Art Investment Funds: The Basics

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“It was well-choreographed, a beautiful show, but what was the financial truth?” Christian Ogier, Paris dealer commenting on one of the Christie’s auctions, May 2015.

By Jessica M. Curley*

Fine art is known to have little intrinsic value beyond its cultural significance and aesthetically pleasing nature, yet it seems to be an increasingly attractive alternative to traditional investment assets. The CEO of Blackrock, Larry Fink, recently remarked that one of the “two greatest stores of wealth internationally today is contemporary art,…” adding that, all jokes aside, it is a “serious asset class.” Although many art world enthusiasts advise that people only purchase art if they truly admire it, recent record high sales and huge upside potential are attracting the attention of those more focused on profit making. One mechanism utilized by some of these profit seekers to gain exposure can be found in fund-structured vehicles sometimes referred to as “passion funds.” These art investment funds, or “passion funds,” provide the opportunity for investors to tap into the potential of art works to diversify portfolios and potentially obtain significant returns. While some money managers have also taken interest in other niche asset classes including fine wine, vintage vehicles, stringed instruments, rare gems, and even comic books, this article focuses primarily on fine art.

Background & Market

Individuals and private clubs have been collecting fine art with varying degrees of investment intent for hundreds of years. However, the first institutional investor to specifically allocate capital for the purpose of investing in art is widely considered to be the British Rail Pension Fund, having acquired about 2,500 objects during the 1970’s for a total cost of about $70 million USD, close to 3% of the total fund. Institutional investing in art works has evolved since the 1970’s, resulting in the emergence of more and more funds exclusively dedicated to the asset class. The collapse of the dot-com bubble in 2001 also fueled the art fund trend as investors looked outside of the market for alternative opportunities. This trend of looking towards alternative assets was seen again following the financial crisis of 2008, as investors increasingly focused on tangible assets and alternative types of investment opportunities. Shortly thereafter, 2010 saw record sales of art works at both Christie’s and Sotheby’s, which further demonstrated the potential offered by fine art. More recently, in 2014 the global art market reached the highest level ever recorded, a total of over €51 billion.

Players

Managers of art funds are typically professionals from the financial industry, who have an interest and/or experience in the art world. They provide a number of crucial services including fundraising, investor relations, strategy development, market monitoring, and management of the disposition of fund assets. One notable example can be seen in Ron Perelman, billionaire businessman and art enthusiast, who established MAFG Art Fund for the purpose of investing in fine art, and who recently made headlines after getting caught up in a series of unfortunate  transactions (read more here).

Art fund investors generally have some kind of prior knowledge of the art market, and are largely looking to this type of asset for diversification and hedging purposes. To qualify to invest, they must be considered “accredited investors” under SEC guidelines, meaning that they are financially sophisticated individuals or institutions that require less protection than their unsophisticated counterparts. Institutional investors commonly include pension funds, trusts, family offices, insurance companies, endowments, and sovereign wealth funds, among others. For an individual to qualify for “accredited investor” status they must meet one of the following three criteria: (1) have a net worth exceeding $1 million, either individually or jointly with a spouse; (2) have an individual income in excess of $200,000 per year; or (3) have a joint income of $300,000 during each of the last two years and reasonably expect the same level of income moving forward.

Structure

Art funds are transactional in nature. They typically generate returns by strategic purchase and sale of artworks. In the US, art funds generally adhere to the traditional hedge fund structure of a limited partnership (typically in the form of a limited liability company (“LLC”)), which consists of a managing general partner(s), and a limited partner(s) who invest in the fund. Offshore funds can take on a number of more complex feeder/master fund formations, which also usually take on the form of a limited partnership, albeit with a wider variety of structuring options depending on source(s) of investment capital, taxation and accounting preferences. An open-ended fund scheme allows for the admittance of new investors and withdrawal of current investors throughout the life of the fund. More commonly used are close-ended funds, which, as the term implies, are closed to new investors once the fixed term to raise capital has ended. A third option consists of a hybrid model, which is more closely related to a close-ended fund, but which allows for some liquidity as investors can redeem shares after providing notice. Despite the likely existence of a withdrawal fee provision, the hybrid model boosts marketability since it provides for a quick exit for investors who do not like their capital locked up.

Once the structure is created and fund raising commences, a private placement memorandum detailing the objectives, risks and terms, including the investment minimum, of the offering is drafted and provided to potential investors. When an investor decides to invest, a subscription agreement detailing number of shares, price, and other terms will be executed resulting in the investor becoming a shareholder in the fund. One prominent art fund, the London-based Fine Art Fund Group, established in 2001, has six separate funds each of which is composed of an investment minimum of between $500,000 and $1,000,000 by 30 to 40 individual or institutional investors. Under some circumstances, investors may redeem shares, or sell to another accredited investor through a private placement, but this is typically limited or prohibited by the agreement terms.

Regulation

It is unknown exactly how many art funds exist today. Recently, Center for Art Law sat down with Enrique Liberman, President of the Art Fund Association, who has advised that there may be around 45 total funds worldwide. Most art funds are private investment vehicles, and as such are not subject to public disclosure and other burdensome regulatory requirements. Those art funds that are private investment vehicles must abide by the Regulation D private placement exemption requirements under the Securities Act of 1933 (the “33 Act”), which include limiting the offer to “accredited investors,” disclosing all material elements of the investment opportunity in a private placement memorandum and subscription agreements, and filing notice with the Securities and Exchange Commission (“SEC”) and with any relevant state regulators. To avoid being defined as an “investment company” under the Investment Advisers Act of 1940 (the “40 Act”), and thus subject to its additional set of regulatory burdens, art funds must qualify for one of two exceptions: having less than 100 investors or having up to 499 investors who meet the definition of “qualified purchasers.” Art funds are also subject to the anti-fraud provisions promulgated in the 33 Act, the Securities Exchange Act of 1934 (the “34 Act”) and the 40 Act, which prohibit fraud in connection with the offer and sale of securities and in connection with advisory services. Art fund managers themselves must register as investment advisors with the SEC, under the 40 Act, if either they engage in significant leveraging and securities trading strategies, or the art fund exceeds the $150,000,000 threshold for “assets under management,” which are rare. Art fund managers may also need to register if required by state laws.

In contrast to the heavy regulation and transparency of the financial markets, the art market is currently burdened by little oversight. Art assets acquired by funds are not subject to the same level of investor protection measures as securities and other financial instruments. Aside from anti-fruad provisions, auction regulations, cultural property laws, and general consumer protection and contract law, not much regulation exists, which is a definite worry for some art market investors. James R. Hedges IV, financier and art collector, was quoted by the New York Times commenting on the state of art market regulation in that “the art world feels like the private equity market of the ’80s and the hedge funds of the ’90s…it’s got practically no oversight or regulation.” In the same vein, Nouriel Roubini, co-founder and chairman of Roubini Global Economics, has advised that the art market is prone to abuse through “routine trading on insider information,” and is used for money laundering and tax avoidance purposes.

Additionally, art funds tend to be discreet in their communications due to solicitation and advertising restrictions under Regulation D. Hence the scarcity of information available about the strategies, operations, and returns of art funds. Generally speaking, art funds may adopt broad investment strategies or alternatively may be more refined, for example, focusing on acquiring art of a specific genre or geographical region. Works from certain genres or regions can be more profitable than others due to a number of factors, including trends, cultural awareness, and economic growth and prosperity. For example, Post-War & Contemporary art has outperformed Impressionist and Old Masters for the last two decades according to the Mei Moses Fine Art Index, and has even outperformed the S&P 500 for the last ten years. Fine Art Fund Group CEO Philip Hoffman has advised that the firm began by investing in Old Masters, Impressionist, Modern and Contemporary Art, and have since expanded into “emerging art” genres. It has also been disclosed that the first two funds produced annual returns of 16 percent for sold pieces, a figure based on the sale of about 100 artworks.

More is known about fee structures than investment strategies. The two most common fees include a management fee of about 1 to 2 percent, and a performance allocation fee of around 20 percent of the net income of the fund per annum. Additional costs associated with art funds include traditional expenses incurred by collectors: commissions, buyer’s premiums, shipping, storage and insurance. That said, art funds generally try to avoid transacting through auction houses so as to avoid hefty sales commissions and buyer’s premium expenses. The Collectors Fund, based in Kansas City and established in 2006, manages between $20 and $30 million raised from around 100 investors each having contributed a minimum of $100,000. Once works are sold, a 20 percent management fee is skimmed from the net profits. From the remainder, 40 percent is distributed to investors, while 60 percent is reinvested and used to purchase additional works.

Pros & Cons

Art funds offer many unique advantages to investors. The value of fine art is generally uncorrelated with traditional financial markets, providing a means of diversifying portfolios, and hedging against market downturn and inflation. Art typically holds its value, especially on the higher end, and has consistent performance returns, which are very attractive characteristics to investors. Although the art market is subject to little oversight, actual art funds are subject to some financial industry regulation and must comply with initial and periodic disclosure requirements, and antifraud provisions, which provide some level of investor protection. Art fund managers also have a fiduciary duty with regard to their investors, which is virtually non-existent in gallery-investor or auction house-investor relationships. Additionally, fine art has an inherent appeal as a luxury good, and depending on the fund, may be loaned out to investors for personal use.

