The Desire of Transparency in the Art Market


Fraud, money laundering, trafficking in cultural property, tax optimization, artificial increases of prices, confidentiality and anonymity… many dangerous hurdles, attributed to the art market, that for many elude to rules that have become an imperative necessity. Among the scandals involving diverse spheres of personalities and perplexed records in auction sales, we can equally cite a loss in standardisation and harmonization in the legal international disposals and especially the specificities of a lost market by subjectivity – justifying an irregularity and exaggeration of prices. The whole thing is encircled by an opaqueness and rigour silence. So which solutions are implemented today, for more clarity on the market that condenses as many singular facts?

The unexplored darkness of the tired and shaking art market

The USA Today, after the success of the autumn sales in New York, headlined: “Has art become a criminal enterprise?” Soaring prices, sometimes verging on irrational, leaves some perplexed. According to the Association for Research into Crimes against Art (an association dedicated to research on crimes against art), the art market would bring in about $ 6 bn per year. The proliferation of large fortunes and economic crises in recent years have transformed art in the way of refuge and speculative, and an object of conspicuous consumption, according to a social phenomenon driving 80% of billionaires in the world to buy works of art. This process has raised demands of transparency on the part of players; executives and market observers.

The art market is opaque, and this is due particularly to various factors, with the epicentre subjective to the value of art objects, attached to emotional issues, of reputation and of trust. Moreover, speculative bubbles can always be justified by the essence of art: its uniqueness; returning the interpretation of flows to a relativism, case by case. The regime of ratings is, moreover, itself subject to criteria as different as the influence and reputation of the collector, the power demand, the scarcity of supply, the pedigree, the presence, both of the work and the mythical aura of the artist. Many factors combine to create an opacity increasingly described as, among others, the anonymity of transactions – including Nafea faa ipoipo by Gauguin, withdrawn from the Kunstmuseum in Basel by its owner, Rudolf Staechelin, and sold for $ 300 million to “a purchaser in Qatar.” Also, the confidentiality of major auction houses, the development of online sales, problems of liquidity transactions and the laundering and concealment surrounding areas free ports – the 2014 report of the Federal Audit Office (the supreme body of Swiss financial monitoring) reports that “these customs zones of exception, today, weigh more than 100 billion Swiss francs” – are other factors.

As for auction houses, the obligation of transparency embodied in the pass phrase, in the United States, for a lot not sold and adjudicated, in France, for a lot sold, nothing for an unsold. Some even suggest to introduce a law obliging to systematically uncover the provenance of objects. But various techniques completely distort the auction: the false invoice, but also the false auction of entrusting an object to another person to whom you want to give a certain amount, under cover of the auction, so that he enjoys the fruit of the sale, where the auction house plays the role of smuggler unwittingly. Beyond speculation, the psychological and speculative simulacrum can take the air of good faith in the auction room: a person can buy several works, by offering one and artificially raise the stakes, even redeem himself, to then multiply the rating and the future results of other works. Both Christie’s and Sotheby’s affirm their involvement in the hunt for embezzlement and fraud of all kinds, but in the context of two-headed competition, each customer counts.

A royal road to money laundering and fraud?

In China, the second art market after the United States especially with the house Poly, opacity reigns: no limit is imposed on cash payments. Some estimate that nearly half of the works for which transactions take place in China, result in laundering maneuvers. In Asia, the combination of the economic boom, a lax regulation on the sale of art and strict laws of capital controls, makes the art market a target of choice for those seeking to launder money or exit the capital. It is only since the 1990s that the young market for Chinese art really competed with the American or European market, developed in the fifteenth century. In addition, the strong demand and limited supply of works flooding the fake market, without legal recourse for buyers with no guarantee against fakes – include the roll of the poet Su Shi (Song dynasty), estimated for $ 500,000 and sold for $ 8.2 million by Sotheby’s and decried as false by many historians after the sale. China must also confront traditions: the non-payment of the lots auctioned, and bribes to officials.

