “Madonna Litta,” Giorgione’s “Judith,” Vincent van Gogh’s “Lilac Bush,” Wassily Kandinsky’s “Composition VI,” and Claude Monet’s “Corner of the Garden at Montgeron.”
The NFTs were sold for Binance USD (BUSD) — a 1:1 stablecoin pegged to the U.S. dollar. The da Vinci and the Kandinsky drew the highest bids, selling for a whopping $150,000 and $80,000, respectively.
The museum’s director, Mikhail Piotrovsky, said the museum had a difficult time selling the NFTs. “We sold several uniqure reproductions at the auction. But we also faced those problems that the crypto environment and cryptocurrencies create for normal people, because [you can sell something], but getting the money back is difficult,” Pitrovsky said on November 10, at the opening of the Hermitage Museum’s NFT art exhibition “The Ethereal Aether.”
According to the Russian BBC, about a month before the auction, in late July, the Hermitage posted a notice on the public procurement website, seeking an agent to handle the issue and sale of digital reproductions of paintings, as well as any relevant legal matters. The museum hired the Moscow law firm LFCS, to the tune of one million rubles ($13,600), handing out the contract without any competition (it can do so with permission from the Culture Ministry).
An intermediary called NFTMASTERS was specially created to interact with Binance. According to the head of LFCS, lawyer Yuriy Brisov, the transaction involving the Hermitage was set up in such a way that Russian citizens paid for the services of a foreign company located in a foreign jurisdiction. “We’ve created a chain of agents with whom we work under contracts — Swiss banks, Liechtensteinian companies, and so on,” the lawyer said. Then, Brisov explained, “rubles cleared of risks” were deposited into the bank account of a Russian intermediary, which paid taxes on the sum and then transferred the money to the Hermitage. Brisov claimed that cryptocurrencies didn’t feature in this chain of transactions, referring to the stablecoin BUSD as “tokens, denominated in foreign currency.” Binance, however, describes BUSD as a cryptocurrency.
In response to a request for comment, the Hermitage Museum forwarded the Russian BBC an article about its first experience selling NFTs. The article, prepared by the museum’s head of legal Marina Tsyguleva, was published in the September issue of the journal Property Relations in the Russian Federation.
Tsyguleva explained that in order to “effectively implement” the NFT auction, the Hermitage “used a scheme based on a mixed contract, gravitating toward an agency service.” This agency scheme, she said, was used at all stages of the project and allowed the Hermitage “to remain completely within the framework of existing legislation.”
“Under the existing Russian legislation, it is formally impossible for the Hermitage itself to sell non-fungible tokens [NFTs] on the marketplace. The Russian Federation is not a country with positive blockchain regulation; accordingly, all possible restrictions in this area apply to the State Hermitage [Museum], and the museum, by definition, cannot receive or simply have in its account the [crypto] tokens for which an NFT is exchanged at an auction,” the museum’s head of legal wrote.
Tsyguleva added that the museum conducted all its transactions in rubles — from the agency fee to the deposit in the museum’s treasury account from the sale of the NFTs.
The Hermitage Museum recently signed a new, year-long agreement with the law firm LFCS for handling additional NFTs. The contract caps the agency’s fee at a cool 15 million rubles ($204,000). As lawyer Yuriy Brisov told the Russian BBC, the museum is considering several projects involving the creation and sale of new NFTs — the next collection of digital reproductions could be put up for auction before the end of the year.
Translation by Eilish Hart