One potential drawback of art fund investing is that traditional financial modeling does not generally work due to the unique nature of art works and trends in the art market. For investors who are accustomed to relying at least partially on traditional models, this may cause some discomfort. Another concern is that art funds require professionals who can strategically advise on the purchase and sale of art works; however, this is a difficult skill to qualify as past performance is often hard to measure. Limited liquidity is a major issue facing art fund managers and investors; art must be sold according to market trends in order to maximize returns, which may not coincide neatly with the close of a fund. Furthermore, as previously mentioned, unlike the financial markets, the art market is highly unregulated leading to less investor confidence in fair dealings, and more potential for price fixing and manipulation. The issue of valuation presents another problem for art funds as the value of acquired works remain that of the purchase price, not accounting for any shifts, until there is a liquidity event, making it hard to value a fund at certain benchmarks. Provenance issues, including forgery, looting events, and misattribution, are also pervasive in the art world and may arise if proper research is not carried out prior to purchase. To this end, title insurance may be purchased to protect a fund against a murky provenance.

Looking to the Future

As the interest in fine art investing continues to increase, new variations of the art fund are popping up, providing new ways for investors to access the art market. One such variation is Arthena, the first equity crowdfunding platform that allows investors to pool their capital in “collections” which are curated by expert art advisors. The minimum investment per collection starts at $10,000 providing access to a much broader group of investors than the typical art fund, with a floor of upwards of $100,000.

The art investment industry has also seen a recent trend of investors moving away from art funds and towards privately managed art investment accounts. This allows investors to avoid co-mingling their capital and provides the opportunity to customize the objectives and strategies of the investment.

In addition to these alternatives, new products are in the pipeline that would provide other methods for investing in the art world. Missouri based Liquid Rarity Exchange plans to bring one such product to market in the next few years, which will consist of publicly traded shares of securitized art and other tangible and intangible alternative assets. Shower Zhang, Director of Strategic Planning, has advised that in one interesting scenario, the owner of an art collection, be it an individual or institution, can essentially bring the collection to market through an IPO process, governed by standard SEC regulations. The shares then being traded on the open market. Another product, this one emerging from the banking world, is a collateralized debt obligation (“CDO”) utilizing art loans as the underlying asset. A traditional CDO is a structured investment product that utilizes cash flow-generating assets, including mortgages, loans, bonds, and credit card debt, and bundles them into tranches that can be sold to investors. An art CDO would theoretically operate the same way, only using loans backed by art works as the underlying assets. The art lending business has grown significantly in past few years as banks, auction houses, and private lenders seek to provide this additional service for high net worth clients, and as such, it makes sense that financial institutions would create sophisticated ways to further monetize these loans. 

In conclusion, the subject of art funds has seen about as much enthusiasm as it has criticism from the financial industry. However, it is worth noting that what most people today consider mainstream alternatives (hedge funds, private equity and real estate) were not always considered to be so. This leaves open the possibility that art investment, and particularly art funds, may follow in their footsteps. In the meantime, those considering investing in an art fund are strongly advised to do their research and seek the advice of experts in the field.

Sources:

About the Author: Jessica M. Curley, Esq. (Cardozo ’14) is pursuing her interest in art law and financial regulation in New York. She served as the Spring 2015 Post Graduate Fellow with Center for Art law, and currently works in fund structuring at a large financial institution. She may be reached at jessicamcurley@gmail.com.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

ISIS Cultural Destruction: In Brief

By Mia Tomijima*

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War and political takeovers define history, but are also often responsible for erasing it. The devastating effects of these feuds result in the destruction of cities, people, and culture. Political leaders often make it a goal of destroying cultural heritage as a way of rewriting history and imparting their political, religious or ideological beliefs upon the civilization they are taking over. As the Nazis did during World War II, ISIS has emerged as the most recent group to destroy cultural heritage to further its ideology.

ISIS (or ISIL), shorthand for the Islamic State of Iraq and Syria, is a group of militants that have taken over parts of Iraq and Greater Syria (Syria, Lebanon, Turkey, and Jordan) and claim to represent Muslims worldwide. ISIS emerged during the summer of 2014, and quickly drew media attention with video recorded beheadings of journalists, and other reported massacres.394410_img650x420_img650x420_crop

Alarming reports from the archaeological community show that ISIS militants are now attempting to impose their ideology by demolishing cultural sites in Northern Iraq, including the Mosul Museum, the ancient city of Hatra, and other Assyrian capitals. The systematic public destruction of cultural property politically motivated to attract media attention is also considered to be a war crime under the 1954 Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict. In addition to the senseless destruction, ISIS is also selling Assyrian antiquities on the black market, using the proceeds to fund their campaign. Center for Art Law recently wrote on one such report of an Assyrian statue head emerging in the U.S., and the U.S. Attorney’s Office’s response to bring civil forfeiture proceedings on behalf of war-torn countries.

ISIS affiliation is even claiming responsibility over a recent attack in Texas, involving a shooting that occurred outside a cartoon contest of Prophet Mohammed in Texas (however no formal proof of affiliation of the shooters has yet to be shown). There has been great discussion in the archaeological, legal, and political communities over the destruction of cultural property in Iraq and Syria, including this Yale News conversation with Assyriology Professor Eckart Frahm, and this Democracy Now interview of Columbia University’s Near Eastern and East Mediterranean art and archaeology Professor Zainab Bahrani, who has consulted UNESCO on such matters.

On February 12, 2015, UN Security Council adopted Resolution 2199 to try to curb traffic in looted Syrian and Iraqi artifacts sold by ISIS members. In response to this call for action, French President François Hollande and members of the United States Congress recently issued statements in support of protecting cultural patrimony from the ISIS occupied territories. On April 26, 2015, the US House Committee on Foreign Affairs proposed a bill, H.R. 1493 Protect and Preserve International Cultural Property Act, which would, among other things, “require the Department of State to designate a department official to coordinate the efforts of the federal government to protect international cultural property… and develop strategies to reduce the illegal trade in such property and to assist countries in protecting their heritage sites and preventing looting and theft of cultural property.”

At an emergency meeting in July 2014, UNESCO’s Director General Irina Bokova stated “humanitarian and security concerns are inseparable from culture. Protecting the lives of people, their cultural heritage and identity go hand in hand,” and pledged that “UNESCO will continue mobilizing the United Nations Organization and the whole international community to safeguard Iraq’s cultural heritage with particular emphasis on the fight against illicit trafficking in cultural property.”

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*About the Author: Mia Tomijima is a recent graduate of Brooklyn Law School, where she received a certificate in intellectual property and served as Chair of the Art Law Association. She received a bachelor’s degree in art history from UCLA, and has worked with museums, auction houses, and law firms on both coasts. Mia is a post-graduate fellow with Center for Art Law. 

Oy May! Artless Boycotts Blossom

Chris Ofili, The Holy Virgin Mary, 1996.  Mixed media, elephant dung.

Chris Ofili, The Holy Virgin Mary, 1996. Mixed media, elephant dung.

By Irina Tarsis, Esq.*

The front page of the New York Times The Arts Section today, May 5, 2015, features indigenous actors and prominent writers staging walk outs. The story of American writers withdrawing from a literary gala that plans to honor the French satirical magazine Charlie Hebdo for “freedom of expression courage” is particularly surprising, as it rings counter to one of the basic principles of this nation’s freedom of speech and the press. While from the standpoint of free speech, “the state has no legitimate interest in protecting any or all religions from views distasteful to them which is sufficient to justify prior restraints upon the expression of those views,” reportedly 200 of 4,000 members of the PEN American Center signed a letter against awarding Charlie Hebdo’s “unacceptable” expressions.

This NY Times story appears just a few pages back from the front page photograph of “a crew … removing the bodies of two gunman who made an assault on a gathering [of controversial cartoonists] in Garland, Tex.,…” The foiled assault on the Mohammad cartoon contest in the United States, carried out by the self-declared ISIS supporters, instantly recalled the attack on the Charlie Hebdo headquarters in Paris earlier this year and the attacks on cultural sites and artifacts carried out by the bonafide ISIS militants.

The New York Times/The Arts (May 5, 2015).

The New York Times/The Arts (May 5, 2015).

Be it a boycott, an assault or a parade, these public spectacles are powerful tools for capturing attention and galvanizing support for a cause. When we talk about boycotts and cultural divides, we must not forget that this week marks the the 70th anniversary of the end of World War II, where millions of people, including talented writers and cartoonists, followers of all religions, died due to intolerance, racism, economic disparity and grand military aspirations. In commemoration of this date, nations and national leaders, veterans and survivors are conducting memorial services worldwide. One nation that arguably suffered the most from the so-called Great Patriotic War, the Russian Federation is poised to conduct one of the biggest parades on the Red Square both to celebrate the triumph over the Nazism but also to illustrate its current military might. Auspiciously, the nations that played as important a role in ending World War II, the Russian allies and former sister nations are not sending their representatives to Moscow this week. The list of absentees includes: the United States, the United Kingdom, France, Poland, Ukraine, Belarus, and Latvia.