Legal cases approach and operate as booster shots: last April, the powerful collector Helly Nahmad bailed a year in prison and a fine of seven digits, convicted for running illegal gambling, and of money laundering linked to organized crime. His collection is mainly in the free port of Geneva. The gallery Marc Glimcher, head of Pace Gallery, had also vigorously defended him. In May 2013, Hannibal, a Basquiat valued at $ 8 million, was found in a trunk from London, supposed to contain a table of $ 100, as part of Edemar Cid Ferreira case – the former Brazilian banker who laundered billions of dollars by buying a collection of 12,000 works. The Council of Voluntary Sales (CVV), France, suspended the house Gros & Delettrez for fifteen days for the acceptance of a payment in cash of € 200,000 to a Chinese buyer (limited by the CVV to € 15,000 for the people outside the European Union). Claude Aguttes had also undergone a two-month suspension in 2012. Catherine Chadelat, head of the CVV, ​​the regulatory organisation of professions in France, and Jean-Pierre Osenat, chairman of Symev, the union home sales, were also hit by interposed newspapers. The first incentive to transparency, while the latter reproached this obsession with clean hands, saying that it could lead to even more suspicions about an art market, already subject of much mistrust.

As for the unlikely case of the forger Wolfgang Beltracchi, to perfect copies to hang in museums, it’s worthy of a romantic narrative, like the 120 fakes made by the Englishman Shaun Greenhalgh, sentenced in 2008. Counterfeiters have joined the desire of art historians to recover the traces of allegedly existing works. Thus, they filled a gap before being proven wrong by one of the experts. Finally, the saga of Yves Bouvier (at the head of the transport company of artwork and Natural Lecoultre, and main tenant of Geneva’s free port), who defrauded his wealthy client Dmitry Rybolovlev, now placed in custody, which remains topic of discussion.

Daech and heritage perversion: a French awareness

When the heritage of humanity is doomed by the rabid destruction of Daesh and its corollary, antiquities trafficking, active measures emerge. The destruction in the ancient city of Palmyra in Syria and Iraq in the Mosul Museum, in Nineveh, Nimrud or Hatra, capital of Mesopotamia, were perpetrated as a result of looting at several sites. These sinister events upset the archaeological context and annihilate the hope of future scientific discoveries, while fueling a black market that strengthens terrorism. On 17 November 2015, the director of the Louvre, Jean-Luc Martinez, presented a 50-point plan for President Francois Hollande, who tries to protect heritage in areas of conflict. The right of asylum to shelter works, strengthening of customs controls and reconstruction of destroyed heritage along with the establishment of a fund, are the three main axes. Jean-Luc Martinez has proposed both a European database of seized or stolen cultural goods and a European Observatory to fight against illegal trafficking of cultural goods.

According to opinions, art trafficking contributes to between 10 and 20% of revenues of the terrorist organization. “The terrorist organization Daech delivers excavation permits, tax levies on goods that will then feed into the global black market, passing through free ports which are havens for stolen goods and money laundering, including in Europe,” recalled François Hollande during the 70th General Conference of UNESCO. ArtPrice estimates that 40% of transit goods in free ports are cultural properties. This “right of asylum” included in the law “Creation, architecture and heritage”, provides the authorization given to customs to control the import of cultural goods from countries that have ratified the UNESCO Convention of 1970, and will prohibit the transport, transit and trade of movable cultural heritage which have left a State illegally. The president also wants to set up, under the responsibility of UNESCO, a blacklist of “stolen goods havens” related to a greater harmonization of European law. In France, concealment may denounce no time limit, in contrast to countries like Belgium where it’s taken as an instant offense, limitation periods hugely vary. Martinez’s report calls for greater appeal to money laundering offense, with the jurisdiction of the International Criminal Court who may prosecute destroyers of heritage for war crimes.

Diverted antiquities: a high-risk route

An article in Le Monde dated 3 December 2015 reported deafening figures: in Syria, a quarter of the 1,200 known sites were affected by looting. “The flow of illegal traffic from wild excavations were up 500 % in three years … We need a moratorium on the sale of objects from Syria, Iraq, Yemen and Libya” Edouard Planche advocates, responsible for the control program against the trafficking of cultural property at UNESCO. According to the United Nations Office against Drugs and Crime (UNODC), “the impact of organized crime linked to trafficking of cultural property represents 1% of all illicit financial flows, 3 $ to 6 bn $ each year.” A great number of thousand year old art works, some of which were looted, in February 2015, were discovered at the museum of Mosul in May 2015 by US forces at the home of Abu Sayyaf, “finance minister” of Daech, in Deir ez-Zor, in Syria.

