WYWH: “Managing Risk in Art Transactions” June 2015 (NYC)

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 exist 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.