The righteousness felt by those engaged in boycotts may be just as harmful as the debase and radical thinking that propels people to engage in unfair labor practices, take property from others without compensation, destroy artifacts and commit murder.

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Michelangelo Buonarroti, Male Nude Seen From the Back With a Flag Staff, ca. 1504. Black and white chalk

What does this editorial have to do with art law? In 1999, Brooklyn Museum organized a show “Sensation: Young British Artists from the Saatchi Collection,” which included works by Chris Ofili made with mixed media including elephant dung. The Mayor of the City of New York, Rudolph Giuliani decided that a number of the works were “sick” and “disgusting.” He decided that one work in particular, “The Holy Virgin Mary” was an attack on religion as it was offensive to Catholics. The Mayor tried to withhold funding from the Brooklyn Museum and threatened eviction. The Court held that the City and the Mayor were prohibited from taking any steps to inflict any punishment, retaliation, discrimination, or sanction against the museum because the freedom of speech trumped in this instance and that no “objective observer could conclude that the Museum’s showing of the work of an individual artist which is viewed by some as sacrilegious constitutes endorsement of anti-religious views.” Art and anti-religious sentiment may be subjective. The line between art and dung is sometimes indistinguishable. Legal minds thrive in the gray zone. Nevertheless, somethings remain black and white. Muscles flexing looks wonderful when it is rendered by Michelangelo or Baryshnikov, but it is much less palatable when done by means of weapons and at the cost of human lives. Certainly, there are fascinating art law debates and cases that stem from trademarking “Je suis Charlie,” looting that occurred during World War II, terrorist attacks and the recent annexation of Crimea, and even using elephant dung to create artworks. This week in May, however, there are few matters more important than cultural tolerance.

Suggested Readings:

About the Author: This editorial is by Irina Tarsis, art lawyer and Founder and Director of Center for Art Law.

Book Review: Elizabeth T. Russell’s “Arts Law Conversations”

From the editors: Case reviews, event reviews and now book reviews. Center for Art Law frequently receives notices of upcoming publications and accepts books for review. In addition to the list of Publications, we are happy to offer comments about some of the recently published materials on the subject of law and visual arts.

Arts Law Conversations

By Melissa (YoungJae) Koo*

Elizabeth T. Russell’s Arts Law Conversation: A Surprisingly Readable Guide for Arts Entrepreneurs (Ruly Press, 2014) (the “2014 Guide”) is a must-read for young arts professionals and students who call themselves artists or creators across all forms. As stated by the author in the Preface, the 2014 edition is a revision of the award-winning 2005 Art Law Conversations: A Surprisingly Readable Guide for Visual Artists. Note from the previous book’s title that while the 2005 version focused on “Art” and “Visual Artists,” the new book included “Arts” and “Arts Entrepreneurs” in response to those creative entrepreneurs who felt that the previous version did not cover non-visual artists’ legal issues.

From a soon-to-be-graduating law student’s perspective, the book is an excellent legal resource for people in the creative communities. The book should not be taken as legal advice, however, as it is “intended to provide accurate information regarding the subject matter,” reminded by the author on the first page of the book. What is most remarkable about this book is its wealth of legal information broken down in everyday language—anyone who is not familiar with legalese could enjoy reading it. As an added bonus, this book is humorous and witty, making it a truly delightful read. This reviewer could not help but wish for other  casebooks used in law school to have been as entertaining and as informative.

The 2014 Guide consists of fifty-two “Arts Law Conversations,” divided into four sections: I. Navigating the Legal System, II. Intellectual Property, III. Contracts, and IV. Business Issues You Might Have Overlooked. Each conversation explores a topic or a legal issue that art creators could face in a script-like hypothetical conversation form, bullet points, Q&A form, or a mixture of them. First and foremost, the book opens with a conversation called “First Thing First: The United States Constitution.” In bullet points, the author narrates the background and content of the Constitution in plain English, reminding readers of the foundation of the laws in the country. The second conversation introduces readers to the concept of jurisdictions and venues, possibly the first thing new law students learn in civil procedure class, through a hypothetical conversation between an artist in conflict with a gallery and her lawyer friend.

As the first two conversations of the book give readers a glimpse of the entire book, the author endeavors to engage readers to follow and clearly understand complexities of laws or concepts that could even be challenging to law students. Throughout the book, names of important concepts are bolded and main points are separately headlined on the side of pages, aiding readers’ understanding and refreshing what they have read. Some conversations also have a practical section called “YOU TRY,” encouraging readers to engage with the material, for example, by looking up a landmark case or other important facts not discussed in conversations. Although I wished that the section had an answer key somewhere in the book, the practical exercises allow readers to interact with the legal topic. The book also provides information on how to conduct legal research for people who are not in the legal field, making it genuinely artist-friendly. In addition to the appendix section of indexes, table of cases, and Bill of Rights, the book has an extensive glossary section where it lists definitions of concepts discussed in the book, which would be helpful for readers.

The book discusses not only relevant intellectual property laws for creative people, but it also lays out important tips about contracts. For example, the author explains commissioning agreements and goes over details about fine art consignment agreements, referring to UCC and various state statutes that artists should be aware of. Arts entrepreneurs are also reminded of other important business issues that could intertwine with legal matters such as organizing business, taxation, and collection. As if the author could read the minds of creative entrepreneurs, she comprehensively covers a variety of topics that has anything to do with law, which could be daunting to non-legal professionals. Creative people who want to protect their hard work or want to start their own business using their creative skills could truly benefit from this brilliant book. For law students or lawyers, this book is a great review of trademark, copyright, contracts, and corporations law.

About the Author: Melissa (YoungJae) Koo, Legal Intern with Center for Art Law, is a third year student at Benjamin N. Cardozo School of Law, concentrating in Intellectual Property law, especially art and fashion law. She can be reached at youngjae.koo@law.cardozo.yu.edu.

Disclaimer: Reading this book or its review is no substitute for getting your legal questions answered by a trained attorney.

WYWH: Review of “Successes and Challenges Facing the Return of Stolen Art and Cultural Heritage Property”

By Mia Tomijima*

On April 21st, New York Law School’s Center for International Law presented the Otto L. Walter Lecture entitled “Successes and Challenges Facing the Return of Stolen Art and Cultural Heritage Property.” The guest speaker for the evening was Sharon Cohen Levin, Chief of the Money Laundering and Asset Forfeiture Unit in the Criminal Division of the United States Attorney’s Office for the Southern District of New York. According to the U.S. Attorney’s Office website, Levin and her Asset Forfeiture Unit “pioneered the use of federal forfeiture laws to recover and return stolen art and cultural heritage property.” The event was well-attended and received by approximately 50 people, who came to hear Ms. Levin discuss the many famous art law cases that her office has handled over the past two decades, and the investigatory and legal strategies used for each one. A week later, on Monday, April 27, the New York Times broke the news that Levin is leaving the forfeiture unit and the Attorney’s Office after 29-years of tenure to join a private law firm, WilmerHale.

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In her opening remarks, Levin talked about her unit that uses forfeiture laws to locate and seize proceeds derived from criminal activities and then distributes them back to victims and appropriate law enforcement agencies. She provided an overview of the relevant forfeiture laws that she uses in her work, including 18 U.S.C. §981 (Civil forfeiture) and 18 U.S.C. §542 (Entry of goods by means of a false statement), among others. Levin described how it is illegal to “knowingly” move stolen property, and how her office is able to show intent through false customs statements and declarations. It is through this inventive use of preexisting law that her office was able to return over 100 items, ranging from fine art by Basquiat and Rembrandt, to ancient gold platters, and even a complete dinosaur skeleton.

The audience listened intently as Levin talked about a number of the cases that her office has handled. The survey started with U.S. v. An Antique Platter of Gold, 184 F.3d 131 (2d Cir. 1999), a case involving a gold phiale that was improperly excavated in Italy and smuggled into Switzerland. Thereafter, the phiale was flown to a buyer in the US. Levin explained that under Article 44 of Italy’s patrimony law, antiquities found and removed from Italian ground after 1902 belongs to the nation, a law that provided the basis for the U.S. government to bring an action on behalf of Italy. The 1999 decision was groundbreaking (no pun intended) because it set precedent that false statements on a customs documents serve as a basis for forfeiture. After the court ordered the forfeiture of the phiale, a twin phiale in the Metropolitan Museum of Art was also returned to Italy.

c6988-kohkerstatueatsothebys

Next, Levin discussed her work on the case U.S. v. a 10th Century Cambodian Sandstone Sculpture, 12 Civ. 2600 (GBD) (S.D.N.Y. 2013). This action sought the forfeiture of the Duryodhana statue, which was removed from the Prasat Chen Temple at Koh Ker in Cambodia in 1972 and was being auctioned at Sotheby’s in 2013. Like the Antique Platter of Gold case, the U.S. Government in the Koh Ker statue case was able to bring a forfeiture action on behalf of the Kingdom of Cambodia under Cambodian national ownership laws. The invoice and customs declaration form from 2010 misleadingly listed the statue as “Koh Ker style,” while Sotheby’s knew the statue had been taken directly from Koh Ker. While the auction houses in this case vehemently defended the interests of its consignor to sell the work, the lucky break in Levin’s investigation was finding records from the now-defunct UK auction house Spink that provided clear information on how the Duryodhana was transported from Cambodia via Thailand, to Belgium and then to the United Kingdom. The fact that the statue had missing feet and that the feet were still in situ at the temple only underscored its illicit removal. Levin said she even traveled to Cambodia to interview one of the looters involved in the actual removal of the item from the temple back in the 70’s, and she described his remorse in desecrating the Temple. The Duryodhana, along with two similar statues at the Met and one at the Norton Simon Museum, were all returned to Cambodia with ceremony in 2013 and 2014.

