HSBC HSBC Holdings PLC

By John Letzing in Zurich and Max Colchester in London 

HSBC Holdings PLC has been drawn into a high-profile fight between an art dealer and one of the bank's billionaire clients.

Earlier this year, Swiss art dealer Yves Bouvier was detained in Monaco after being accused of overcharging Russian collector Dmitry Rybolovlev for paintings, and conspiring to launder the proceeds with a resident of the Mediterranean principality, Tania Rappo. Both have denied the allegations.

News of the alleged $1 billion fraud caused a sensation in the art world, and a bitter legal and public-relations battle broke out between the two sides.

Last week, Mr. Bouvier's motion to have the proceedings against him dropped was denied in a Monaco appeals court. And on Tuesday, Mr. Rybolovlev was questioned by Monaco authorities about a complaint filed by Ms. Rappo alleging that he had invaded her privacy, by secretly making an audio recording of her in a bid to gather incriminating evidence. Mr. Rybolovlev's attorney said in a statement that the allegation is "ridiculous."

In February, HSBC responded to a query from Monaco police investigating the money-laundering allegations against Mr. Bouvier with a letter stating that the art dealer jointly held accounts at the bank with Ms. Rappo. The two were detained and questioned. But an HSBC official called authorities and said the bank had made a mistake, Mr. Bouvier and Ms. Rappo didn't share the accounts after all. They were both subsequently released.

HSBC has said the error was unintentional and clerical, according to legal filings. An HSBC spokesman declined to comment.

Ms. Rappo and Mr. Bouvier are pressing for a fuller explanation. They allege that HSBC may have been acting under the influence of Mr. Rybolovlev, one of HSBC's major clients in Monaco. In June, Ms. Rappo filed a complaint asking an investigative judge to look into the matter.

A spokesman for Mr. Bouvier said he wants a thorough investigation of what he deems an "incredible" mistake made by the bank.

A spokesman for the Rybolovlev family office called the HSBC-related allegations "a diversionary tactic."

The investigative judge who received the June complaint, Pierre Kuentz, didn't respond to requests for comment.

HSBC bought its Monaco private-bank businesses in 1999 through the acquisition of financier Edmond Safra's Republic New York Corp. and Safra Republic Holdings SA. Mr. Safra, a Lebanese billionaire, died in 1999 after a fire was started in his Monaco penthouse, which is located above HSBC's Monaco office. That penthouse, dubbed "La Belle Epoque," was bought by Mr. Rybolovlev and is now his residence.

For over a decade, Mr. Rybolovlev, who made his fortune in Potash mining, worked with Mr. Bouvier to build a vast art collection that included Picassos and Rothkos.

Between October 2013 and September 2014, Accent Delight, a company based in the British Virgin Islands and owned by a trust tied to Mr. Rybolovlev, paid EUR257.5 million ($274.2 million) from an HSBC Monaco account to a company controlled by Mr. Bouvier, according to documents seen by The Wall Street Journal. The payments were for three pieces of art, according to people familiar with the matter. The sales are just part of the roughly $1 billion that Mr. Rybolovlev believes he may have been overcharged for artworks sold by Mr. Bouvier, according to legal filings.

In January, a trust tied to Mr. Rybolovlev filed a complaint in Monaco alleging that Mr. Bouvier was selling him paintings at a significant markup. Mr. Bouvier said in a Wall Street Journal interview earlier this year that the market determines prices for paintings. Mr. Bouvier is alleged to have conspired with Ms. Rappo to launder the proceeds of the art sales via real-estate investments, according to legal filings. In a statement given to the Monaco police in February, Mr. Rybolovlev noted that Ms. Rappo was a family friend, who had introduced him to Mr. Bouvier, according to a transcript.

On Feb. 17, HSBC sent an initial letter to Monaco police listing three accounts linked to companies that invested in properties that Ms. Rappo held. The letter said Mr. Bouvier's name was also on those accounts and he was either a proxy in the related companies or received profits from them.

On Feb. 25, Mr. Bouvier was detained in Monaco after traveling there to visit to his Russian client. Ms. Rappo was also detained, and told the police that HSBC must have erased her husband's name on the accounts and pasted in Mr. Bouvier's name instead, according to legal filings.

On Feb. 27, after the bank's phone call, HSBC wrote to the head of Monaco's police force, to clarify that Mr. Bouvier wasn't linked to the accounts. The bank apologized for its error, according to a copy of the letter seen by the Journal.

Ms. Rappo's attorney filed an initial complaint regarding the bank's error in April, with Monaco's public prosecutor, according to court filings. That complaint was later closed without any finding of wrongdoing, filings indicate.

In June, Ms. Rappo's attorney filed a second complaint about the error with the investigative judge, Mr. Kuentz. The attorney wrote that, "It is impossible to exclude the possibility that [HSBC's] false statement was made at the request of Mr. Rybolovlev, who is furthermore one of the biggest customers of the bank."

Last month, Mr. Bouvier applied to become a co-plaintiff in the June complaint. His application was rejected on the grounds that the bank's errant letter didn't do him harm. He is appealing that ruling, his attorney said.

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(END) Dow Jones Newswires

November 19, 2015 17:36 ET (22:36 GMT)

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