The Protection You Need When Purchasing Art
July 11, 2023
As many of our clients know, art and the industry around it are of particular interest to Chartwell: We are proud sponsors of EXPO every year in Chicago, and our Chartwellians are especially embedded in the worlds of art collecting and cultural institutions – it should be no surprise that we are again returning to one of our favorite topics! While we have already covered means of ensuring clear ownership when consigning art, this Chartwell Bulletin is a discussion on protecting oneself as a buyer when purchasing art.
We will be addressing three main categories of potential risk for the buyer: the first risk is authenticity – is the work a true original, or is it a counterfeit copy? Second, the risk of ownership – does the seller possess clear and unencumbered title to the work, or is it possible the work was obtained illegally or is being sold improperly? Third is the risk of deliverability – even with payment made, the work may never arrive.
Determining Authenticity as a Buyer
Authenticity can be difficult to verify; after being crushed by the costs of litigation from issuing authenticity denials, most artist estates and their affiliate foundation will no longer offer their opinions on matters of authenticity even with signed waivers that promise not to litigate. Though some estates will submit suggested revisions to a catalogue raisonné (an editioned encyclopedia of an artist’s oeuvre), this does not often serve to address new ‘discoveries’ however plausible the authenticity. The unfortunate result is that many dealers, investors, and buyers must now rely on the courts to resolve these disputes. The judicial system is an especially challenging venue given the opaque subjectivities and technical nuances involved: especially in the United States, the courts will assume a sophisticated buyer should be prepared with the resources to complete due diligence, so the burden of proof lies with the buyers if their ownership of the work is challenged. The baseline assumption that all buyers, even new and less experienced collectors, are sophisticated experts in these matters is, itself, problematic.
For contemporary works of art, buyers have traditionally been encouraged to request a certificate of authenticity. Unfortunately, with advances in technology, it has become increasingly easy to forge such a certificate. Bob Wittman, who served as the FBI's top investigator and coordinator in cases involving art theft and art fraud, notes that certificates are no longer reliable, since anyone with a modicum of technological experience can print one from the comfort of their home. Regardless, until an alternative method of verification is developed, requesting a certificate should be a sine qua non part of the purchase process. Wittman now consults on the recovery of stolen art and cultural property and advises on provenance and due diligence, which he says can prevent owners from being charged with the purchase of stolen goods.
Brian Shannon, an art appraiser and consultant with BMS Art, advises buyers to apply as much interest in the documentation as they would the purchase, and always request the complete history of the ownership of work (provenance). Any reputable dealer would share what records they have of past sales. Indeed, the provenance of a given work may specifically inform its value, particularly if the provenance references a period in a prominent collection, museum show, or auction, which shows both greater importance and suggests more aligning documentation is available to support claims of authenticity. Historically, art sales have been deliberately opaque to protect the privacy and confidentiality of the buyers and sellers, but purchasers in the market today should understand that litigation and transparency of information are becoming more prevalent in the market. Moreover, as governments globally have come to recognize the art market’s susceptibility to bad actors as well as white collar criminals, regulatory changes have been implemented which require at least some reporting of the trustees, beneficiaries, and administrators behind ownership vehicles such as LLCs or trusts.
As mentioned earlier, a common place to begin due diligence is the catalogue raisonné of an artist. These are scholarly volumes, sometimes available online, which are a compendium of an artists’ work, but they are not always exhaustive: well-known artists may have multiple editions of catalogues, and owing to their productivity, some works by an especially prodigious artist may not be included. This is especially true for works historically perceived to be of lesser value or works on paper, the market for which is now much greater than in previous years. While omission from a catalog does not necessarily disqualify a work, there is a far greater hurdle to prove authenticity for works that have been excluded.