Levin briefly described her work on the case involving the forfeiture of a full Tyrannosaurus Bataar skeleton. In U.S. v. Tyrannosaurus Bataar Skeleton, 12 Civ. 4760 (PKC) (S.D.N.Y. 2012), the U.S. Attorney’s office used Mongolian cultural heritage laws to bring an action on its behalf. In this case, Eric Prokopi, a commercial paleontologist, excavated the dinosaur remains, reconstructed parts of the skeleton and put it up for auction in New York, where the skeleton was seized. As with all of the cultural heritage forfeitures, the crux of the investigation was to develop a record to show that this item originated in the country demanding its return. For the Tyrannosaurus Bataar, Levin built this proof of origin with affidavits provided by helpful paleontology experts.

Levin also described her office’s work in returning looted objects from currently war-torn countries, such as Iraq and Syria, which included her work on the case of U.S. v. One Iraqi Assyrian Head, 13 C.V. 5015. In the Q&A session following the lecture, Levin explained that in order for her office to return objects, the U.S. government must have diplomatic relations with the source country. As an example, her office is holding onto forfeited objects from Iran, until the day when diplomatic channels are bridged and the cultural valuables can be returned.

$19 million settlement frees "Portrait of Wally" after 13 year of legal disputes

In conclusion, Levin talked about U.S. v. Portrait of Wally, 663 F. Supp.2d 232 (S.D.N.Y. 2009), a landmark case that broke open the floodgates for other art restitution cases involving Nazis-era looted art. (Please see here for a more complete description of this case). Levin noted that the critical evidence in the case was the detailed letters between the original owner of the Schiele portrait, Jewish art dealer and collector Lea Bondi Jaray, and Rudolph Leopold, the Austrian collector who insisted that he was the rightful owner of the portrait, that documented their relationship and interactions. Additional evidence was developed from the trial testimony of Leopold himself. The case that lasted more than a decade was settled for the reported amount of $19 million dollars and a promise to display “Portrait of Wally” with an explicit wall label describing the civil forfeiture proceeding. Levin joked that this may be the only time a piece of art uses the word “forfeiture” in its description.

Less than a week after her lecture ended, the New York Times ran a story about Sharon Levin leaving the U.S. Attorney’s office to join a private law practice at the firm of WilmerHale. On Monday, April 27th, WilmerHale announced that it has hired Levin as a partner in the Financial Institutions Practice of its New York office. Accompanying the announcement, Ms. Levin told the New York Times “I had bigger cases that involved more complex issues, but ‘Portrait of Wally’ was special. [It] enabled me to use today’s forfeiture laws to correct a historical injustice.” With the Levin era at its end, art and cultural heritage restitution advocates wonder whether her successor will be as interested in and dedicated to the pursuit of art and cultural heritage matters. The helpful precedent and the ongoing need remain.

Select Sources:

*About the Author: Mia Tomijima is a recent graduate of Brooklyn Law School, where she received a certificate in intellectual property and served as Chair of the Art Law Association. She received a bachelor’s degree in art history from UCLA, and has worked with museums, auction houses, and law firms on both coasts. Mia is a post-graduate fellow with Center for Art Law. 

Disclaimer: This and all articles are intended as general information, not legal advice, and offer no substitution for seeking representation.

WYWH: Review of “Cultural Property: Current Problems Meet Established Law”

By Jill A. Ellman, Esq.*

Screen shot 2015-04-29 at 12.42.28 PM

On March 27, 2015, the Lawyers Committee for Cultural Heritage Preservation (LCCHP) and the Penn Cultural Heritage Center hosted the conference entitled Cultural Property: Current Problems Meet Established Law  in Philadelphia. This was the sixth annual conference for LCCHP, a not-for-profit organization dedicated to safeguarding cultural heritage, and the attendees included attorneys, archaeologists and other individuals interested in preserving cultural property. Four panels tackled ongoing issues including the problem of archaeological site looting, museum responses to the legal environment and collecting ethics, due diligence in provenance research, and emergency responses to the current crisis in Syria.

Patty Gerstenblith (Distinguished Research Professor of Law, DePaul University), commenced the conference by presenting on the adequacy of U.S. law, policy and practice in averting the international trade of looted objects. Gerstenblith explained that as looting of cultural property, a worldwide phenomenon, motivates by economic gain from source countries, cutting the demand for such objects in destination markets might be the only way to stem it. She described the vulnerability of archaeological sites, which consist of multiple layers of objects that reconstruct entire time periods and civilizations. Once looters destroy these sites, the context of the objects contained within are misunderstood or lost. See, e.g., Euphronios krater. While scholars are able to piece together the painter, potter, writing and characters represented on the Euphronios krater, information regarding the person buried in the tomb, including the food ritual burial practices as well as the health and age of the person, remain a mystery. Additionally, Ms. Gerstenblith explained that the abrupt stripping of objects from the ground results in the loss of knowledge of authenticity and purpose of those objects, such as the case of looted Cycladic figurines, which appeared on the art market in the 1950s.

Ms. Gerstenblith addressed existing laws aimed to combat illicit trafficking and trade of cultural property, including the UNESCO 1970 Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (implemented by the United States through the enactment of the Cultural Property Implementation Act in 1983). Ms. Gerstenblith emphasized that even if an object is seized at the U.S. border and returned to the source country, it is still a loss for humanity because the context of that object is displaced. The ultimate win would be for the object to stay in the origin country. Efforts to train and provide expertise that would stem the flow of exporting objects in the originating country are therefore more effective for the preservation of cultural remains.

Ms. Gerstenblith also discussed the history of legal cases involving stolen property, identifying a first generation of cases in which a foreign country brings a replevin action in a U.S. court with the assistance of U.S. attorneys. But, she explained that a second generation of cases involving countries requesting actions to be brought by the U.S. government is now more prevalent. With respect to these second generation cases, the burden of proof is in favor of the U.S. government. Ms. Gerstenblith highlighted the problems with the current state of government involvement for this second generation of restitution cases. For instance, the U.S. government is likely to prevail even in circumstances where it is unclear how a foreign state possesses ownership of an object. See, e.g., U.S. v. Khmer Statue (specific factual allegations in the U.S. government’s complaint were lacking as to when the statue was stolen from Cambodia). See also Buying and Selling Antiquities in Today’s Market. In addition, Ms. Gerstenblith emphasized that because of the burdens of proof and costs, most of these cases are not litigated. Instead, courts sign off on complaints brought by the U.S. government, resulting in the creation of bad law.

Finally, Ms. Gerstenblith mentioned that there has not been a successful criminal prosecution since U.S. v. Schultz, in which the U.S. government brought charges against an American dealer for his conspiracy to smuggle Egyptian antiquities. Instead, the importation of stolen antiquities has become more of a game of catch and release: if a person imports stolen antiquities, then he or she may simply give up the object and walk away. She contended that the U.S. government has become lax with prosecuting and governmental agencies do not actively pursue criminal investigations. In addition, she suggested that there is ambiguity within the current legal framework for those who want to comply with the law.

Part I. Destruction of Archaeological Context

Dr. Katharyn Hanson (Postdoctoral Fellow, Penn Cultural Heritage Center, the University of Pennsylvania) opened the first panel concerning The Problem of Archaeological Site Looting and the Legal Context/Legal Response by showing satellite images of devastating looting of Mesopotamian archaeological sites in Iraq and Syria. At the site of Umma in southern Iraq, for example, satellite images detected over 8,000 looters’ pits between 2003 and 2005. The rapid acceleration of damage to Syrian sites is also very alarming. With respect to the ancient site of Apamea in Syria, satellite images taken between July 2011 and April 2012 revealed looting of at least 15,000 more pits than in southern Iraq. Dr. Hanson stated that looting is most effective when stopped on the ground by archaeologists and local police.

Tess Davis (Executive Director, the Antiquities Coalition) presented her research on the criminal trafficking networks in the historical case study of Cambodia’s civil war in the 1960s and 1970s. Her presentation revealed the corrupt nature of criminal looting networks that often involve gangs, foreign military and incumbent governments. Ms. Davis painted a grim picture that once the established criminal networks are in place, especially when armed forces fund the theft, those networks become more difficult to dismantle, and peace may in fact make it easier for them to operate.

