Showing posts with label art market. Show all posts
Showing posts with label art market. Show all posts

October 29, 2015

Thursday, October 29, 2015 - ,,, No comments

i2MStandards offers systematic approach to problem of fakes and forgeries in the art market -- Colette Loll, ARCA Alum


Colette Loll, Art Fraud Insights
Tom Mashberg's article for The New York Times, "Art Forgers Beware: DNA Could Thwart Fakes" (October 12, 2015) discusses "a new authentication system that would let artists sign their works with specks of synthetic DNA."

One method is being developed at the Global Center for Innovation at the State University of New York at Albany. The school said it had received $2 million in funding from the ARIS Title Insurance Corporation, which specializes in art.

Here's a link to the program's website: https://www.i2mstandards.org

Colette Loll, of Art Fraud Insights -- quoted in Mashberg's article -- consulted on the project. Loll attended ARCA's program in International Art Crime in 2009 and 2010. In October, Ms. Loll was in London with artist Eric Fischl "and some of the top conservation and materials scientists in the field," Colette wrote in an email. "I have been consulting on this initiative for over a year now." Ms. Loll explained:

“The i2MStandards initiative offers a systemic approach to fighting the prolific problem of fakes and forgeries in the art market. We have been talking about the problem for a long time, it’s wonderful to participate in a very real solution.”

Here's a link to the program's video: https://www.i2mstandards.org/media/.

by Catherine Schofield Sezgin, ARCA Blog Editor

January 16, 2015

Friday, January 16, 2015 - , No comments

Introducing ARCA Lecturer Dr. Tom Flynn — ‘The International Art Market and Associated Risk’

Dr. Tom Flynn at Terni Waterfall
Tom will be returning to Amelia this year to teach ‘The International Art Market and Associated Risk’. The course provides a comprehensive overview of the art market’s historical evolution as well as an insight into its diverse business practices today. Students are introduced to the market’s key institutions, public and private, in order to develop a critical awareness of the inherent risks and rewards of art commerce. The lecture program seeks to create a relaxed space of intellectual inquiry and exchange in which students are able to ask testing questions of the status quo and to challenge received wisdom about the market and its institutions. Discussions usually continue beyond the classroom to create a continuous forum for debate and informal exchange of ideas. 

The course interweaves historical and contemporary strands with a view to understanding the evolution of the market’s core relationships and business practices and how these often inadvertently create an environment in which a range of unethical activities can occur. We explore how the European art market developed out of the princely and royal collections of the sixteenth and seventeenth centuries; its emergence as a commercial activity during the eighteenth century; the rise of the professional art dealer in the nineteenth century; and culminating in the globalization and ‘financialisation’ of the market during the twentieth and twenty-first centuries.

Throughout, students are prompted to explore the relationship between the aesthetic and economic spheres in the creation of value and to develop an understanding of the art market as a nexus of socio-economic activity.

The teaching introduces students to: • a historical view of the economic, social, political and cultural forces that have contributed to the development of the art market. • the concept of connoisseurship and its relationship to a fast developing culture of scientific and forensic analysis. • the broad range of objects and ‘commodities’ that constitute the art market’s multiple categories and specialist sub-markets • the sociological make-up of the art market’s key actors and institutions, embracing artists, auction houses, art dealerships, museums, contemporary art consultants, insurance agents, investment fund managers, fair organisers, public relations specialists, legal advisors, art critics, and the commercial interdependence of market participants • the increasing importance of finance and investment strategies in the global art market, including the growing prominence of art funds, arbitrage activities, art finance, portfolio diversification, etc. • the increasingly global nature of the twenty-first century art market and the forces propelling the markets of the ‘emerging’ BRIC economies and beyond • new communication and information technologies and their impact on art business
What will be the focus in your course? As in past years, the main aim is to create a relaxed, interactive environment in which students can help each other learn through dialogue and creative exchange. The content is built around understanding the relationships between the key actors and institutions constituting today’s market. At every point, we seek to explore the complex interchange of price and value, and how these concepts are created and negotiated.
Do you have a recommended reading list that students can read before the course? I would recommend that students start keeping an eye on the online market reports from Bloomberg, the International New York Times, Wall Street Journal and The Art Newspaper. A comprehensive reading list will be provided closer to the course commencing, but meanwhile any of the following titles would be worth looking at: Dempster, A., (Ed), (2014) Risk & Uncertainty in the Art World, Boomsbury, London; 
Gould, C. & Mesplède, S. (Eds) (2012) Marketing Art in the British Isles, 1800 to the Present: A Cultural History, London, Ashgate; 
Fletcher, P. & Helmreich, A. (Eds) (2011) The Rise of the Modern Art Market in London: 1850-1939, Manchester University Press; 
Degen, N. (Ed) (2013) The Market: Documents of Contemporary Art, London, Whitechapel; 
Barragán, P. (2008) The Art Fair Age, Milan, Charta; Flynn, T. & Barringer, T. (Eds) (1997) Colonialism and the Object: Empire, Material Culture and the Museum, London, Routledge
The deadline for the 2014 Postgraduate Certificate Program in Art Crime and Cultural Heritage Protection is March 30, 2014. Late applications will continue through April 30, 2014 subject to census and housing availability. Applications are reviewed on a rolling basis until census is full so apply early. You may send inquiries to education@artcrimeresearch.org.

