Before going into the details, we introduce the agents in the system here. Governments set standards regarding legal titles: each country defines what constitutes a “good title” within its jurisdiction. However, governments rarely allocate adequate resources into monitoring or enforcing titles. Regulatory arbitrage is possible (and, hence, interjurisdictional competition), activated by choosing the most suitable location for each sale. Art insurers set their own standards in the domain of titles, insisting that it should be impossible ever to obtain good title to stolen (or looted) items. Unlike governments, insurers have created institutions for monitoring, enforcement, and dispute resolution, making them the primary provider of governance services in the title domain.
3.2 Insurers and the market for stolen art
Insurers provide private governance services in the art market to limit the volume and value of stolen art. If stolen art could be sold freely, art theft and insurance premiums would rise. Underwriters specializing in the insurance of high value artwork reduce both the ease and profitability of art theft. The former is achieved by offering a host of security consulting services for art collectors (Private Art Collector
2014) and by shielding the identities of private collectors at auctions. The latter is accomplished by making it very risky to sell high value stolen art in the open market (Artbusiness News
2015)—regardless of whether the auction is conducted in a jurisdiction that applies the
nemo dat rule.
The main private governance instrument is the Art Loss Register (ALR): the world’s most comprehensive database of missing art and artefacts. The ALR was created in 1991 by a group of specialist underwriters at Lloyd’s of London. Insurers, police and private individuals can record details of any art object that is reported stolen in the register (Durney
2011). National police databases usually contain just a few thousand items and it often is cumbersome to search them (
The Times 2014). By contrast, the ALR contains information on around 500,000 items and can be consulted for a fee or by subscription.
8 Auction houses, dealers, and the organizers of art fairs routinely consult the register. ALR staff check the provenance of each item and look for matches in the database. An object can be bought or sold “in good faith” (which affords the buyer some protection) only if it has passed the ALR test. Both Christie’s and Sotheby’s are ALR shareholders. For many years, the ALR enjoyed monopoly status and still is considered by many as the “super-authority” on stolen art. The quality of the ALR’s services is monitored constantly by its clients, who suffer a reputational loss if they are exposed as selling or having sold stolen objects. Since 2014, the ALR has faced competition from the Art Recovery Group, indicating that the market for the governance of title is contestable: shortcomings and mistakes can be punished by transferring business elsewhere (
Independent2016; Private Art Investor
2015).
If title problems are raised by an ALR search, auction houses postpone the sale or reject the consignment discreetly. It is up to the owner to resolve the title issue. Because the art market is global, it frequently is not clear what law applies: the jurisdiction of the owner, the last point of sale, and the claimant all may apply different standards. Without an absolute international standard of “good title”, the issue often is settled by private arbitration (e.g., Maria Altman’s case over Klimt’s “Woman in Gold”) or negotiated by private law firms. Stolen paintings sometimes can be retrieved informally from the criminal underworld, once thieves realize that the object is unsaleable.
9
3.3 Auction houses and experts
Before accepting a consignment, auction house experts screen every item for authenticity and legal ownership. Ideally, an object’s provenance should resolve both issues, but the full paper trail of historical documents remains intact only rarely over the centuries (Charney
2015). Moreover, when provenance research was the main governance instrument for establishing authenticity, fraudsters infiltrated and falsified the archives of major collections and sold insignificant paintings on the strength of entirely bogus provenances. Others sold forgeries with the impeccable provenances of genuine paintings and then sold the originals as well, doubling their profits (Charney
2015; Salisbury and Sujo
2009). In-house experts therefore examine each object visually for the possibility of fraud. If suspicions arise, they consult established external experts in the relevant field, including connoisseurs, art historians and scientists.
A connoisseur is someone with considerable experience in their field, perceived to have “the eye” or instinct to pronounce whether an object is “consistent” with the style of the artist or period (Hook
2013; Spencer
2004). However, even highly respected connoisseurs make mistakes (e.g., Lewis
2019, p. 171), and their opinions can be influenced by many extraneous factors (Ginsburgh and Van Ours
2003). Art historians therefore also consult the archival record. They examine the contexts of artists and workshops and produce timelines of output or styles. Scientists test whether the materials used in making the object are of the correct period and origin. They often specialize in particular periods, object types, or analytical methods. For example, modern forgeries might contain titanium white—a pigment that became available only in 1916, followed by several subsequent reformulations (Rogge and Arslanoglu
2019).