Ole Varmer (Attorney, National Oceanic and Atmospheric Administration) and Jim Goold (Counsel, Covington & Burling) delved into the emerging area of law regarding the looting of underwater cultural heritage (UCH). Mr. Varmer explained that there is a gap in protecting UCH. He suggested future protection of UCH may be enforced through the Archaeological Resources Protection Act §6(c), which has been applied to archaeological objects from foreign lands. For further discussion See Underwater Cultural Heritage Law Study. Mr. Goold spoke on his involvement in the “Black Swan” case, concerning the salvage from a Spanish warship off the coast of Portugal by U.S. treasure hunters. In that case, the American company Odyssey Marine Exploration, Inc. brought a lawsuit claiming that its imported treasure from an unknown site (code-named the “Black Swan”) was from beyond the territorial waters of any nation, and therefore international laws did not apply. Mr. Goold’s presentation highlighted the thorny set of issues that may arise in cases where UCH does not fall within specific jurisdictional boundaries.

Keynote speaker Mariano Aznar Gomez (Professor, Universitat Jaume I) addressed the issue of the adequacy of international law, policy and practice in preventing underwater looting. He noted the difficulty of establishing hierarchy of ownership among states or countries of origin. Mr. Gomez concluded that while there are still many perceived threats to the protection of UCH, the 2001 UNESCO Convention on the Protection of the Underwater Cultural Heritage may be a good solution. He emphasized the importance of the cooperation and collaboration of states to protect cultural objects.

Museum Responsibility, Collection Ethics and Due Diligence in Provenance Research

The lunchtime discussion moderated by Thomas Kline (Of Counsel, Andrews Kurth) among Dr. Richard Leventhal (Executive Director, Penn Cultural Heritage Center), Timothy Rub (CEO, Philadelphia Museum of Art), and Victoria Reed (Senior Curator for Provenance, Museum of Fine Arts, Boston (MFA)) focused on Museum Responses to Legal Environment and Collecting Ethics. All panelists emphasized the importance of transparency and continued best-effort practices for museums to disclose objects with incomplete provenance to foreign countries as a means to encourage dialogue. Dr. Leventhal highlighted that he was proud of the University of Pennsylvania’s “Pennsylvania Declaration” that it would not purchase art without verifiable provenance. Nonetheless, he emphasized that museums should engage in more provenance research and provide object registries accessible to the public. He opined that the transition from litigation to cooperation between museums and other countries, especially smaller and poorer countries, is essential in negotiating the placement of an object. Ms. Reed mentioned the MFA’s adherence to the 2008 Association of Art Museum Directors (AAMD) Guidelines and its staffs’ due diligence in conducting research to verify an object’s provenance. She seconded Dr. Leventhal’s sentiment that museums may reach creative solutions with countries, such as receiving exhibition loans in exchange for the museum’s return of certain objects. In addition, she stressed the importance of museums’ ongoing responsibility to consistently review collections and digitize records. Mr. Rub responded that digitizing records for big museums with large collections is a monumental task. He queried whether the more important issue is museums’ ability to check so-called orphaned objects with unverifiable provenance.

Legal Responsibilities, Methods and Due Diligence in Provenance Research, as those responsibilities extend to museum collections, was the topic of the third panel. Dr. Margaret Bruhac (Assistant Professor of Anthropology, the University of Pennsylvania) discussed approaches to provenance research for Native American heritage collections. Dr. Bruhac revealed the immoral museum collection methods of Native American artifacts in the early 19th century, including the purchase of artifacts from elderly or vulnerable tribes. She explained the identity of an object may be lost through the sorting and circulation of museums and collectors; such as the case of wampum belts, which became a hot sales commodity in the 1970s. Dr. Bruhac concluded that Native American property may be identifiable to a particular tribe only if museums and tribal nations share an open dialogue. Ms. Reed defended the ability of museums to acquire antiquities in the case of unverifiable provenance, citing MFA’s policy of assessing the risk of acquisition based on certain criteria. Ms. Reed mentioned that museums and collectors should demand the proper paperwork and ask more questions in order to facilitate transparency of orphaned objects. Dr. Lauren Ristvet (Associate Professor of Anthropology, the University of Pennsylvania) presented on provenance research approaches regarding cuneiform tablet collections. Her presentation highlighted the problematic impact that continual looting in Mesopotamian archaeology has in understanding the past. She differentiated the University of Pennsylvania’s collection, acquired through excavations in the ancient city of Nippur in Iraq versus those purchased for Yale University’s collection. The tablets at Penn, while not as aesthetically pleasing as those in Yale’s collection, are arguably more invaluable because their context is intact, providing insights into Sumerian literature and the Sumerian educational system. The tablets acquired at Yale, in contrast, consist of glued, incongruent fragments, some of which were thrown away, thereby destroying the historical meaning of the tablet.

Current Responses and Solutions

The final panel, Emergency Responses to Heritage Destruction in Times of Conflict, focused on the safeguarding of antiquities under siege and attempts to curtail present-day looting. Cori Wegener (Cultural Heritage Preservation Officer, Smithsonian Institution) disclosed international responses to site looting and heritage destruction in Syria. In particular, she stressed the importance of partnerships between non-governmental organizations and museums in order to raise awareness of the looting and help those on the ground who have been cut off from resources. She discussed the current collaboration of the Smithsonian with Safeguarding the Heritage of Syria Initiative (SHOSHI), spearheaded by Salam Al-Kuntar (Consulting Scholar, the University of Pennsylvania Museum). In June 2014, SHOSHI along with the Smithsonian led a conference in Southern Turkey to address emergency packing and planning for Syrian museum collections and the protection of archaeological sites. Led by Syrian technical experts, SHOHSI provided training workshops and supplies to volunteers looking to respond to the disaster. Apart from the conference, SHOSHI engaged in other projects, including training officials from the Ma’arra Museum to cover 90% of the museum’s mosaics with sandbags. Dr. Al-Kuntar seemed hopeful that these emergency efforts will preserve existing artifacts amidst the continual looting.

Susan Wolfinbarger (Project Director, the Geospatial Technologies and Human Rights Project, American Association for the Advancement of Science (AAAS)) concluded with the potential use of satellite imagery for cultural property war crimes prosecutions in Syria. She mentioned efforts by AAAS to train international human rights courts and commissions regarding the use of remote sensing in research documentation. Inaccurate evidence is common in these cases as prosecutions are based off of eyewitness testimony and lack of access to sites. Ms. Wolfinbarger expressed that the technology would be a useful tool in presenting objective evidence of human rights abuses and destruction to cultural property.

Conclusion

The destruction and plunder of cultural heritage, especially in areas of conflict, continues to be a devastating, universal problem. This year’s LCCHP conference highlighted the loss of the cultural meaning of objects and our understanding of memory and past cultures if artifacts are disturbed from their original context. A current illustration of this is ISIS’s attempts to eradicate past history and cultures.

While cooperation, as in the case between foreign governments and museums, is a useful tactic for the restitution of looted objects, there is room for improvement to block looted objects before they reach destination countries. Technology may facilitate the tracking of lost antiquities, but the most effective way to prevent looting is on the ground. Unfortunately, countries of conflict do not possess the resources or ability to police such pillaging. However, educational efforts led by non-governmental organizations and/or resource-rich populations may provide an answer to restrict the flow of antiquities from the origin country. In addition, if museums and collectors take the proper measures to conduct due diligence, demand for looted objects may be subdued. More extensive criminal investigations and policing efforts in destination countries may also prevent the facilitation of this illicit trade. Presently, there is legislation pending in Congress imposing import restrictions from Syria. Ms. Gerstenblith recommends that those wishing to make an impact in restricting trade from Syria call their representatives to pass the appropriate legislation. See H.R. 1493- Protect and Preserve International Cultural Property Act.

Nonetheless, the above efforts are only a beginning to arrest the flow of the illicit antiquity trade. Satellite imagery shows the vast destruction of looted archaeological sites, in which centuries of information regarding past cultures is lost. The universe of looted antiquities from such immense plunder will be resurfacing for years to come. Consequently, the message from this year’s conference was clear: education, transparency of collection practices, and meaningful dialogue between origin countries and market participants are the strongest means to keep cultural heritage intact.

Select Sources:

About the Author: Jill A. Ellman is an attorney in New York interested in the preservation of cultural heritage. She may be reached at jillaellman@gmail.com.

WYWH: NYCLA Discussion of Forensic Art Analysis

Screen Shot 2015-04-28 at 5.14.46 PMby Megan Noh, Esq.*

On Wednesday, April 1st, the New York County Lawyers Association (NYCLA)s Art Law Committee hosted James Martin, founder of Orion Analytical LLC, an independent laboratory dedicated to examining cultural property in authenticity studies and legal proceedings. Martin is a frequent guest in New York City; he recently gave a lecture at Center for Art Law’s “Youve Been Served” event, and is also an adjunct professor at the New York University School for Continued Education. Martin uses a range of scientific techniques – including technical photography, microscopy, elemental analysis, and chemical analysis of materials – to compare questioned and documented works, and identify anachronisms and anomalies in fraudulent and misattributed works. Mr. Martins presentation focused on his work in the context of several prominent art authenticity claims.

