Industry Behemoths Set Voluntary Rules for Art Business

The Swiss Art Law Foundation, together with contributors from auction houses, major art galleries, insurers, law enforcement, and University of Geneva academics, have launched the Responsible Art Market Initiative, or RAM, setting guidelines for business practices throughout the art industry. The guidelines are voluntary.

The RAM best practices for the entire range of art businesses are similar to a number of due diligence steps already recognized as a practical necessity in the antiquities market. The RAM acknowledges that application of the guidelines will depend on the size and resources of each art business and value of artworks. Following all of the RAM guidelines for each artwork sold would require an army of lawyers and researchers, and some of the recommended financial investigations are prohibitively complex for smaller businesses to undertake.

Art businesses and sales are generally divided in market reports into general categories: Post-War/Contemporary (46-48% by value), Modern (about 28-30%), Impressionist (11%), Old Masters (5%).*

The antiquities market is the most highly scrutinized category of artworks, although at less than 1% of the art market by value, according to TEFAF reports, it is the smallest of the global art market categories. In the antiquities category, well-provenanced art and artifacts are now much more highly valued than items with scanty ownership history, creating a two-tier market based upon provenance. With respect to allegations regarding funding the sales of art funding terrorism, informed collectors have no interest in materials coming out of war zones.

A key issue for traders and collectors of ancient and ethnographic art is the fact that artworks very often came from countries that were colonized, and no restrictions were placed on export for many decades, or when they gained independence, the source countries never established any permitting systems for lawful export. Instead, most source nations simply imposed blanket export laws, most of which were not enforced domestically. Nonetheless, the existence on paper of such laws is viewed by anti-trade advocates as justification for treating virtually all artworks from these source countries as unlawfully obtained, or even “stolen,” even after many decades of circulation in the market.

Although the major auction houses have generally viewed artworks from source countries with blanket export laws as acceptable for consignment sale if the artworks have been outside of the source countries for at least 10 or 15 years, the RAM guidelines are silent on this and set no reasonable limits. AAMD and other museum-adopted guidelines in the US that set a pre-1970 date of initial export for acquisition or donation have left potentially hundreds of thousands of artworks imported post-1970 as “orphans,” unable to be purchased or even accepted as donations by many US museums.

The major auction houses are in the enviable position of commission sellers, who will thrive regardless of the imposition of general rules for due diligence or the acceptability for sale of artworks. They already have in-house compliance departments, and can gear their marketing to the artworks that are rated as acceptable. Art galleries and collectors who wish to sell objects without paperwork dating back 50 years (rarely retained, since documentation was not previously required for import, export, or lawful trade) will be left out in the cold.

The RAM directs art businesses to:

1. Know and understand the risks inherent in art transactions for money laundering and terrorist financing (note that for all the press reports on art financing terrorism, there is no data substantiating this and the RAM does not provide any actual examples of it). Nonetheless, it is true that many of the world’s wealthiest collectors prefer not to have their acquisitions made public. This fact of the art world could (in theory, at least), serve as a cloak for illegitimate asset transfers. High value art purchases (common in modern and contemporary art, but rare in the antiquities world) can involve foreign or offshore accounts and purchases through intermediaries, making transactions susceptible to claims of money-laundering.
2. Do a risk assessment. Document any portion of the business if it is not already well-tracked.
3. Apply risk-based measures and be alert to red flags. Perform art purchase due diligence work including research and documentation, and substantiate client information.
4. Know your client and establish their “risk profiles.” Check for client red flags. What is the client’s source of wealth? The RAM suggests that businesses should request documents to verify the client’s identification information and “other reliable, independent source documents, data, or information as may be appropriate under the circumstances (Documenting a client’s income source might be acceptable for auction houses or credit transactions, but ordinary clients of galleries would not find this acceptable. A possible solution: accept credit cards (traceable) and checks only, and ask for ID on the check. Ask for an address to send copies of a receipt or background info on artwork.
5. Research the artwork, its ownership and provenance – Check for artwork red flags. Obtaining provenance history and proof of authenticity should be part of every transaction. Dealers and auction houses should publish all known provenance in catalogs, check stolen art databases, and obtain witness declarations and expert opinions, if needed.
6. Know the background and purpose of the transaction. Identify the source of funds, avoiding cash transactions and third party payers. Use caution in accepting payments from banks in unregulated countries.
7. Keep records. (Possibly the most important guideline.)
8. Train staff in money laundering and terrorist financing risks, and on reporting to authorities.
9. If suspicions exist, step back from the transaction.
10. Know your reporting requirements, which vary by country, and comply by reporting your suspicions to law enforcement.

Many art market participants already follow most of the practices listed  in the guidelines, refraining from cash transactions, attempting to document prior ownership and requiring proof of identity of sellers and buyers. Yet recent media coverage of the art world focuses on scandal, with headlines about international fine art buyers associated with offshore tax havens and reports of large collections of fine art stored secretly at international free ports. Notorious cases of fraud and forgery and highly publicized raids on galleries and auction houses have created a public perception of the art market as full of unsavory characters, undocumented transactions, and dubious or stolen artworks.

In fact, criminal activity in the art world is not more or less extensive than in any other market, although a large portion of the trade still operates on handshakes and gentleman’s agreements – arguably an indicator of mutual trust in the integrity of most dealers and gallerists. Nonetheless, particularly in the Post-War/Contemporary art market, high prices and easy money have drawn a new kind of promoter to the business: people who care only about money, not art, and their negative influence is being felt.

The media has lately been dominated by specious accusations of connections between antiquities dealers, ISIS and Islamic extremism. That is nonsense, and the falsity of such claims is demonstrated most clearly by there being no evidence for such connections, even after a massive, 18-country EU investigation entitled Pandora. (See Pandora’s Big Disappointment, and More Pandora Treasures: Riddikulus!)

Industry experts are aware that fraud or misrepresentation are actually the most common crimes in the art world, and that due diligence practices and transparency regarding the identities of buyers and sellers is crucial to ending the blight of fraud on the trade. The art trade’s general acceptance of anonymous or third party transactions is thought to make it particularly vulnerable to illegalities such as money laundering or claims of funding terrorism. Secrecy is also common at the high end of the art market, where modern paintings sell in the multiple millions. Is this because of improper activities or because sellers do not want their need for money revealed and buyers are worried about exposing collections to theft?

The Contemporary art world has largely avoided criticism as a vehicle for money laundering, although art crime is most often found there, where the money is. The lack of scrutiny of this market may be related to the celebrity and cachet of the financial, entertainment and other high-wealth high-rollers involved. The most worrisome concern in this market is that its glitz and glamour can sometimes provide cover for aggressive hustlers with poor reputations, for the sale of fakes, and for lack of documentation of the movement of high-value art.

In contrast, antiquities account for such a small financial percentage of the global art trade, that ancient art does not even have its own slice of art trade pie charts, being lumped in with silver and furniture and other less valuable art. Its buyer population is also older and more staid; they are focused on connoisseurship rather than fashion and style.

The RAM recommendations repeat prior best practice standards for the art industry, notably the Basel Institute on Governance 2012 art trade guidelines. These industry standards were set forth by the Basel Institute on Governance’s Art Trade Initiative at a global conference on ‘Governance of Cultural Property: Preservation and Recovery’, which took place in September 2009.

*Trade by value, 2015