Buyers should also remember that even if purchased in good faith from a trusted dealer, purchasing a work of art valued at over $100,000 that was stolen from a museum or a work that is over one hundred years old and worth more $5,000 could constitute a violation of a federal law (18 USC 668) and subject the buyer to fines, penalties, and possibly time in prison. To help buyers with their own research, several databases for stolen art works are publicly available:
1. Art Loss Register The fee for a single search is $95, with discounts available for multiple searches.
2. National Stolen Art File is a mobile app maintained by the FBI with a free search function.
3. Interpol has a database of 52,000 Stolen Works on its website here, also accessible through a mobile app.
Buyers should also understand that the legal definition of theft is expanding, especially when tracing the event beyond living memory. Several notable cases have been publicized in recent years that highlight the challenge that some buyers can face from heirs who feel that an ancestor was robbed of their possessions regardless of whether explicit force was used. In one settlement last year, Ronald Lauder, a lifelong supporter of Holocaust remembrance and justice initiatives elected to restitute a work from his Neue Galerie collection and repurchase it from the heirs of Irene Beran, a Jewish collector previously understood to have sold or abandoned the work voluntarily sometime around WWII who died in 1979, in Palma. While sums were not disclosed, this was presumably an alternative to protracted litigation against the heirs and serves as a good reminder to others who may not feel so inclined to accept the risks of encountering such a quagmire of legal and public relations.
Advances in Forensics
Technology also has helped to advance the science of art forensics. Labs are able to test materials such as paint samples and fibers from canvases, and use x-rays and histograms to look at pixilation patterns to determine whether a work matches the age and location of origin. Forensic testing now provides valuable insight to a range of art, from ancient artifacts to works completed in the mid twentieth century. In an especially notable 2007 example, after the Knoedler Gallery sold a painting by Jackson Pollock for $17 million – forensic tests on the yellow paint were found to contain pigments not commercially available until about 1970, well after Pollock’s death in 1956. The release of this information lead to the closure of the gallery and the discovery of a forgery ring which had manufactured and sold at least 30 allegedly abstract expressionist works through Knoedler to the tune of $80 million.
Though the benefits to forensic testing are well publicized, there are costs and limitations as well. An analysis may be limited to determining what something is not, instead of confirming what it is, leaving owners with fewer answers than when they started and additional fodder for naysayers. Forensics for example, are often no more capable of discerning whether a work is truly made by the hand of the attributed artist or by a devoted contemporary or workshop. And many more progressive theories of forensic applications such as fingerprint analysis are championed by small purveyors of such services not generally recognized as expert by either the traditional scientific or art communities. Restoration necessary to stabilize a work or remove prior damage (especially from smoke or varnish) can also complicate matters of authenticity if it requires supplemental restorative ‘contribution’ by a restorer and not just conservation. Like conservation work, forensic analysis is often very slow and requires accompanying research for an advocate to gain even a toehold with their claim. Notably, the investors who later sold the Salvador Mundi (attributed by some scholars and the consortium of erstwhile owners to Leonardo Da Vinci) allegedly spent an undisclosed amount and allocated the work for several years to the care of Nica Rieppi and Art Analysis & Research team. In the end, this presumably very costly research provided as much ammunition to the critics as it did a shield from their critique.
Is Insurance Available?
We frequently receive inquiries about art title insurance which was available until 2019 from Aris. These policies operated similarly to home title insurance, however the product never gained traction in the marketplace and has since been retired. The valuable articles policies offered by many of the insurers we represent include varying amounts of coverage (the most being $200,000) for defense of your claim if one is made against the title for a work of art that you own – with some limitations: this coverage will not protect a buyer who failed to take reasonable steps to complete due diligence, and if the work is determined to have been stolen, the buyer must return the work to the rightful owner. Some art insurance policies will respond if the art was never delivered as long as the buyer purchased in good faith, remitted funds, received a sales invoice, and of course, insured the art either on a scheduled or a blanket basis.
Steps to Protect Your Ownership
Attorney Coco Soodek, of Seasongood Law, who has extensive experience representing art collectors, offers the following advice for protecting your ownership:
1. Conduct business with reputable people. Whether you are buying or selling, try to do business with reputable art experts. That doesn’t mean that you have to limit your transactions to the most established institutions, but you should have some way of verifying that the person running the business is not nefarious. Get references, do a web search of the entity and the people behind the entity, meet the people in person. Our caution here is that that sadly, there have been many highly publicized examples of when a trusted dealer takes advantage of a long standing client relationships to perpetrate fraud or when a reputable gallery resorts to fraud because they are in financial distress (the Knoedler Gallery in New York being among the most extreme examples). So, reputation alone is not enough.