The first such instance was the widely-reported controversy surrounding 32 canvasses claimed by owner Alex Matter to be previously-unknown Jackson Pollock “drip/pour” works dating from 1946-1949. Mr. Matter purportedly discovered these works in an East Hampton warehouse in approximately 2002, and although the Pollock-Krasner Foundation officially ceased issuing authenticity opinions in the mid-1990s, its then-remaining members did express opinions about the Matter canvasses. Unfortunately, those opinions conflicted; as a result, three of the works were sent to Harvards Straus Center for Conservation, and more than twenty to Orion, so that both laboratories could conduct independent analyses. Mr. Martin found at least six anachronistic materials in the Matter canvasses he studied, including an automotive pigment first used on Ferrari automobiles in the 1980s, well after the works supposed date of execution. Orions official conclusion was that this scientific evidence indicated that the date and attribution of the works were not as alleged by Mr. Matter. Mr. Martin presented these findings, which were consistent with Harvards report of its own analysis (issued in January 2007) at an IFAR symposium in November 2007 and in a 2008 volume of IFARs journal, thus putting the matter to rest in New Yorks art community.

The second authenticity claim Mr. Martin discussed with NYCLAs ALC members was Lagrange v. Knoedler; Mr. Martin was cautious to limit his discussion to non-privileged information. (See our Knoedler Obituary). In this 2011 suit filed in the Southern District of New York, billionaire hedge fund manager Pierre Lagrange brought claims for breach of contract, fraud, and unjust enrichment against the then-venerable American gallery where he had purchased a work attributed to Jackson Pollock. According to the complaint, at the time of purchase, Knoedler told Mr. Lagrange that the Pollock catalogue raisonné was in the process of being updated, and would ultimately include the painting in question. However, several years after his purchase, Mr. Lagrange tried to consign the painting for auction, and two major auction houses rejected it on the basis that it was not included in the catalogue raisonné. Mr. Lagrange sought to rescind the Knoedler sale, alleging that there were in fact never any definitive plans to update the catalogue raisonné to include the painting in question, and that Knoedler had knowingly misrepresented these facts in order to sell him the work. Orion was retained to analyze the painting, and found at least three paints that were produced later than its purported 1950 date of execution. Apparently Knoedler shut its doors a day after receivingOrions report and the two sides subsequently reached a confidential settlement, while other cases brought against Knoedler are still pending.

This NYCLA meeting was a wonderful opportunity for members to learn more about the importance of scientific analysis in what Mr. Martin refers to as the “three-legged stool” model of authentication, where connoisseurship and provenance are supported by a third essential element: technical and scientific examination of physical substance. As the art market grows in complexity and commercial value, and questions of attribution become increasingly contentious and convoluted, authentication methodology will continue to evolve. It is likely that collectors and the attorneys who represent them will place more weight on this leg of the so-called stool, and Mr. Martins presentation was a welcome primer in that area.

Suggested Reading:

  • De Sole v. Knoedler Gallery, LLC, 974 F. Supp. 2d 274 (S.D.N.Y. 2013).
  • The Martin Hilti Family Trust v. Knoedler Gallery, LLC et al., 1:2013-cv-00657(S.D.N.Y. Jan 29, 2013).
  • White v. Freedman et al., 1:2013-cv-01193 (S.D.N.Y. Feb. 21, 2013).
  • David Mirvish Gallery Limited et al v. Knoedler Gallery, LLC, 1:2013-cv-01216 (S.D.N.Y. Feb. 22, 2013).
  • The Arthur Taubman Trust et al v. Knoedler Gallery, LLC et al., 1:2013-cv- 03011 (S.D.N.Y. May 3, 2013).
  • Rosenfeld v. Knoedler Gallery, 653030/2013 (Aug. 30, 2013).

About the author: Megan E. Noh, Esq. is the Assistant General Counsel of Bonhams and an active member of both the New York City Bar Association’s Art Law Committee and the New York County Lawyers’ Association.

Disclaimer: This and all articles are intended as general information, not legal advice, and offer no substitution for seeking representation.

Competing or Complementing: Art Loss Databases Proliferate

By Mia Tomijima*

Stolen art seems to be ubiquitous and difficult to track. It is relatively easy to ship and sell around the world, and can remain easily hidden for decades. The owner faces the conflict of wanting to publicize the loss widely, while also keeping their personal lives private. The development of databases to record losses was first preceded by newsletter alerts of stolen art that proliferated in the arts community to halt sales with questionable provenance. Next, the emergence of the Internet caused law enforcement agencies, international organizations, and private companies to establish online databases of stolen art. The increased organization and transparency created by these databases helps collectors and art professionals with due diligence searches for acquisitions, loans, and insurance, which ultimately helps ward off costly title disputes. However, a database is only as useful as the breadth, accuracy, and accessibility of information it contains. New technology and the market’s demand for other potential uses of art registries, such as for collection management, could push these databases to new, uncharted territories. The usual suspects for searches include: the Art Loss Registry, the FBI’s National Stolen Art File, and Interpol’s Database, among a few others. One new company that is pushing the boundaries is the ArtClaim Database.

On March 5, 2015, the ArtClaim Database (“ArtClaim”) had its U.S. launch party at the Hirschl & Adler Gallery in New York City. Members of the art, auction, insurance and legal communities arrived if not to learn about the new company than to support its founders on the new venture. After more than one year of strategizing, ArtClaim, owned and operated by the Art Recovery Group LTD, launched their new database in January 2015. Christopher A. Marinello, CEO of Art Recovery Group, along with several former employees of the Art Loss Register (“ALR”) established a competing company that could expand the concept of these databases to new areas beyond just thefts. According to Ariane Moser, Client Relations Director of Art Recovery Group, ArtClaim holds itself as the first private database created as an “all claims and all interests” database. This means that in addition to stolen art, the database contains information regarding art encumbered by financial liens, insurance claims, museum objects on loan, possible fakes and forgeries, and collections management, among other claims. The ArtClaim Database may also be used to register work directly from artists, which would help them to, for example, keep track of consignments with galleries or resale royalties. The ArtClaim Database joins a limited group of databases that record art ownership. The two best-known government-sponsored databases are aimed at assisting law enforcement to recover art or cultural artifacts that have been involved in thefts or looting are the one maintained by Interpol and the one maintained by the FBI. Interpol, the world’s largest international police organization, first started maintaining a database of stolen art from police reports in 1947. The database is accessible by law enforcement agencies, authorized private users, and, since 2009, the general public can access limited amounts of data, including the most recently reported works, recovered works, and recovered works that remain unclaimed. The FBI maintains a similar database of stolen art and cultural property, called the National Stolen Art File (“NSAF”). Entries into the NSAF are submitted by law enforcement in the U.S. and abroad, and the general public can access limited parts of the database, but not information related to ongoing investigations. Unlike other databases, the NSAF has some qualifications for entry, including that the object must be “uniquely identifiable and have historical or artistic significance,” must be worth at least $2,000 (or less if associated with a major crime), and the request for entry must come through law enforcement. Thus, the database is limited to only those reported to them, and excludes art that is not necessarily associated with crimes. Bonnie Magness-Gardiner, who manages the FBI’s art theft program, said to the NY Times that “It is not an absolutely complete database […] We get what they choose to send us.” When a work of art is recovered, it is removed from the database. Interpol’s and the FBI’s databases are unquestionably useful, but are limited by the finite resources of time and funding that often plagues government-run agencies.

To supplement and/or overcome the limitations of government funding, privately run databases have emerged as useful alternatives. Dominating this sphere is the Art Loss Register, the oldest and most-prominently established private art database. Started in 1976 by the non-profit IFAR (International Foundation for Art Research) as a “Stolen Art Alert” to deter international art theft and sales, the ALR formed a partnership with the organization and moved its headquarters to London in 1990. According to Julian Radcliffe, Chairman of the ALR, the database sets itself apart from others in the field via its exclusive collection of 25 years of data on art that is stolen, missing, lost, fake or forged. It offers registrations for art subsequent to loss or theft (at a cost of £15/ US$25 per item for 1-5 items; for 6 – 10 items: £12.50/ US$20 per; or for 11+ items: £10/ US$18 item). Reportedly, the ALR database currently holds about 435,000 objects. There is no public access to the data held and a single search may be performed at a cost of $95 or £60. Radcliffe notes that the company performs over 400,000 paid searches every year from auction houses, galleries, and other vetting organizations.

Incidentally, the Art Loss Register is developing new subsections for its database, including for the jewelry and watch trade, to add even more volume to their database. The company has conducted trials with emerging technology such as image recognition, but found it to be no more effective than the manual searches conducted by their trained art historians. Radcliffe states that image recognition, as it currently stands, may not catch the details of art being slightly altered and resold by thieves, or three-dimensional objects like the decorative arts. The ALR is a “managed database” with every search subject to an internal audit trail to avoid criminals from using their system to avoid being caught. ALR will issue due diligence certificates, which do not make guarantees of authenticity, but may provide some greater certainty as to a possible dispute over the artwork. While understandably protecting itself from liability as well as the private information of the art elite, the lack of transparency into the search process and what information is used and how that information is accessed and organized can raise some questions as the actual effectiveness of a due diligence search using ALR’s services. The company has received criticism over questionably ethical tactics used in demanding fees for leads, potential lack of cooperation with the authorities, and not to mention the fact that the company is partly owned by the auction houses that make primary use of its services. The company, unchallenged, remained persistent in its methods and was able to do so as the only private player to offer such level of services, at least until now.