Dr Tom Flynn, FRICS — Professional background
Tom is Senior Lecturer in the Faculty of Art, Design & Architecture at Kingston University, London where he directs the Masters course in Art & Business, and is Adjunct Associate Professor in the International Art Market at Richmond, the American International University in London. A former auctioneer and art market journalist, Tom writes and and lectures widely on the art market, art crime, art & technology, museums, cultural heritage and historical and contemporary sculpture. He holds degrees from Sussex University and the Royal College of Art and wrote his doctorate on nineteenth century critical attitudes to the chryselephantine sculpture of antiquity.

July 20, 2014

Sunday, July 20, 2014 - , No comments

Book Review: ARCA Lecturer Tom Flynn adds chapter to "Risk and Uncertainty in the Art World"

by Martin Terrazas, ARCA Alum '13

Risk and Uncertainty in the Art World (ISBN: 9781472902924) is a notable attempt at compiling into cohesive curricula research by scholars such as Marina Bianchi, Tom Christopherson, Neil De Marchi, Elroy Dimson, Tom Flynn, Daiva Jurevičieně, Arjo Klamer, Roman Kräussl, Javier Lumbreras, Fleur Maijs, Benjamin Mandel, Clare McAndrew, Jianping Mei, Michael Moses, Laurent Noel, Anders Peterson, Rachel Pownall, Olivia Ralevski, Steve Satchell, Jaketrina Savičenko, Aylin Seçkin, Kyle Sommer, Christophe Spaenjers, Nandini Srivastava, Hans Van Miegroet, Thorstein Veblen, Olav Velthuis, and Luca Zan.

Published by Bloomsbury, it is edited by Anne Dempster (Sotheby’s Institute of Art). Contributors include Tom Christopherson (Sotheby’s Europe), Anders Petterson (ArtTactic), Olav Velthuis (University of Amsterdam), Hans J. Van Miegroet and Neil DeMarchi (Duke University), Marina Bianchi (University of Cassino), Rachel Pownall (University of Tilburg/University of Maastricht), Elroy Dimson (London Business School), Steve Satchell and Nandini Srivastava (Cambridge University), Christophe Spaenjers (HEC Paris), Laurent Noel (Audencia Nantes School of Management), and Arjo Klamer (Erasmus University). 

The book takes a multidisciplinary approach, through alternative investments, art history, behavioral economics, cross-cultural studies, due diligence, macro- and microeconomics, Modern Portfolio Theory, emerging markets, provenance research and many other topics. It is highly recommended to anyone with an interest in the international art market.

Petterson’s discussion of how the Internet has changed the art market was robust. His description of the art market ecosystem and how it is adapting in light of online galleries, artist portals, social media, blogs, online auction/art fairs, online inventory management, price databases, indices, investors, art funds and wealth management, showed that there both a new audience and desire for transparency. In creating a more educated consumer, both traditional and upcoming entities have nothing to lose and everything to gain. Petterson’s article is a treatise against all those that desire not to adapt to provenance standards in the market.

Flynn’s discussion of the role of government and private corporations in art commissioning showed that more needs to be done in regards to authentication of art in the public space. What was striking about the article was that it showed a dissonance between corporate views on art and the industry, itself. A clear conclusion was that, in desiring to imagine itself as an ‘exception’ to business, the art world has only done itself more harm. As both a lecturer with the Association for Research into Crimes against Art and also in hosting a blog titled ArtKnows, Flynn, continues to be frontier of these discussions.

