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  • Laurens Kasteleijn

Provenance and Due Diligence in the Art Market: Key Legal Considerations for Buyers and Collectors

June 2023 by Clara Annani & Laurens Kasteleijn for Art Law Services


In the realm of art, where authenticity and provenance hold paramount importance, even the most esteemed experts and renowned galleries are not immune to deception. The infamous case of Glafira Rosales and the renowned Knoedler & Co. gallery in New York serves as a stark reminder of the complexities and risks faced by collectors and industry professionals alike. It all began in 1994 when Rosales, armed with an "undiscovered" Mark Rothko painting attributed to a wealthy associate, approached Knoedler & Co., setting in motion a fraudulent enterprise that would span over 14 years.


Emboldened by her success, Rosales continued supplying Knoedler & Co. with purported works from renowned abstract expressionist artists, including undocumented pieces by Jackson Pollock, Robert Motherwell, and Richard Diebenkorn. High-profile experts and collectors fell victim to Rosales' scheme, with Sotheby's former chairman valuing a counterfeit Rothko at over $8 million.


The forgeries were skilfully crafted by Chinese artist Pei-Shen Qian, who imitated famous techniques, utilising aged materials such as vintage paint, tea stains, and vacuum cleaner dirt to heighten authenticity. However, the fraud eventually unravelled in 2011 when forensic testing exposed a purported $17 million Jackson Pollock painting as a fake, as the yellow paint used was commercially unavailable until 14 years after Pollock's death. Consequently, Knoedler Gallery faced legal repercussions, leading to its closure.


The art market, with its global reach and elaborate network of transactions, often sees artworks change hands numerous times on their journey to their ultimate destination. Consequently, unravelling the provenance of an artwork becomes a multifaceted endeavour that traverses various countries and legal jurisdictions. In the absence of a centralised authority to regulate the art market and verify authenticity, buyers and sellers must exercise utmost caution and diligence. Provenance research and authentication emerge as indispensable measures in navigating this complex landscape. While auction houses and galleries may provide assurances regarding authenticity and condition, it remains imperative for buyers to undertake independent due diligence and seek the guidance of experts on the provenance of an artwork.


Denver Art Museum 2012 Photo Jeff Wells


Defining ‘due diligence’ and ‘provenance’


Due diligence in the art world is the meticulous process of verifying the nature of a purchase and the entities involved, with the aim of effectively managing reputational and financial risks. Typically, for the art world [1], there are three primary categories of due diligence: client due diligence, artwork due diligence, and transaction due diligence.


Client due diligence


Client due diligence, as the name suggests, entails verifying the identity of the client based on legitimate identification papers and other source documents relevant under the circumstances. In cases where one of the parties is a legal entity such as a company, a trust, an association or a foundation, identity is verified based on official documents attesting of the proper formation and existence of the entity (e.g., certificates issued by company registries, trust deeds). When dealing with those entities, verifying identity of the client can be more complex than with an individual. For example, if you are dealing with a company, you should verify the identity of the company’s controlling owner (the ultimate beneficiary owner) or those with management control. When it comes to trusts, one must identify the trustee and whether they have the power to sell the artwork. If the transaction involves one or more intermediaries, then their capacity to act as intermediary and their authority to act must be verified too.


On top of examining the identity of the client, the buyer must pay particular attention and assess the client’s authority to act. Indeed, there are cases where the person you are transacting with jointly owns the artwork, is the executor of a deceased person’s estate or an agent acting on behalf of a principal owner. In the first case, the selling of the artwork requires the consent of all joint owners through a signed letter, the power of attorney from the joint owners or the confirmation of the sale through their legal representative(s). In case the client is the executor or an agent, one must require copies of the relevant documentation confirming their authority to act in this capacity.


Artwork due diligence


Artwork due diligence involves the comprehensive examination of the artwork by looking at the principal elements including the artwork itself, but also possible trade restrictions, ownership, provenance, authenticity, condition, location and recent movement.


This comprehensive examination begins with the inspection of the artwork itself which might reveal inscriptions, dates, and other distinctive marks relevant for the attribution of authenticity and the tracing of the ownership history. This first step also serves to identify if the artwork contains endangered species material such as ivory, in line with the Convention on International Trade in Endangered Species of Wild Fauna and Flora.[2] This is relevant in order to obtain the necessary permits and licences for the sale, the import and export. One must also inspect whether the artwork is an item of cultural property which, depending on the State, may include maintaining registers and obtaining export licences to ensure that the works circulate legally. One can refer to the ICOM’s “red lists” database[3] for determining if the object comes from an area subject to illicit trafficking and should be checked before handling or acquiring cultural goods.


