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Art, Cultural Heritage and the Market pp 319–340Cite as

Art Exchange? How the International Art Market Lacks a Clear Regulatory Framework

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Abstract

While art has developed into a commodities market it lacks the same kind of rigour and transparency of regulations associated with comparable commodity markets. For the last decade, financial analyses have increasingly reported the growing similarities in the way art and cultural objects have become tools of investment—as other commodities have long been. Yet the different rules surrounding the trade and investment into these two different asset categories are worlds apart. The trade of art is both founded in national export prohibition laws that have been developed to protect cultural property belonging to countries’ national cultural heritage, and in recent years, has also become reliant on rules, like export licenses, and privatisation of national collections, that enable it to move more freely across borders, an effectuate the propensity of artists to earn a living, collectors to sell without losses caused by protectionism, as well as for the sharing of art for tourism to reach wider audiences. This dual path has enabled art, and especially heritage, to be both protected and given the opportunity to grow in value without too many regulatory restrictions, in the way other financial investment markets have had to be regulated. As stocks are traded on Wall street and other financial hubs, international auction houses have developed into trading grounds for ever-groundbreaking art prices and are working increasingly with art dealers who act as commodity brokers. The brokers behind these deals, and the funds with which they broker, fall under a cloak of privacy and thus leave one of the world’s largest transnational investment assets ruled by the near lack of transparency or adequate regulation. This chapter outlines the main regulatory instruments of transnational art trading, the relevant enforcement agencies, the ways in which art brokers like auction houses must apply these rules and certain loopholes that might be filled to the benefit of fair trade for all involved.

Jason-Louise Graham is a Freelance writer on art and art law as well as Account Manager for the Rene Magritte project at Rare Posters Dba. Art Wise in Brooklyn New York.

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Notes

  1. 1.

    Markham (1979).

  2. 2.

    Jin et al. (2012) (noting that “Tracking the trading records of specific art pieces, the index is an objective guide for investors and is rated by Morgan Stanley as one of the 10 most important asset indexes in the world”).

  3. 3.

    Battle (2011).

  4. 4.

    Beyeler v. Italy 33202/96 Judgment Strasbourg 5 January 2000.

  5. 5.

    This chapter aims at providing an academic overview of the financial market; it is not intended to provide any financial advice.

  6. 6.

    See e.g. the 2006 International Council of Museums (ICOM) Code of Ethics for Museum Professionals, The Network of European Museum Organisations (NEMO) established in 1992, the International Network for the Conservation of Contemporary Art (INCCA) launched in 1999, and the Federation of European Art Galleries Association (FEAGA), active on the European policy level.

  7. 7.

    See e.g. the EU Work Plan for Culture 2005–2007 [listing five priorities: (1) contributions of cultural industries to the achievement of the Lisbon targets; (2) digitisation of the cultural heritage; (3) upgrading the European Culture Portal, (4) mobility of works; (5) mobility of artists.].

  8. 8.

    Council Resolution 13839/04 on a Work Plan for Culture 2005–2007, Council Work Plan for Culture 2008–2010, Council of the European Union Resolution of the Council of 16 November 2007 on a European Agenda for Culture (2007/C 287/01) and the EU 2007–2013 Cultural Programme.

  9. 9.

    CM 2.0 Project (2009–2011) at www.lending-for-europe.eu.

  10. 10.

    McAndrew (2010).

  11. 11.

    McAndrew (2010).

  12. 12.

    Davidson (2012).

  13. 13.

    Deloitte (2011).

  14. 14.

    McAndrew (2011).

  15. 15.

    McAndrew (2011).

  16. 16.

    McAndrew (2012).

  17. 17.

    Davidson (2012).

  18. 18.

    Corbett (2011).

  19. 19.

    McAndrew (2012). See also Corbett (2011) (noting that the “global employment in the art trade amounts to 2.4 million people, 2 million direct jobs and 400,000 additional jobs in ‘ancillary sectors’… The Global art market includes 380,000 art galleries and art dealers.”).

  20. 20.

    McAndrew (2010), p. 2.

  21. 21.

    The Art Fund Association LLC (2009), Basics of Art Funds and their Managers [highlighting that art investment funds only account for a part of the market: “By way of comparison, the entire value of the sales of art conducted solely by means of public auction in 2009 was US$5.14 billion, which represents only a small fraction of the aggregate global sales of art made in such year (estimated to be about US$30 billion).”].

  22. 22.

    Battle (2011).

  23. 23.

    Reyburn (2012).

  24. 24.

    Deloitte (2011).

  25. 25.

    See generally Reyburn (2012).

  26. 26.

    See generally Reyburn (2012).

  27. 27.

    Skate’s (2013), p. 21. See also Deloitte and Art Tactic (2011) Art and Finance Report.

  28. 28.

    See e.g. The Art Fund Association LLC (2009).

  29. 29.

    See e.g. The Art Fund Association LLC (2009).

  30. 30.

    Davidson (2012).

  31. 31.

    See e.g. Artvest (2011).

  32. 32.

    Hartvig (2011).

  33. 33.

    Hartvig (2011).

  34. 34.

    Desloge (2010).

  35. 35.

    Skate’s (2013), p. 22.

  36. 36.

    Deloitte (2011).

  37. 37.

    For interesting discussion, see Salkin (2009).

  38. 38.

    For interesting discussion, see Salkin (2009).

  39. 39.

    Skate’s (2013), Art Stocks and Funds Overview.