Satchell and Srivastava’s derivations about wealth and utility, adding upon Pownall’s essay, showed that there is still much more to connect between mathematical models, financial markets, and the art world. Integration of Veblen’s Theory of the Leisure Class, the price and wealth effects, Marshallian demand, attempts at indexation – whether through the Financial Times All Shares (FTAS) and the London All Art price index or the Mei-Moses index – the Miller-Modigliani theorem, and the aesthetic dividend, make the reader wonder if the time is here for further data integration with the Standard & Poor’s and Thomson Reuters of the financial world.

The most disappointing was Christopherson’s essay that showed some dissonance against “testosterone-fuelled bond traders” (Risk and Uncertainty 65). The main discussion on legal title, authenticity, issues of attribution comparisons, condition, and valuation was vague. In discussing the Foreign Corrupt Practices Act, Artists Resale Rights, and Bribery Act, Christopherson described a desire to return to an imaginary past. The ultimate lesson learned appeared that he merely seems unsatisfied with changing business models in the art market.

March 29, 2014

Saturday, March 29, 2014 - , No comments

The 2014 Forbes Billionaires List: Dr. Tom Flynn on how new trends in wealth may affect the art market

The ARCA blog asked Dr. Tom Flynn, an ARCA Lecturer, about what trends in wealth could mean to the art market. According to “The 2014 Forbes Billionaires List” (March 3, 2014), prefaced by Kerry A. Dolan and Luisa Kroll, the 1,645 billionaires reside mostly in the United States (492), China (152) and Russia (111):
But wealth is spreading to new places. We found billionaires for the first time in Algeria, Lithuania, Tanzania and Uganda. Also for the first time, an African, Aliko Dangote of Nigeria, breaks into the top 25. Worth $25 billion, he moves up 20 spots. Roughly two-thirds of the billionaires built their own fortunes, 13% inherited them and 21% have been adding on to fortunes they received. … Still not all countries–or tycoons–had good years. Turkey lost 19 billionaires due to soaring inflation, a sagging stock market and a declining value in its currency. Indonesia, whose currency tumbled 20% against the dollar, now has 8 fewer ten-figure fortunes. 
ARCA Blog: What does this mean for today’s art market?

Dr. Flynn: History has consistently shown that wherever wealth is generated, art markets flourish. The art market has always followed money and so the upper reaches of that market, which relies on the communicative power of high-ticket luxury goods, will continue to benefit from the presence of so-called UHNWIs — Ultra High Net Worth Individuals (those with investable liquid assets of $30 million or more). Billionaires can only display their wealth through their worldly goods and thus Thorstein Veblen’s formulation of “conspicuous consumption” remains as relevant today as it was in 1897. “In any community where an invidious comparison of persons is habitually made, visible success becomes an end sought for its own utility as a basis for self esteem.”

ARCA Blog: How have these changes already been incorporated into sales in the last few years? What trends can we expect to see?

Dr. Flynn: Prices at the very top of the art market continue to rise. Pictures realising in excess of $100 million are fast becoming a commonplace of the blue-chip market. These are price levels that bear little or no connection to the reality of most normal people’s lives. True masterpieces have always been expensive relative to mean average incomes, but they are now arguably on an altogether different scale. It is always worth reminding ourselves that an oil painting is, one level, merely a studious arrangement of pigment on a humble piece of canvas. The price of $250 million for Cézanne's Card Players is a consequence of the purchasing power of the Qatari royal family for whom money is, quite literally, no object. The evidence suggests that the owners of such wealth are proliferating across the developing world, from Nigeria to Sao Paolo, Uganda to Lithuania. How much of this new wealth in the so-called developing world has been illicitly appropriated through bribery and corruption at the expense of the common people — as was the case with the freewheeling Russian oligarchy — we may never know. One thing is for sure: much of it will gravitate towards the art market. As New York-based art dealer Richard Feigen recently predicted, it may not be long before the art market witnesses its first billion-dollar painting.

Dr Tom Flynn is Course Director at the Faculty of Art, Design & Architecture at Kingston University.