Moreover, trade restrictions and sanction information on the artwork must be verified before acquiring the art. Such restrictions and sanctions include those in place on artworks coming from Syria due to the conflict and concerns over the illicit trade of cultural property or the former trade embargo the United States imposed on Cuban artworks.[4] It is crucial to ascertain the location and tax status of the artwork, and when applicable, the last country of export should be identified and verified in order to ensure that relevant tax requirements are complied with, and any licences and permits are obtained. Extra vigilance is required if the goods have transited through countries neighbouring a conflict zone.


Determining authenticity is a complex task and the checks undertaken will depend on the artwork. However, typically the three following areas are examined to give an overall picture on authenticity: (1) scientific testing, (2) expert opinion & catalogues raisonné, and (3) provenance & art historical research. It is advisable to gather and share as much information as possible on the artwork’s composition, condition and recommended conservation. The materials used in an artwork as well as the artwork’s condition and the presence of any restoration can impact the artwork’s present and future value. A condition report prepared by an independent art conservator, with the proper level of expertise and specialisation, can be an essential document in an art transaction or during a key stage of a logistical operation.


Provenance


Provenance plays a crucial role in validating the authenticity and value of artworks. Stemming from the French term "provenir" meaning "to come from", provenance serves to trace the ownership history of artworks by providing documentation that outlines the creator, historical background, and appraisal value. Museum curators dedicate considerable time and effort to unravel the intricate paths of an artwork's ownership. This includes consulting books, archival documents, correspondence with fellow curators and art dealers, as well as online resources.


The process of provenance research extends beyond a mere documentation of ownership. It provides valuable insights into the art market's fluctuations, allowing for an understanding of prevailing tastes and trends at different points in time. By untangling the web of transactions and changes in ownership, members of the art world may gain a deeper appreciation of the artwork's significance within its historical framework. These comprehensive provenance records provide a solid foundation of trust within the art market, offering potential buyers and collectors confidence in the artwork's legitimacy.


Moreover, provenance serves a dual purpose: safeguarding against forgeries and holding significance in cases of colonial restitution and Nazi-looted artworks. Thoroughly tracking an artwork's ownership history enables the determination of its legitimacy of acquisition, shedding light on whether it was obtained through ethical or unethical means. This knowledge empowers governments, institutions, and individuals alike to make well-informed decisions concerning repatriation, rightful ownership, and the restoration of family artwork heritage.


Ultimately, provenance stands as an indispensable component of the art world. By upholding the principles of diligent provenance research, collectors, museums, and participants in the art market uphold the preservation of integrity, trust, and transparency within this intricate realm. A robust provenance record safeguards the authenticity and legacy of artworks, perpetuating their significance for future generations.


Legal remedies available in cases of fraudulent provenance

Regrettably, it is impossible to completely eliminate the risk of purchasing a forgery in the art market. Should you discover that your art purchase is indeed a forgery, options available to address the situation shall depend on your jurisdiction.


In the Netherlands, when confronted with forgery, individuals may pursue various legal options to seek redress. One potential avenue is to initiate a civil lawsuit against the party responsible for the fraudulent representation of the artwork's provenance. Through the legal proceedings, the affected party can seek remedies such as restitution, damages, or rescission of the contract. Additionally, criminal charges may be pursued if the fraudulent provenance involves criminal offenses (e.g. forgery or fraud). The legal system in the Netherlands provides mechanisms to address cases of fraudulent provenance, aiming to protect the rights of individuals and preserve the integrity of the art market.


In Hong Kong, the different legal remedies available in cases of fraudulent provenance include rescission, damages, specific performance, resale or return and additional fraud-related claims such as fraudulent misrepresentation or deceit, depending on the specific circumstances of the case. It is important to note that the availability and success of these legal remedies will depend on various factors, including the specific facts of the case, the terms of the contract, and the applicable laws and regulations in Hong Kong.


It is advisable for those affected to consult Art Law Services to navigate the specific circumstances and available legal remedies effectively.


A concerning majority of art buyers overlook the significance of provenance when acquiring artworks on the primary market, only realising its importance when the original collector is deceased. This lack of awareness highlights the need to emphasise the crucial role of provenance in both the primary and secondary markets. By recognising and prioritising provenance, collectors can protect their investments, ensuring the preservation and authenticity of the art world as a whole. It is imperative to raise awareness about the importance of provenance throughout the entire art acquisition process to foster a more informed and secure environment for collectors and the art community.


Please consult Art Law Services if you have further questions about provenance or wish to undergo the due diligence process. Our experts are ready to assist you.


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