The risky business of buying art. The role of due diligence
It is a very risky business – buying art. Globalization has set the foundation for quick sales and acquisition transactions across transnational borders.
It is a very risky business – buying art. Globalization has set the foundation for quick sales and acquisition transactions across transnational borders; confidentiality prevents buyers to get the full picture about the provenance of the works; and art dealers largely seem to expect blind trust from their collectors when purchasing an artifact from their gallery.
With such preconditions how can a buyer make sure that the purchase of an artwork will not finance terrorism or hide money laundering? How can he be sure it was not stolen or illegally exported from its country of origin? Or be certain of its authenticity?
The only way to mitigate the risk of being involved in unclean art transactions is applying due diligence.
In Switzerland the Federal Act on the International Transfer of Cultural Property, which entered into force on 1st June 2005, obliges professionals in the art world to verify the identity of the seller, demand a written warranty from him that he has good transferable title to the property and keep a clear record of the artwork and its transaction for 30 years.
It must be made clear that the Act is not exhaustive and only sets forth the very minimum requirements for due diligence, which professionals must apply. Art transactions carried out between private collectors are not subjected to the obligations listed in the Act, although it is highly recommended that they nevertheless apply due diligence.
In fact, should a legal dispute arise, it is the buyer’s responsibility to prove that he purchased the artwork in good faith and he can only do this by providing proofs of extensive due diligence. This may include (but not be limited to) signing an agreement of sale, in which the parties involved, the artwork, the price, the seller’s warranties and other terms and conditions of the transaction are clearly stated. Additionally, it is warmly suggested to carry out in-depth provenance research, verify that the object was not registered as missing or stolen on any art register (e.g. the Art Loss Register), execute laboratory exams to prove the age and authenticity of the work (particularly for ancient objects) and request a condition report prepared by a professional conservator.
Collectors have the right to request these documents from the seller, be it an independent art dealer, a gallerist, an auctioneer or a private person.
Unfortunately it happens more often than not to see exceptional art collections worth millions of dollars scarcely documented. This makes us wonder why collectors seem so reticent in requesting information from the seller about the works they are purchasing. After all, they wouldn’t buy a house without having its grounding structure and market value checked by a professional, nor would they pay it without having a contract signed. So why does this very same due diligence not apply to artworks?
Perhaps it is because they trust the gallerist blindly? Or is it the fear of damaging this trust bound created with the gallerist over the years? Or maybe they underestimate the value of the documentation not only in case of a legal dispute or insurance claim, but also in future sales transactions?
The answers are many and most variegated, but truth is that buyers should never hesitate in requesting documentation for their records. Without proper documentation collectors have no chance of negotiating with their brokers during insurance claims, because there will be no condition report or images proving the optimal condition of the work before the incident; they will have no protection against lawsuits, because they will have no contract stating that the seller had good transferable title to the work; and when re-selling the work, they will not be able to negotiate the best price for it, because its provenance will not be documented.
Nowadays documenting art transactions is no longer a facultative “nice to have”: it’s a necessity. As the saying goes, trust is good, but control is better.