June 3, 2011

Friday, June 03, 2011 - , No comments

WSJ Reports on "Artists and Assistants: The Art Assembly Line

by Catherine Schofield Sezgin, ARCA Blog Editor-in-Chief

One of my friends on Facebook posted this article and I would hate for anyone interested in the art market, authenticity, and provenance to miss the article, "Artists and Assistants: The Art Assembly Line" in the Wall Street Journal. From what I understand, big name artists sell artworks based on the talents of lesser known or unknown assistants. One artist said that if customers ask, they will tell them about the assistants. One painter changed galleries when the dealer objected. Fascinating subject -- if I recall correctly, Rembrandt's studio produced art at different levels -- paintings solely by Rembrandt sold at a higher price and those by the Rembrandt workshop sold at a lower price. The change now seems to be that some artists and art dealers see no reason for a price difference.

June 3, 2009

The Art Market: How Lending Fuels Art Crime


ARCA is pleased to present a series of papers written by graduates of Noah Charney's course on art crime, taught at Yale University in the Spring of 2009. The following article was written by Elizabeth Sebesky.

The Art Market: How Lending Fuels Art Crime

Introduction
The term “art market” is a contradiction in terms. The act of turning art into commodity, into a form of collateral or financial asset, fights against the instincts of art lovers, who cherish its priceless, intrinsic value. However, Iain Robertson, Head of Art Business Studies at Sotheby’s in London, points out in his monograph, Understanding International Art Markets and Management, that even though “art and money might still seem like uncomfortable bedmates, […] the relationship is sacrosanct.” The psychology that fuels the acquisition of material wealth also drives art collection: “the acquisition of art, a tangible ‘consumption good’ with ‘social capital’, is also seen as a positive addiction.” Furthermore, the characteristics of art crime are quite similar to those of financial over-extension to the point of bankruptcy and white collar crimes, such as investment fraud, security fraud, and money laundering. In fact, Interpol has recently reported that “financial crime[s] such as money-laundering” are believed to be “intimately connected in many cases [with] the drugs, arms and the illicit art and antiquities trades.” Although there are many overlaps between art crime and national and international financial markets, the impact of art lending companies, that turn art into collateral, has been relatively unexamined and is pertinent today and in other times of economic downturn. By presenting a case study on the recent upsurge in this financial practice, pointing out some of the problems and pitfalls of art lending and the art market more generally, and then recommending some preventative measures and solutions, this paper will help raise consciousness on the ways in which art lending practices can contribute to and enable art crime.


The Psychology of the Art Market as It Leads to Art Crime
It is important for art historians and art economists to go beyond a traditional neoclassical economic analysis of the art market when examining art crime. Instead of analyzing common topics such as the distinction between public and private art supply, scholars and professionals in the field must pay attention to both “the extrinsic and intrinsic motivation” of players in the art market and the “dynamics of interaction” between these two motivations. The intrinsic motivation can be defined as psychological attachment to the art itself or what the art represents for the buyer. External motivation connotes the practice of distilling aesthetic value into a pure monetary figure or financial asset. The first step to serious investigation is to put both of these motivations in financial terms, such as “psychic return” and “consumption benefit” respectively. Those who care primarily about “psychic return” are “pure collectors”, who purchase or hold onto artwork due to their personal regard for it and ignore price fluctuations in the market. In contrast, “pure speculators” are more willing to sell their art due to “unpredictable financial risk (price variations) and uncertain attribution” and are most concerned with the art object’s “consumption benefits.” Understanding the psychology behind these “consumption benefits” allows art historians and art criminologists to focus on individual players—such as lenders, dealers, and investors—who all have their personal psychological justifications for criminal actions. 

The Art Lending Company: “Private Banking for the Art World” Recently, news sources, including The New York Times, reported that art lending companies across America have had a recent upsurge in business from art owners, collectors, and dealers, who have decided to leverage their art objects. The most prominent companies include Art Capital Group, Art Finance Partners, Sotheby’s Financial Services, Emigrant Bank’s Fine Art Finance, ArtLoan, and lending services at the “art advisory wings” of large banks such as CitiGroup, Bank of America, USB, and Deutsche Bank. Art Capital predicts that they will make about $120 million in art-related loans in 2009, up $40 million from 2008; Art Finance Partners reports a 40% rise in business over the last six months. Similarly, owner Ray Parker Gaylord of ArtLoan says that he has “seen ‘exponential’ growth in the last year even though it charges interest rates of 18-24%.” Independent companies not attached to big banks are desirable to some clients, who wish to keep their financial affairs especially private or separate from other parts of their personal finances or for those unable to get a loan from bigger art financing companies. The owner of Art Capital, Ian Peck, admits that clients come to them in times of financial trouble—“burned by Ponzi schemes.” Generally, these art lending companies charge 40% of what they appraise the artworks to be worth. Often, they gain full possession of the art objects if their clients default. These statistics indicate the success of this corner of the art market and that it fulfills a real function for art owners in economic trouble. 