When forgers become aware of new testing procedures, they may acquire the testing equipment or submit their works for testing posing as innocent collectors (Amore
2015; Charney
2015;
The Guardian2018). The result is an arms race between forgers and academic and commercial scientists. Analytical techniques continuously are refined to maintain reputations for reliably identifying fakes. However, if a scientist pronounces an object to be of the “correct period/material”, the question of authorship still needs to be settled (Fincham
2017).
A positive evaluation by a key expert can set the price of an object skyrocketing. Commercial pressure to “authenticate” objects thus is considerable. However, each opinion that is exposed subsequently as ill-founded or opportunistic undermines the expert’s reputation. The overriding goal of the scholarly community is to protect the integrity of artists’
oeuvres and the historical record (Spencer
2004; Fincham
2017). Querying items subsequently exposed as a fake or forgery raises the experts’ academic status and the (commercial) demand for their expertise. Museum curators, scholars, dealers and professional buyers thus routinely study auction catalogs and visit pre-sale exhibitions. They alert auctioneers to anything that looks “wrong” and needs further investigation. In the small community of scholarly experts, gossip quickly discredits opportunists and authentication methods that have been “cracked” by forgers. Such reputational solutions based on continuous dealings are common in private governance systems (Leeson
2008,
2014; Stringham
2003).
The system works well as long as experts value the future returns from being perceived as truthful and accurate more than the short-term gains from supporting a dubious object. With continual innovations in forensic science and lively academic debates about attributions, charlatans and opportunists must expect to be discovered eventually (Charney
2015). Yet, experts sometimes authenticate opportunistically when their time horizons are short,
10 when they are paid to conduct research for an interested party, or when the prestige gains from potentially rehabilitating a “missing masterpiece” are so high that they develop their own cognitive biases (e.g., Margaret Dalivalle’s and Martin Kemp’s research on
Salvator Mundi, according to Lewis
2019). Knowing that, the art market looks increasingly for expert consensus on high-profile works rather than acting on a single endorsement. Thus, “[t]he speculative attribution of unknown or relatively unknown works to major masters is a graveyard for historians’ reputations” (Kemp 2007, p. 201).
The academic process of building consensus on the authenticity of objects thus is fairly robust, albeit slow (e.g., National Geographic 2015, The Art Newspaper January 2016). Even scientific opinions are not completely watertight. Mistakes can be made: interpretation of test results is far closer to the opinion of the connoisseur than many scientists would like to admit. While experts debate attributions, auction houses must maintain the trust of the potential sellers. Auctioneers would be ill-advised publicly to cast doubt on the reputation of objects offered for sale: today’s seller is tomorrow’s buyer. The system therefore has not developed a mechanism to force sellers, dealers, or auction houses to disclose negative expert reports. Even if no explicit confidentiality clause is inserted into the expert’s contract, it is “understood” that damaging information will not be divulged to third parties. Negative expert opinions sometimes become public if a case is taken to court and it may then be found—as in the case of the forgeries traded by the Knoedler Gallery - that multiple experts had raised concerns (e.g., The Art Newspaper August 2016).
An item’s auction catalog entry therefore is the outcome of a deliberative process. The critical information is provided in the
Bold Print Heading or in UPPERCASE type in the first line of the catalog. In fine art sales, the first line provides information about the painter. The item’s entry then gives a brief description: the title of the work, the medium, its size, whether and where it is signed and when it was produced. Any damage and repairs are mentioned. One or several pictures may accompany the text. That is followed by the auctioneer’s estimate of the likely range of the sales price. The catalog also details the provenance of the object. Ideally, the first entry in the Provenance section links the object directly to its maker, followed by an unbroken line of owners and consensual sales. Prior owners are disclosed only if their collection is prestigious and their names add to the cachet (and, hence, price) of the object. Mostly the catalogs list when and where the object was sold. In addition, catalogs often state the identity of the person confirming the authenticity of a painting. Inclusion in a widely accepted catalog of an artist’s works—a
Catalogue Raisonné – is the gold standard.
11 Otherwise, favorable expert opinions and less respected
catalogues are cited. The final section of the catalog entry details any occasions when the object has been exhibited publicly and any books in which it has been included. That information adds prestige, but also reassures buyers that any defective titles, restitution claims, and criticisms of the current attribution already would have come to light.
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Only the title line of the auction catalog is guaranteed. Doubts about attributions are indicated by adding a question mark or describing an object as “Workshop of…”, or “Follower of…” rather than just the presumed artist’s name. The description below the title line represents the opinion of the auction house (or the cited experts) and is not covered by any form of warranty. That is understood by all. A low estimate reflects the auctioneer’s opinion about how compromised the object is by the difficulty of establishing its maker. It is then up to buyers to decide whether they want to take the risk of trying to rehabilitate the object—or buy it because they like it anyway. In any case, for some buyers the perception of authenticity may be more important than the truth (Charney
2015, p. 23).