As compared to these databases, ArtClaim is attempting to set itself apart by working with new forms of technology. Moser notes that the database was built completely from scratch with the most technologically advanced tools available in mind, using a modular system that is already fully developed but expandable for data processing that will continue to develop into the future. The database uses integrated high-definition image recognition software from a company called LTU Technologies, and has an intuitive user interface with over 500 different searchable data fields. The information contained within these searchable data fields are not accessible by the general public; since security and confidentiality is of an utmost importance, only internal employees can perform searches (just like ALR). Thus, while presumably using the latest technology will increase speed, efficiency, and accuracy of individual searches, it may be difficult to tell whether these uses of technology are actually more effective than previous methods.

What is the cost of ArtClaim’s services? Records of stolen or looted art are free to register on the ArtClaim Database. Registration of art for other claims, such as for lien recordings or collections management, is not free; the price tag is negotiable depending upon the total number of registrations and status of the requester (non-profit museum, auction house, or otherwise). A search of the database for due diligence purposes is permitted, however as noted earlier, users are expected to submit a search request to the company, whose staff performs the search. The ARTCLAIM issues a certificate if it finds that there is no disputed claim to the art as of the date of issue of the certificate. A single search costs £60 plus VAT (or US dollar equivalent), with multiple searches costing less per depending on the number and status of the requester. According to Moser, the ArtClaim Database has several hundred thousand records that are currently being digitized onto the system.

After registration within ArtClaim, a person can pursue recovery independently, or use the dispute resolution and recovery services offered by separate division Art Recovery International (“ARI”) for a fee. ARI is already working with law enforcement agencies around the world to investigate and recover works of art: it helped recover a Matisse painting taken from the Rosenberg Family during the Nazi occupation of France; identified several paintings including works by Marc Chagall and Diego Rivera stolen from a home in Encino, California; and recently recovered sculptures by Paul Manship and Paolo Troubetzkoy for the Hirschl & Adler Gallery from whom they were stolen over 32 years ago.

Finally, ArtClaim and other databases may overlap with databases that focus on art reportedly looted by the Nazis during World War II. For example, the Lost Art Database is run by the Koordierungsstelle Magdeburg, Germany’s central office for documenting lost cultural property, which was established to register cultural objects that were relocated, moved or seized as a result of Nazi dictatorship and persecution. Database of Art Objects at the Jeu de Paume is a database of searchable illustrations compiled by the ERR (Einsatzstab Reichsleiter Rosenberg) of more than 20,000 art objects taken from Jews in German-occupied France and Belgium. The general public can search this database by individual objects or by the owners from whom the object was taken. Another useful resource, the Central Registry of Information of Looted Cultural Property 1933-1945 is set up as a central repository of information on Nazi looting, including not only information on stolen objects, but also pending legal cases, laws, and reports on the fates of families. Working with the Oxford Centre for Hebrew and Jewish Studies, the database contains 25,000 artworks from over 12 countries, and is fully searchable by artist, owner, or provenance. The specificity in time and ownership from Nazi-looted art claims has lent itself well to the creation and maintenance of art loss databases, which will hopefully aid in due diligence searches and the recovery of art to their rightful owners or heirs.

In light of the fact that title disputes are expensive, time consuming, and oftentimes fraught with emotion, making sure that the art one is acquiring is not stolen is sound business advice as well as an ethical act. As with any piece of property, there is a great need to perform thorough due diligence prior to the purchase to check that the provenance is as claimed to be, and to protect stolen art from resale. Information about artworks that were stolen, lost, or looted is perennially valuable and should be widely accessible, however there are many barriers to the accessibility of this information, chief among them being cost and privacy. The availability of multiple databases with different tools, services, and information may create confusion for collectors and the art industry as to which database to use for their individual purposes and how to feasibly conduct a proper due diligence search. Greater competition in a marketplace generally drives the industry forward, with participants offering competitively priced services and greater innovation in order to stay relevant with their customers. The launch of the ArtClaim Database and formation of the Art Recovery Group are ambitious and risky, as well as promising, and time will tell whether they are what the art market needs.

Select Sources:

*About the Author: Mia Tomijima is a recent graduate of Brooklyn Law School, where she received a certificate in intellectual property and served as Chair of the Art Law Association. She received a bachelor’s degree in art history from UCLA, and has worked with museums, auction houses, and law firms on both coasts. Mia is a post-graduate fellow with Center for Art Law. 

The author would like to thank Ariane Moser and Julian Radcliffe for their time and input in this article.

Disclaimer: This article is intended as general information, not legal advice. Any opinions contained herein are of the author’s alone and are not an endorsement for a particular service.

WYWH: Review of “The New Cuba: What You Need to Know About the Cuban Art Market”

American and Cuban Presidents Obama and Castro shaking hands in Panama in early April 2015. (Source)

by Dennis C. Abrams

On the evening of April 12, less than a week after Presidents Barack Obama and Raúl Castro historically shook hands at the seventh Summit of the Americas, Herrick, Feinstein LLP and Akerman LLP co-sponsored a discussion entitled “The New Cuba: What You Need to Know About the Cuban Art Market” at Herrick’s offices in Midtown Manhattan. The seminar, featuring several distinguished speakers, explored the finer points and risks of buying, selling and collecting Cuban art in light of the President Obama’s recent decision to normalize diplomatic relations with Cuba.

The two panels explored the following discussion topics:

  • How recent U.S. regulatory changes will affect Americans’ ability to buy Cuban artwork;
  • Techniques for U.S. collectors to legally pay for new acquisitions and import their purchases into the United States;
  • The history of art nationalization in Cuba and how to avoid legal exposure by engaging in provenance- related due diligence.

Panel I

Introduced by Howard Spiegler, Partner at Herrick, the speakers on this first panel were Carlos Méndez-Peñate, a Partner and Co-Chair of the Latin America & the Caribbean Practice at Akerman LLP, Augusto E. Maxwell, a Partner and Chair of Akerman’s Cuba Practice and Alberto Magnan, the Cuban-born Gallery Principal at Magnan Metz Gallery.

Mr. Méndez-Peñate began by addressing the current state of the law regarding relations between the United States and Cuba, focusing on the Cuban Assets Control Regulations (CACR) which have been responsible for the American embargo on Cuba since being enacted by Congress in 1963. The CACR (which Lesley Sotolongo previously discussed for Center for Art Law) prohibit most forms of trade with Cuba but § 515.206(a) of the regulations explicitly exempts several different types of transactions from the ban including, most pertinently to this discussion, information and informational materials. The definition of “information and informational materials” specifically includes “artwork” and names several different types of media including films, posters and CD ROMs. However, as Méndez-Peñate pointed out, the item that is the subject of the transaction must be bought as is – meaning that, while Americans may buy completed artworks, they cannot commission a Cuban artist to create a new artwork nor hire a Cuban artist to alter or put the finishing touches on a preexisting project. Méndez-Peñate also mentioned that, because the embargo is embodied in statutory law, it will ultimately require an act of Congress to repeal and, until that time, any progress perceived to have been made by President Obama can easily be undone by the successive administration in 2017.

Mr. Maxwell then spoke about the specifics of traveling to and buying art in Cuba. He explained that the Office of Foreign Assets Control had recently relaxed its rules by issuing general licenses allowing travel to and transactions in Cuba for non-specific purposes and lifting the per diem limitation on expenses (which previously limited spending to $188 per day in Havana). Maxwell also discussed a roadblock for visitors to Cuba which may soon be resolved – because of Cuba’s status on the State Department’s list of State Sponsors of Terrorism, many banks refuse to do business in or with the island nation and, as a result, Americans’ credit and debit cards have long been nonoperational within its borders. Given President Obama’s recent endorsement of removing Cuba from that list, however, Americans may be able to buy art in Cuba using their credit cards before long. Finally, keeping in mind the sociopolitical sensitivity underscoring all interactions with Cuba, Maxwell outlined three things for buyers to beware of when shopping the Cuban art market: (1) artwork previously confiscated by the Cuban government, as rightful ownership and legal title may be subject to challenge, (2) purchasing works created by artists who have close ties to the Cuban government, as patronizing such artists may cause reputational damage to the buyer in anti-Castro circles, and (3) the danger of buying fakes in light of widespread forgeries in Cuba.

Lastly, Mr. Magnan discussed the history of art in Cuba since the 1980s and the current state of the nation’s art community. He lamented the fate of Cuba’s national art museum, the Museo Nacional de Bellas Artes de La Habana, which has suffered under the embargo as it would surely benefit from using American building materials for structural maintenance. At present, the museum relies largely on mid-20th century American air conditioners to control its climate and preserve its artworks. Magnan has contributed to the Cuban art community by exhibiting their work at his Manhattan gallery and curating shows in Cuba.