Those seeking capital can receive loans that are “asset-based”, meaning they come from temporarily exchanging property (in this case art objects) instead of being credit-based. Across the finance industry, pieces of art are considered “unconventional assets.” Art owners looking for cash have a few options: they can “borrow against” their artwork (fine and decorate arts, antiques, and collectables), receiving what is called a “term loan”; here, the owner can temporarily lend his/her art pieces without selling them outright in order to get money or “liquidity.” Another option that most private firms offer is if an owner knows he/she wants to sell an art object outright, he/she can borrow a certain amount of money based on a “low-end auction estimate” of the price in advance of the sale; this practice allows clients to continue investing while waiting for consignment to occur. Sometimes the art object is not the only object that is used as an asset and is combined with other forms of leverage in a collateral package. Additionally, some of these private companies offer loans for art dealers, based on the value of their industry, and carry out “consignment financing” to provide financial support to dealers so that they can effectively sell their art objects.

A recent article from The New York Times, published on February 23, 2009, “No Banking on Art”, uncovers the private financial situation of the famous photographer Annie Leibovitz, who was forced to do business with Art Capital Group; it is reported that she used her estates, but even more shocking, her “‘copyrights, photographic negatives, [and] contract rights’ existing or to be created in the future” for $5 million of collateral. This opens the door to uncharted territory about lending intellectual property rights in exchange for cash and signals the need for revisions in art law.

Problems 
One of the most pressing issues surrounding art lending companies is that they generally pride themselves on providing confidential service; this lack of transparency translates into the potential for illegal transactions and “grey” territory. Ian Peck, co-owner of Art Capital, describes his business as being “very discreet” and advertises Art Capital as “private banking for the art world.” The New York Times withheld the name of a client of Art Capital, a former investment banker in New York, upon his request, as “he did not want friends to know his financial situation […].” If providing confidential services for clients, who are embarrassed or prideful, becomes too big of a priority for art lending companies, they run the risk of inaccurately keeping records of appropriate transactional documentation and in-house inventories. Within the body of this New York Times article, a few other clients comment on the “legal messiness” that ensues due to the lack of data open to public access; this “messiness” is amplified by the sensitivity of a business where art owners must face losing their prized possessions. In his book, Iain Robertson confirms what the news has been reporting: “the art market’s often covert and secretive buying and selling practices do encourage or at least permit high levels of criminal behavior.”

The high risk behavior that accompanies dealings in the art market facilitates what Patrick Boylan, Emeritus Professor of Cultural Policy and Management at the City University of London, calls “deception crimes.” Boylan reports that “in addition to theft (in the narrow sense), burglary or robbery, the art sector also experiences a fourth significant group of theft crimes, which are usually much more difficult to detect, namely obtain[ing] property or […] financial advantage by means of deception.” These “deception crimes” include forging documents, diverting works of art without proper authority, and money laundering. Clients run the risk of being too confident in these lenders to keep track of their art due to the persona that these private companies adopt and therefore do not impose a third-party monitor. Many of the companies mentioned in this paper purposely take on rich, famous clients such as Veronica Hearst, Annie Leibovitz, and Julian Schnabel for the status of their own business. This preoccupation with status can cause lenders to favor one client’s pieces over another, giving a certain collection favored security measures.