Despite considerable effort to establish an objective opinion before the sales catalog is printed, mistakes happen occasionally. Expert and public scrutiny of the auction catalog and pre-sale exhibitions act as further gatekeepers to problematic paintings. If credible restitution claims are made by the original owners, or a respected expert casts doubt on an attribution, objects are withdrawn from sale until the question of ownership or authenticity has been settled.
To reassure buyers further, auction houses offer legal protections, detailed in the “Terms of Guarantee”: Subject to specific exclusions, sales can be rescinded within five years of the sale if the description “set forth in the
Bold Type Heading … is not substantially correct based on a fair reading of the catalogue…” (Sotheby’s 1989, p. 2; emphasis in original). However, auction houses are not liable if the “catalogue description at the date of the auction was in accordance with the then generally accepted opinion of scholars or experts…” (Christie’s 1994, p. 117). Liability also excludes forgeries that come to light using new scientific techniques “not generally accepted for use until after publication of the catalogue” (Sotheby’s 1989, p. 2) or “… by means of a process which at the date of the auction was unreasonably expensive or impracticable or likely to have caused damage to the lot…” (Christie’s 1994, p. 117). No guarantee applies to the information provided in the lower-case type below the bold type heading (Sotheby’s 1989, p. 2).
13
Rescinding a sale therefore is difficult (Chappell and Polk
2009). Proving that a seller deliberately or carelessly misled a buyer involves a protracted legal process.
14 The usual auction house practice therefore is to “under-catalogue” (Hook
2013). Senior managers in auction houses are confident in their pre-sale due diligence: “If you sued us you would lose…”
15 However, in the art world nobody gains from a public and acrimonious legal dispute. US auction houses’ conditions of sale (and for online bidders) explicitly deter legal actions by stipulating that any “dispute shall be referred to and finally resolved by arbitration in New York in accordance with the International Arbitration Rules of the International Center for Dispute Resolution”.
16
In practice, auction houses tend to “cancel the sale” and refund disappointed buyers’ money to maintain their confidence and loyalty. Most art collectors acquire multiple objects for their collections. A reputation for a gentlemanly attitude toward resolving mistakes is an important aspect of non-price competition in the market. When Sotheby’s decision to cancel the sale of a suspected Frans Hals forgery and reimburse USD 11.75 million to the disappointed collector was attacked in a 2019 court case, Sotheby’s barrister stated that acting otherwise “would have been corrosive for the art market” (
The Art Newspaper2019).
The top auction houses often choose to absorb losses even though the consignment contract usually contains a rescission clause, meaning that the auction house could undo the sale legally (even after several years) and force the seller to return the money received for the object (Wallace
2010). The top auction houses will do that only in exceptional circumstances—i.e., when they suspect that the seller was involved in deliberate fraud or grossly negligent, such as the case discussed above of Sotheby’s suing the Mark Weiss Gallery over the Frans Hals forgery. It would be damaging to an auction house’s business if bona fide sellers were concerned that the proceeds from a sale might be demanded back from them until whatever time limit was agreed had elapsed (Wallace
2010). Sotheby’s has, in fact, withdrawn several fakes and forgeries from the market, to form a collection sometimes referred to as the “Black Museum” (Kiddell and Bartram
1990). Clearly, reputational private governance solutions are preferable to court action.
The discussion above highlights the efforts undertaken by auction houses to ensure that only authentic pieces enter the high value art market—or that doubts clearly are indicated in advance of the sale. The auction houses bear a significant financial risk if they have to relieve disappointed buyers of essentially worthless objects—although they can purchase insurance to hedge against that risk. All such provisions must be financed. A buyer’s premium therefore is charged by adding a percentage to the “hammer price”. That premium often is substantial: “On all lots we charge 30.25% of the hammer price up to and including €50,000, 24.2% on that part of the hammer price over €50,000 and up to and including €1,600,000, and 14.52% of that part of the hammer price above €1,600,000” (Christie’s 2016). In addition, the seller generally is charged a commission and may be billed for any expert opinions requested on their behalf.
In summary—carrying out the complex governance functions in the high value art market is expensive. It requires significant internal and external expertise, exhibition and auction rooms in the world’s most glamourous (and expensive) locations and (self-) insurance for occasional mistakes.
17 Collectors and dealers pay the substantial buyers’ premium in exchange for the services provided.