By Debra S. Friedmann
In June, as part of a continued series of Art Law related events, the law firm of Herrick, Feinstein LLP hosted a morning panel-discussion entitled “Managing Risk in Art Transactions,” dedicated to consignment, authenticity and title risks. Panelists included Laura Patten, with Art Crime Program, FBI, Judy Pearson, President at ARIS Title, Annelien Bruins, Chief Operating Officer at the Tang Art Advisory, Stephen D. Brodie, Partner at Herrick, Feinstein, and Dina Friedman, from JP Morgan. Underscoring the inherent risks in any transaction involving valuable art, this panel addressed several preemptive steps people can take to protect their assets and what signs to look out for when assessing the trustworthiness of a business partner, including art dealers, authenticators, advisors, etc
Laura Patten of the FBI Art Crime team took the lead in discussing risks that may arise from personal relationships in art transactions. Specifically, she offered some clues on how to recognize a con-artist. Using field information gathered from speaking to con-artists, Patten presented what was coined the “exploitation cycle.” These criminals, she explained, are calculating. They vet their victims, learn how to gain one’s trust and confidence, and then disappear once the crime has been executed. Patten warned that a key characteristic to be aware of in personal relationships is the point where the criminal tests the potential victim. It is at this juncture that the would be victim might notice suspicious or strange activity and should address those concerns immediately. Most likely, if the con-artist senses that he is being found out, he will disappear.
Several of the panelists discussed the dynamics of the art market and what features make art transactions particularly vulnerable to crime. Investment in art, as opposed to real estate for example, is unique because of the relatively limited regulatory framework imposed on art sales. The only paperwork associated with the sale of artwork is provenance material, such as bills of sale, exhibition history, etc, but even then it is significantly limited if it does exists at all. Panelists agreed that this lack of record keeping may be a result of the “handshake culture,” which leaves ambiguity in the limitations of the agreement. For example, if a donor supplies a museum with several pieces from a private collection, tens of years down the line the heirs of the original donors may claim that the donation was temporary, to be returned upon the donor’s passing, while the museum may have understood the pieces to be gifts, now belonging to the museum. Without clear documentation to prove the details of the initial agreement, the parties are likely to be stuck in a lengthy dispute.
Other difficulties identified by the speakers were matters of forgeries and authenticity. The wealth and art advisors on the panel reviewed several steps to take before making a purchase. For example, where a seller of a work of art offers limited provenance accounts, it is necessary for the buyer to do extensive research instead of simply relying on the word and the reputation of the seller. It is possible that all information available is provided, but as the Tang advisor explained, many buyers fail to take even the preliminary steps before acquiring title insurance to protect themselves. Such steps include conducting research about the history of a piece, looking at stolen art databases for the piece in question, and watching for regular market value. As the expression goes, if it is too good to be true, it probably is.
Stephen Brodie, partner at Herrick, Feinstein LLP addressed some of the other art related types of cases: art investments, inheritance issues as well as logistics in handling and storing art People buy art for any number of reasons, one of which is simply because it is an investment that is or has the potential to be worth a substantial amount of money. These investments can be the point of contention in cases involving trusts and estates, import export claims, and storage claims. Here too, the lack of regulation associated with works of art can often lead to ambiguity of ownership and criminal activity. Art assets can be used as collateral in transactions, some of these legal, others not. Brodie explained that this is significant because the lack of regulation in this field and art related crimes spread to other popular areas of law, and are not just confined to stealing art or forgeries.
The take away from the June program is very simple. Just as there are many delights/joys for those engaged in art transactions, there are many risks as well. For oblivious buyers, the risks may outlast their thrill of acquisition. Thus to avoid having acute pangs of buyer’s remorse, risk awareness and assessment should be a part of the exercise.
The next Art Law event in the Herrick/The Art Newspaper partnership, is scheduled for September 30, 2015. Moderated by Jane Morris, editor of The Art Newspaper, the September program is entitled “Challenges of Loaning Works of Art” Panelists for the event will be announced shortly. Keep an eye on the Center for Art Law Calendar of Events for updated information.
- Herrick, Feinstein LLP – Herrick, Feinstein is a leading firm with a prominent practices in art and cultural property law. It handle all types of art litigation and alternate forms of dispute resolution, and also actively represent and counsel clients in corporate and commercial art law matters.
- Art Title Protection Insurance (ATPI) – The ARIS ATPI® policy is a title insurance policy structured to address the chain of title and lien risks inherent in art as a form of personal property. The ARIS policy insures against two risk categories: Art Provenance/Chain of Title Risks and “Classic” Title Risks such as Security interests and Creditor liens. A Spotlight on ARIS is available here.
- Federal Bureau of Investigation Art Theft Program – The FBI has a dedicated Art Crime Team of 15 special agents, supported by three special trial attorneys for prosecutions. It also runs the National Stolen Art File, a computerized index of reported stolen art and cultural properties for the use of law enforcement agencies across the world.
- Tang Art Advisory – Tang Art Advisory advises private and corporate collectors on buying, selling and managing their art assets. Services include: due diligence before the purchase; selling consultations; negotiates for clients and art management.
About the Author: Debra Friedmann, Center for Art Law Legal Intern (Summer 2015) is a rising second-year law student at the Georgetown University Law Center. She received a B.A. in History and Studio Art from Brandeis University. Debra may be reached at dsfriedmannATgmailDOTcom.
Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Readers are not meant to act or rely on the information in this article without attorney consultation.