These social interactions and networking tasks may detract from the overall effectiveness of the business: for example, it is important for lenders to research the provenance of objects in their possession in case they were illegally acquired somewhere along the line. If the art lender does not know the provenance of an object, he/she could unknowingly perpetuate the crime by passing it on to an auction house or dealer. As their degree of separation becomes greater, these auction houses or dealers become even more “in the dark.” “Client confidentiality” also makes it easy for sellers to simply not tell the loan company that an art object has a criminal provenance and use a loan to purposely exchange “dirty money” for “clean cash.” Are protective measures in place to prevent this from happening? Furthermore, do these art lenders have the expertise and experience to come up with a monetary amount for Annie Leibovitz’s copyrights and contractual rights: a topic that hasn’t even been well established in the body of intellectual property law? Are they taking her on as a client irresponsibly for status reasons without having adequate legal background? Baird Ryan, co-owner of Art Capital boasts that “because his firm understands the art market better than regular banks, artists can make attractive borrowers.” However, are these lenders within relatively small companies prepared to take on these many different roles? 

Asymmetrical information between the buyer and seller is another way in which a lack of information transparency affects the art market. In Art & Economics, Bruno Frey confirms that art markets are driven “by a strong prevalence of behavioral anomalies” of the buyer and seller, who interact in a subjective manner while conducting business. This leads to disparity in the pricing and the background information or provenance of the art object. In Iain Robertson’s Understanding International Art Markets and Management, Professor Boylan writes a chapter that informs the study of art crime by pointing to ways in which the art market falls short:

Although there are many similarities between the art and financial markets, there are crucial differences, which make pricing art and accounting for risk in the art market much less accurate and effective than in the stock market. The measurement of art returns is subject to unacceptable levels of misinformation, and profits and losses are often shrouded in mystery. Most art businesses are privately owned, small enterprises jealously guarding price information. Client identity is confidential and the buyers prices have paid outside auction are hard to verify. Finally, there is no obvious benchmark for art, which makes risk assessment very difficult.
What Professor Boylan refers to as “unacceptable levels of information” applies to small lending companies, who conceal transactional information. In addition to creating “dark alleyways” where art crimes can occur, this lack of transparency compounds the difficulty of pricing art. The process of liquefying art assets or borrowing money against art objects presents high financial risk to the seller or loan client as well as the buyer or art lending company; this is because the translation of aesthetic value or what Iain Robertson calls “psychological dividends” into dollar amounts is not clear-cut. The seller’s assessment of the economic value of the work takes into account his/her personal regard and taste. In this way, the seller may not get as much money as he/she thinks the art object is worth. Not only is the art object devalued in a humanistic sense, but this exchange into money also paves the way for nefarious activity: art lenders can make a profit off of clients, who default and hand over their objects, by eventually selling the object to a third party auction house or dealer for more than it was originally appraised due to a discrepancy in information exchange. 

Thus, another risky area surrounding art lending companies is the physical storage of the art piece when it changes hands between buyer and seller. Taking on the role of the middle-man, art lenders must use adequately secured storage and gallery facilities when they repossess the art objects from clients that default on their loan payments. There are three areas where the art pieces could be at risk: in transit on the way from the client’s possession to that of the lending companies or from a lending house to an auction house or dealer, in the lending companies’ main facilities/gallery, and in a storage facility separate from the executive offices. In her article for Art & Crime, “Implications of Art Theft in the Fine Art Insurance Industry”, Dorit Straus tracks the number of thefts that occur in certain places; she notes that most thefts do not occur in alarmed museums, but in privately owned locations: out of thefts reported to the Art Loss Registry since 1991, 4,884 have occurred in “private residences” compared to 3,040 thefts in “art galleries and corporations”, 889 in museums, 388 in-transit and 482 in warehouses. Although there are a surprising number of thefts recorded in transit, an even vaster number of objects are stolen from galleries and corporations. 

The New York Times article, “No Banking on Art” that is mentioned in previous paragraphs above describes Art Capital’s headquarters as a swanky building on Madison Avenue previously owned by Sotheby’s that “looks at first like an art gallery.” The reporter goes on to note that “two Warhols, a pair of Rubens portraits of Roman emperors and a pink nude by the contemporary Mexican painter Victor Rodriguez hang on the cool white walls [while] a sculpture of the faun by Rembrandt Bugatti sits on a windowsill in a conference room where transactions are discussed.” It is the mix of art with financial business that is the most disconcerting: should the Rembrandt really just loaf on the windowsill in a conference room? If the lending company chooses to display its repossessed artworks (which are sometimes even put on display and open to the public), it should institute much tighter security measures that are on par with museum-level protection strategies. In addition, some companies, such as ArtLoan, declare that they prefer to make loans on items that are “physically small and thus easy to store or to ship to auction houses and dealers in case of a default.” Due to their size and portability, these small objects are prime targets for theft, vandalism, forgery, and in-house theft. This “pawnshop” atmosphere flagrantly provokes art crime.