2. Trust But Verify. There are two ways that someone can swindle you: on purpose or by accident. To protect your property, you may have to exhibit a little vigilant diligence to keep your agents honest and attentive. So, if you consign a work of art to a gallery, go see it occasionally. Make sure it’s still there; that you (or you anonymously) are listed as the owner; that it is in good condition, and not sitting under a leaky roof in a hot room. If you buy a work of art, have it picked up and placed in a location under your control as soon as you can.
3. Make the UCC Your Friend. The Uniform Commercial Code (UCC) is the generic name for a uniform set of state statutes governing property. People who want to protect liens on personal property register that lien with a state government to let the world know that the lien exists. So, when you are buying art, you should search the state where the art owner lives or is incorporated to see if there is a UCC lien filed against the art. And, when you consign your art to a dealer or anyone, you can file a UCC-1 announcing to the world that the art in the dealer’s possession belongs to you. People are often unwilling to file the UCC-1, because it shows mild distrust of the art dealer – it is prudent to do it anyway.
4. Validate provenance and current title. ‘Provenance’ is the history of ownership of a work. ‘Title’ refers to the current owner. The art world regrettably makes it difficult to validate provenance and title by the practice of keeping owners anonymous. Buying art without clear provenance and title is really a bet that no one else will come forward and claim superior ownership. Research to verify and validate provenance and title not only help solidify your ownership of the art, but it is also an opportunity to nail down the paperwork to the art for estate purposes.
5. Don’t fund until you – or your agent – have seen the work in person. Why is this important? Because you want to make sure the work of art exists and not just in an existential way.
6. Add the work to your insurance policy immediately. Things happen, particularly of a work in transit. As soon as you pay the price, send notice to your insurance carrier about your new work.
7. Most important – be a bona fide purchaser. For dealers and experienced collectors, do your due diligence (hire a lawyer, negotiate the terms of the purchase, do some research). This can help you win in the end. And, if you learn anything that is a red flag about the seller, dealer, artist, or work, do even more due diligence or just don't buy it.
In addition to the suggestions proffered by Coco, we would add that one of the greatest challenges to buyers who find themselves defending their ownership status is the absence of clear documentation, or the time spent recovering previous documentation. For the occasional purchaser with a manageable collection, it is easy and essential to keep good records with warranties of authenticity, invoices, and receipts, and copies of any correspondence between a buyer, seller, and their agents. A more experienced collector should regularly review the documentation around their collection with an expert art advisor, and secure frequent appraisals and condition reports, which may alert the collector to potential red flags.
The art market still operates very much on a verbal and handshake basis, which can make demonstrating fraud or theft very challenging without the chronology leading up to an agreement, or an agreement itself. A dealer or seller who will not commit something to writing when asked should be regarded with hesitation. As always, making a significant purchase with the help of a reputable and independent art advisor and attorney is advised, as is ensuring that they keep detailed records. In all instances, aim to have multiple digital backups.
We at Chartwell Insurance Services maintain a database of experts (for which we do not receive referral commissions) to assist our clients in authenticating, purchasing, cataloging, and conserving works of art.
We close this Chartwell Bulletin with wise words from a recent Wall Street Journal essay by cognitive scientists Daniel Simons and Christopher Chabris that references the Knoedler Gallery scandal and dissects why humans are deceived.
"There are scams out there waiting for each of us, no matter how sophisticated we think we are. Rather than 'it can’t happen to me,' your mantra should be 'accept less, check more.'"
With proper guidance and a healthy dose of inquisition, even first-time purchasers of art can collect like a seasoned pro.
The Responsible Art Market Initiative (RAM)
Due diligence and authentication:
National Stolen Property Act
Case Study: Andy Warhol’s “Red Elvis:” Kerstin LINDHOLM v. Peter M. BRANT et al.