Colonel Ludovic Ehrhart, Head of the Central Office for the Fight against The Traffic of Cultural Goods (OCBC), outlined his vision at a conference in Drouot: “There are two types of traffic. Small parts feed the subsistence traffic of the local people, facilitated by Daech, which flows by levying tax. They can reach their destination by mail. The largest pieces, the IE is responsible for getting them out of the country with people who have the expertise, the guts and the money […], they come to the art market five, or indeed ten or fifteen years later. The auction is the ultimate laundering. The professionals are the victims”. A discourse which relativizes suspected dishonesty of some professionals, but emphasizes the crucial need for suspicion and surveillance. And Ludovic Ehrhart recalls the important role of free ports and offshore companies, who complete the silent circuit of these diverted goods.

Francesco Bandarin, Assistant Director of UNESCO in charge of culture, criticizes the “insufficient” legal provisions of the institution, noting that after the great destruction of the Second World War, the provisions of the 1954 Convention [the Hague, for the protection of property in armed conflicts] are still not ratified by 70 countries. UNIDROIT Convention, signed in Rome in 1995, the French action plan, states: “The possessor of a stolen cultural object must return it”. But, only approved by 35 states of the 195 UNESCO members, it is not ratified by Germany, the United Kingdom, the United States or France (according to the former president of the union of antiques).

Resistance to opacity: Switzerland reacts

Tracfin, the public organization against money laundering, collects a dozen cases per year for auction house sales, none for gallerists or antique dealers, which seems very little. The objective of transparency would benefit, some say, directly to the actors themselves. Switzerland is particularly active on this issue, conscious of its image. The Foundation for the Law of Art has organized, on 13 November 2015, a day of conferences on the subject of money laundering in the art market . Switzerland would represent 2% of global activity and a revenue of 1 to 1.5 bn francs in 2014. The amendment to the Act on the Swiss Customs, which comes into force on 1 January 2016, grants the Federal Customs Administration (FDA) the authority to monitor and control entry and exit of goods more effectively and quickly. The Financial Action Task Force (FATF), the organization responsible for the international fight against money laundering and terrorist financing, oriented new regulations on due diligence for traders of high value goods by respect for the LBA (Money Laundering Act), as part of cash transactions of over 100,000 francs – except those entrusted to a financial intermediary. The identification of the contractor and the final beneficiary of the transaction, as well as the establishment of necessary documents, will be obligatory. The ​​tax offenses domain will also be extended. Merchants must notify the Reporting Office for Money Laundering (MROS) in case of “unusual transactions”, suspecting that the funds come from a crime or tax offense. The Swiss distinction between fraud and tax evasion will be permanently dissolved (before, an incomplete tax return would not constitute a criminal offense).

Monika Roth, professor and author of We enter the art market and Director of Ethos Services SA, Geneva, denounced this opacity in an interview with the newspaper Le Temps in October 2015: “The art market is the last major financial market not be regulated. The transparency of roles and everyone’s interests is a priority. The actors capable of establishing standards, such as Art Basel Miami (extension of the world’s leading contemporary art fair), must sit at a table and act. The main problem of free ports lies in the possibility of unlimited storage.” Monika Roth also calls for tighter control of input and output objects in free ports. January 2016, will surely reach their expectations, since the storage period will be limited to six months on products intended for export. This storage limit imposed by the Swiss government will likely have a great impact on the art market. The obligation to disclose the identity of the owners of goods at Swiss free ports and the identity of buyers of outgoing goods, and a register of property owners and stored goods will also be set up.

Since 2010, another initiative takes the form of a collaborative platform of self-regulation rules of the art market, through the “Art Basel Trade Guidelines” of the Basel Institute on Governance. Participants can enrich or modify it as needed, with the aim of creating a national legal framework and equally meeting the requirements of a global operation.

The regulations vary widely across countries, coordination at the international level is difficult. In February 2013, the European Commission passed a law requiring galleries to note any purchase of a work passing € 7500 in cash, and all suspicious transactions, against $ 10,000 in the US. Everywhere, laundering is punishable by imprisonment. Market participants are also expected to verify the identity of the seller, including the bank plan, for items for the last five years, and to inquire about the identity of the beneficiary, especially if he is not present at auctions, to identify front companies. Since 2012, in Brussels, galleries conducting cash transactions exceeding € 15,000 must notify them as “high value dealers”, inducing controls. These galleries are also monitored by organizations such as the Financial Action Task Force (FATF), a nongovernmental organization against money laundering and the Association for Research into Crimes Against Art (ARCA), the source of Know Your Customer (KYC), which verifies the identity of buyers and traces their funds.

To conclude in the words of Catherine Chadelat: “It is time to shift from normative ethics to behavioural rigor.”