Lastly, the storage facilities of art lending companies, similar to what Dorit Straus classifies as “warehouses”, pose potential risk to the companies and to cultural heritage protection as a whole. Art Capital’s website gives clients options to keep their works “in one of [their] secure storage facilities in New York City or displayed in [their] Madison Avenue gallery space.” However, these storage facilities most likely do not have extensive security measures and do not protect efficiently against damage. Straus points out a fact about insured art in warehouses that carries over to the discussion at hand: namely, that “many warehouses provide open storage, allowing multiple artworks from a single collection to be dispersed throughout the warehouse.” Thus, art lenders run the risk of losing or misplacing art on loan due to a lack of inventory control in these open facilities. One necessary question to ask is whether the pieces that are housed in a gallery, storage facility, or in transit, are insured. The objectification of art through business transactions can create an atmosphere over time where company members stop being as cautious with the objects, becoming less concerned about damage, destruction, theft, or misplacement. 

Solutions 
Although this paper has pointed out a few areas of concern in the art market that can lead to art theft, appropriation, and the manipulation of documentation for financial benefit, there are viable solutions for preventing art crime. The first key is to broadcast a public service announcement or information campaign in print, television broadcast, and online reporting that portrays art crimes as tied to the art market to be as serious as white collar crime. In the wake of public outcry over the Bernard Madoff Ponzi scheme, it will be easier to shape the popular conception of art crimes if their implications are compared to the scale of national and international financial crimes. The second part of this information campaign should focus on drawing out the connections between art crime as tied to the art market and organized crime syndicates: in both arenas, money laundering and the use of art as collateral can occur. Linking activity that the public regards as benign, privileged, and elite to that of drug syndicates and organized crime may make the public more conscious of the potential loopholes and dark shadows surrounding art lending companies.

Another prevention strategy that hits at the very essence of most of the problems discussed above is the “de-commodification” of objects that are part of financial transactions. This, of course, is difficult to do because, after all, art lenders and art finance companies make their business turning art objects into temporary or permanent collateral for their clients. However, is there a way to integrate the aesthetic value or “psychic return” of the artwork into the overall assessment of the monetary value? If this is accomplished, this can help deter lenders from participating in immoral (and possibly illegal) greedy behaviors such as selling the repossessed art object for more than which it was originally assessed. Other preventative measures include treating art objects as precious, meaningful cultural objects in promotional material, websites, and in day-to-day interactions with clients. If daily discourse focuses on inherent value aside from numbers, this psychology may deter criminal activity. This is especially important for massive, country-wide impersonal banks with art advisory branches that grant loans. Finally, if an art lender is working with a client that is lending a whole collection or especially a portion of his/her own works (or copyrights), the lender should make it a mission for the client to be able to keep at least some of the items outright, without loaning everything. Additionally, if subjective value is assessed, then some items can be assessed as more important and prioritized to be saved from possible repossession after loan default. According to this alternative strategy, the art financier would give out loans for many “lesser-priced” items (priced according to this subjective, personal scale) instead of a few “high-priced” items and leave out the one “highest priced” (most personally valuable) item. Basically, the art lender would balance the value of the art to the client with the monetary benefit of the art to their company in order to protect against art crime: if art objects are kept with those that love them and therefore practice exemplary safety precautions, the eventual theft or vandalism that could occur if sold to another buyer can be prevented.

These ideas about how to “foolproof” lending companies from participating in art crimes can also come from the advice of specialists who seek to revamp art investment or art insurance practices. For example, just as art lending companies offer money for art, art insurers provide cash for a stolen object, which “offers some consolation, [but] […] never equal[s] the return of the actual objects.” Therefore, art lending companies should follow the same philosophy as art insurers: that “it is thus in the best interest of both public and private collections to undertake the necessary precautions to evaluate their situation with an eye towards preventing theft.” One of these “necessary precautions” is the insurance underwriting process, which assesses areas of risk to the artwork and develops prevention strategies. Dorit Straus holds up the National Endowment for the Art’s Arts Indemnity Program as an esteemed example of how efficient underwriting and risk prevention are used to “exceed even the private sector’s insurance and industry review and diligence in risk assessment.” Perhaps the National Endowment for the Arts can serve as an example to art lenders who can apply similar strategies to their “at-risk” areas such as storage spaces, galleries, and transit vehicles. Being conscious of the risk, coming up with strategies, and taking inventory of objects, are all first steps to the proactive prevention of art crime.