Shortly after the end of the Cuban Revolution, rebel Camilo Cienfuegos stands on a portrait of Marta Fernández de Batista which has been torn from its frame in the Presidential Palace. (Source)

Panel II          

The second panel addressed the subject of the nationalization of art by the Cuban government and the resulting legal risks in transacting in Cuban art. This discussion was covered by Mari-Claudi Jiménez, a partner in Herrick, Feinstein’s Art Law practice group, Monica Dugot, Senior Vice President and International Director of Restitution at Christie’s International and Lucian Simmons, a Senior Vice President at Sotheby’s New York and head of their Worldwide Restitution team.

The Cuban Revolution was fought from 1953 to 1959 and resulted in the establishment of Fidel Castro’s communist government which remains in power today. After Castro assumed office, art was among the many valuable resources confiscated from private citizens and redistributed. Most of that immeasurable hoard of art wound up in museums, in the homes of government officials or sold abroad at auctions. However, while the identification and restitution of art confiscated under similar circumstances in other countries has long been a major cause for concern in the art market, the status of art looted during the Cuban Revolution has become a topic of interest only recently according to Ms. Jiménez, who recently spoke on this topic at the annual American Society of International Law Annual Meeting in Washington, D.C. According to her, part of the reason that awareness for this issue has lagged so far behind is due to the insular nature of the nation and that Cuban families often lack the resources to identify, locate and secure the return of their missing heirlooms. While it would be reasonable to assume that a framework for restitution could be instituted similar to the one which has facilitated the return of so many Nazi-looted artworks, there is an operative difference between the two regimes, which makes such a proposition inapposite. The key difference is that the United Nations’ London Declaration of 1943 invalidated all transfers of property made by the Nazi regime, thereby giving rightful title of any artwork taken by the Nazis to the owner from whom it was taken. Conversely, the nationalization of previously privately owned artwork by the Cuban government is given full legal effect, leaving original owners without any clear legal recourse. Therefore, for most Cuban victims of art confiscation, restitution is not so much a goal as it is a hope.

According to Ms. Dugot and Mr. Simmons, neither Christie’s nor Sotheby’s has yet had occasion to return much, if any, artwork looted or nationalized during or after the Cuban Revolution. However, both institutions do have agreements with specific families who had significant collections confiscated to be on the lookout for and notify them of any works that may have previously belonged to their families. Dugot also mentioned that, in addition to returning Nazi-looted artwork, Christie’s has been able to return pieces nationalized by the Soviet, Cambodian and Egyptian governments. Given that due diligence can often only be as thorough as the resources consulted, Dugot implored victims to register their missing art in stolen art databases whenever possible.

“The New Cuba” left attendees with mixed feelings as to the future of the Cuban art market. While America’s relaxation of its sanctions against Cuba seems likely to facilitate relatively free trade between Cuban artists and American buyers, there is no guarantee that the market will not be replete with artwork taken from their original owners by the Castro regime. Although Cuban nationalization of property is given legal effect in the U.S. and Cuba and the original owner of such a work therefore may not have superior title to the work, the stigma of forceful takings runs counter to the values and standards of the present day art community. This creates a moral dilemma for subsequent purchasers of the work. And, as Lucian Simmons said, good “moral title” is often just as important as valid legal title.

About the Author: Dennis C. Abrams, Legal Intern with Center for Art Law, is a 3rd year student at Benjamin N. Cardozo School of Law, with an interest in intellectual property, media, art, entertainment, and sports law. He can be reached by e-mail.

Gold or Not? Scenery or Forgery? Art Reproductions Created for Film

by Mia Tomijima*

Screen shot 2015-03-24 at 5.07.04 PM“Woman in Gold” (2015) adapts for the big screen the story of Maria Altmann (1916-2011) and her legal battle against the Government of Austria to return five Gustav Klimt masterpieces on display in Vienna’s Belvedere Museum, which were taken from her family by the Nazis during World War II. Austria shipped the paintings to the U.S. in 2006, where they were first put on display in Los Angeles and then sold at auction, with the “Portrait of Adele Bloch-Bauer I” (1907) being purchased by Ronald Lauder to be put on display at the Neue Galerie in New York City.

This and other films featuring priceless works of art begs the question, what does a film company do when it wants to include works of art in movies. In making “Woman in Gold” what did the director, Simon Curtis, have to do recreate scenes of the paintings as they were in Austria? Did he borrow the artworks that were filmed? After all, even if the current location of an artwork is known, it is simply too costly to move a multimillion-dollar work of art around the world just for filming purposes. Its movie magic of course! The art reproduced for this and other films is meant to fool the eyes of millions of moviegoers, and looks so real that, if released into the general public, it could potentially pass as a forgery. While the reproductions in this instance will likely be kept under lock and key in storage after the film wraps, other artists and foundations have gone to greater lengths to protect their copyrights when their works are depicted on film.

As an example, the 1996 film “Basquiat” depicted the work of many famous artists including Picasso and Warhol. Director Julian Schnabel, a painter himself who had close friendships with Jean-Michel Basquiat and Andy Warhol, wanted the art in the film to be as true to life as possible. Unfortunately, the Basquiat estate refused to give reproduction permission, instead demanding an exorbitant fee that would have made the film impossible. As a result, all of the paintings shown in the movie were created “in the style of” Basquiat, with an attorney for the estate verifying each piece as acceptable. Schnabel also convinced Picasso’s estate to allow him to create a reproduction of “Guernica” (1937) for the movie, but in exchange agreed to destroy the work immediately after and send video proof of destruction. The story of the making of the “Basquiat” film shows how artists and estates may protect their interests while still allowing some flexibility for allowing inclusion of art in the medium of film.

The film industry has a long history of creating reproductions of art for set backgrounds. Films featuring fine art have grown more and more prevalent in the past two decades. As this trend has grown, so have increased the copyright lawsuits over artists’ rights and complicated rights clearance processes with staggering monetary demands and unique instructions for the creation and destruction of the art.

Lawsuits over art depicted in two films in the 1990’s caused film companies to change their policies over rights and permissions forever. Artist Frederick E. Hart brought suit against Warner Brothers for showing a sculpture in a final scene of the movie “Devil’s Advocate” (1997), which was strikingly similar to his “Ex Nihilo” (1982), which is displayed at the Washington National Cathedral. The movie not only allegedly infringed his copyright, but also distorted the artist’s intent of portraying God’s beautiful creation of humans, not, as it was in the film, coming to life in a demonic scene of lust. After a federal judge found that Hart was likely to succeed, Warner Brothers reached a settlement, agreeing to cut and change the ending of the film before video release and also add a sticker to the 475,000 unedited versions of the film already released that disclaimed any affiliation to the artist’s sculpture, a likely difficult but necessary end to the case.

Similarly, artist Lebbeus Woods sued Universal Studios, Atlas Entertainment, director Terry Gilliam, and production designer Jeffrey Beecroft, alleging that the film “12 Monkeys” (1995) ripped off his drawing entitled “Neomechanical Tower” (1987). Woods was upset about the violation of his copyright and also the distortion of his artistic intent. In granting a preliminary injunction, the Court asked Universal to pull all copies of the already released film (an enormous expense) but Universal instead agreed to settle for a six figure sum to keep it in. These costly legal battles and settlements changed the way that production companies handle art used in films to be more cautious and to seek permission from copyright holders up front.

These cases, among others, raise issues of how to truthfully depict the past in film while still respecting the rights of artists over their creative works. Media companies, now more than ever, must check with their art departments and ensure that rights clearances are obtained for any concepts or images that may be sourced from outside. Solutions as creative as the art depicted must be sought to permit audience enjoyment on all levels. As for the reproductions in “Woman in Gold,” created by scenic artist Steven Mitchell, under the production design of Jim Clay, no information is available at present as to their fate.

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Screen shot 2015-04-17 at 2.41.44 PMNote from the editors:

On April 13th, Center for Art Law continued its film-viewing series “You’ve Been Served” with “Woman In Gold.” While attendees did comment on the casting choices (unforgettable Helen Mirren as Maria Altmann and debonair Ryan Reynolds as Randol Schoenberg), nobody objected to the quality or mere fact of art reproductions. In addition to the Klimt paintings, the film features many other artworks that were or might have been a part of the Altmann’s family collection, including for example Ferdinand Georg Waldmüller’sPrinzen Esterhazy mit weißem Kaninchen in einer Landschaft” (1827), which was taken from the Bloch-Bauer’s that Hitler intended to hang in his Führermuseum. The film was well received and praised for its ability to explain the value of restitution that transcends the art market value and aims to fix some of the tragic losses suffered by families and nations during under the Nazi rule and World War II.

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*About the Author: Mia Tomijima is a recent graduate of Brooklyn Law School, where she received a certificate in intellectual property and served as Chair of the Art Law Association. She received a bachelor’s degree in art history from UCLA, and has worked with museums, auction houses, and other arts non-profits. Mia is a post-graduate fellow with Center for Art Law.

Disclaimer: This article is intended as general information, not legal advice. Any opinions contained herein are of the author’s alone and are not a substitute for seeking outside legal representation.