Art lenders can also learn from advocates of art investment reform. The art market requires an overseeing board, an umbrella organization that maintains transparency, keeps records in the public eye, and serves as a watch-dog. David Kusin, founder of Kusin & Co., an economic research firm, recommends revamping the art market by reorganizing the board of directors of various institutions and “replac[ing] the socially connected members with independent, seasoned operating executives from other sectors to improve governance.” This non-partial overseeing board could be in charge of monitoring how art is handled during financial transactions and managing the tenuous and sensitive process of converting art into monetary value, whether as collateral or as investment.

In addition to creating an overseeing board of directors, David Kusin recommends creating both a “standardized nomenclature” and “a statistically based system for capturing sector-wide transaction data in real time” for the art market. Although Kusin focuses specifically on bettering art investment in his article, these improvements can successfully inform art lending practices. Even though Kusin postures himself in this article as looking to the future when the global capital market will rebound, these changes need to be implemented right away; these measures will not only eventually respond to a thriving market, but will also improve the transparency and structure of art finance along the way. In “The Current and Future Value of Art”, Iain Robertson suggests a similar solution: the construction of an “art index” that offers comprehensive, real-time information. He notes that six dominant global indices (including the All Art Index, the British Art Market Research, the Standard & Poor 500, the American Mei/Moses Index, the Art Sales Index, and the French Art Price Index, “only offer partial price information.” He points out the importance of “serious attempts [that] are being made to bring transparency to the art market and to create indices against which international, not just industry, investors and speculators can bet.” Not only will this improve transparency of information throughout the industry, but it will also provide realistic, accurate information that may deter investors, who do not have the means to invest in art. Additionally, an accurate assessment of the risk will prevent investors from being victims of fraud. The bottom line is that the greater the financial risk and the higher the stakes, the worse it is for the fate of that art object. If information in the art market becomes just as transparent as other financial sectors, then art objects will be at less risk for being misplaced, stolen, or illegally bought as a result of investment Ponzi schemes. David Kusin warns wisely that such overarching operational “systems don’t create monopolies, disclose propriety intellectual property or reveal operational secrets, [but] the costs of continued failure to build this capacity for the art sector are untold.”

Conclusion
If the suggestions above are applied to art lending practices, the probability of art crimes occurring within the art market will most likely decline. Furthermore, these preventative measures can and should be implemented more comprehensively throughout other aspects of the art market, such as art investment, art insurance, financial bankruptcy as it applies to art, and white collar crimes, such as securities fraud, embezzlement, and money laundering. In turn, the further study of how art crime is closely tied to all of these aspects of the financial market will raise consciousness about the importance of art crime and how simple it is to stop by reforming certain elements of financial transactions. This paper has touched on several practices recommended by art insurance agents, economic scholars, and art investors and has applied them to solutions for “fool-proofing” art lending. However, this is a topic that should be explored further. It is important for all players in the art finance industry to work together to revamp these practices and to pay attention to how they as individuals help to fuel art crimes. 

The implementation of these suggestions will help improve the fiscal health of the art finance sector overall, allowing art collectors, artists, and dealers, who wish to hold onto their art objects, to avoid turning to art lenders for capital as frequently. This will help to lower the art crime rate by keeping prized possessions with those that prize them on a personal level. On a psychological level, when fiscal health improves, those participating in the art market will inevitably feel less anxiety and embarrassment when no longer required to use art (or as much art) for capital. And, happiness directly affects art crime rates. Of course, ironically, this hypothetical scenario seems to benefit most everyone in the art industry except the art lending companies themselves. However, this presents a good problem for the art world: perhaps these companies can target their businesses around “consignment financing” for art dealers, to keep money moving, and around art advising for collectors and dealers. In this way, instead of primarily granting loans and exchanging art for money, art lenders can help clients maintain their personal financial health in order to keep and protect their art.

Written by Elizabeth Sebesky