  40. 40.

    Astrasheuskaya (2011).

  41. 41.

    ArtInfo (2011).

  42. 42.

    ArtInfo (2011).

  43. 43.

    Astrasheuskaya (2011).

  44. 44.

    Chen (2010).

  45. 45.

    Chen (2010).

  46. 46.

    Ziwu et al. (2011).

  47. 47.

    Skate’s (2013), p. 10.

  48. 48.

    Ferro (2012), p. 1.

  49. 49.

    Ferro (2012), p. 1.

  50. 50.

    Lind et al. (2002).

  51. 51.

    Wallace (2010).

  52. 52.

    Pogrebin and Flynn (2013) (internal citation omitted).

  53. 53.

    Wallace (2010).

  54. 54.

    Pogrebin and Flynn (2013).

  55. 55.

    Gerstenblith (1998).

  56. 56.

    Weisz v. Parke-Bernet Galleries, Inc. 67 Misc.2d 1077, 325 N.Y.S.2d 576 (N.Y. City Civ.Ct. 1971).

  57. 57.

    New York Sales Act defines express warranty through Weisz, 67 Misc. 2d at 1078, 325 N.Y.S.2d at 578.

  58. 58.

    Gerstenblith (1998), p. 510 (noting that “[t]his decision essentially adopts the common law analysis of Jendwine v. Slade, with its emphasis on the distinction between a warranty and an opinion and its reliance on the doctrine of caveat emptor.” Even at auctions this principle would be adhered to, telling the buyer s/he should attempt to recover from the original owner; unfortunately ignoring “the reality that the owner’s identity may be secret and, and more problematical, the owner may be judgment proof, whether by insolvency, absence from jurisdiction or any other reason.” (Gerstenblith 1998, p. 554).

  59. 59.

    Vom Lehn v Astor Art Galleries Ltd. 86 Misc.2d 1, 380 N.Y.S.2d 532, 541 (N.Y. Sup.Ct.1976).

  60. 60.

    Gerstenblith (1998), p. 510.

  61. 61.

    Feldman and Weil (1986); Feldman and Weil (1974), pp. 287–288.

  62. 62.

    Gerstenblith (1998), p. 511. See also Uniform Commercial Code Warranty Solutions to Art Fraud and Forgery, 14 WM & Mary L. Rev 409, 414 (1972).

  63. 63.

    Gerstenblith (1998), p. 512.

  64. 64.

    Gerstenblith (1998), pp. 512–513.

  65. 65.

    Gerstenblith (1998), p. 516. Cfr. Power v. Barham (1836) and NY §13.01.

  66. 66.

    Gerstenblith (1998), p. 523.

  67. 67.

    Wallace (2010).

  68. 68.

    Christie’s Inc. v. SWCA, 867 N.Y.S.2d 650 (N.Y. Sup. Ct. N.Y. County 2008).

  69. 69.

    Wallace (2010).

  70. 70.

    Findley v. Zaplin-Lampert Gallery, Inc., No. 603118/01 (Sup. Ct. N.Y. County, Dec. 19, 2001).

  71. 71.

    In trying to recover lost or stolen works of art, O’Keefe v. Snyder (1979) applies the “discovery rule” which implies that the statute begins to run when the injured party would discover wrongdoing after reasonable diligence in trying to recover a lost, stolen or wrongfully sold work of art. O’Keefe v. Snyder, 170 N.J. Super. 75, 405 A.2d 840 (1979), rev’d, 83 N.J. 478, 416 A.2d 862(1980).

  72. 72.

    Uptown Gallery, Inc. v. Doniger, No. 17133/90 (Sup. Ct. N.Y. County, Mar. 9, 1993): (allowing rescission because both parties mistakenly assumed that a work was authentic); Richard L. Feigen & Co. v. Weil, No. 13935/90 (Sup. Ct. N.Y. County Feb. 18, 1992) (same).

  73. 73.

    O’Keefe v. Snyder, 170 N.J. Super. 75, 405 A.2d 840 (1979), rev’d, 83 N.J. 478, 416 A.2d 862(1980).

  74. 74.

    McGill (1988).

  75. 75.

    Pogrebin and Flynn (2013).

  76. 76.

    ADAA Code of Ethics and Professional Practices: Section I point A, 1962.

  77. 77.

    ADAA Code of Ethics and Professional Practices: Section I point A, 1962.

  78. 78.

    ADAA Code of Ethics and Professional Practices: Section I point B.

  79. 79.

    ADAA Code of Ethics and Professional Practices: Section I point B.

  80. 80.

    The consignor would thus buy back the work of art if bidding does not surpass the buy-in price. This price could be right below the low estimate or just above it.

  81. 81.

    The Code states that “[a] Member does not bid, or agree with others to refrain from bidding on a work, solely for the purpose of enhancing or depressing the price”. Section IV (Auctions) C of the ADAA Code of Ethics and Professional Practices.

  82. 82.

    Crow (2011).

  83. 83.

    Crow (2011).

  84. 84.

    The Art Fund Association (2009).

  85. 85.

    Artvest (2011).

  86. 86.

    During the summer of 2010, the Federal Commission on Securities Markets and Ministry of Justice in Russia worked in concert with some of the most influential domestic financial institutions to launch a new regulation that allows for art to be turned into securities, the second country to do so after India, and the creation of art funds to be offered to domestic and international investors, including Russian general public.

  87. 87.

    Xiao (2012).

  88. 88.

    Jin et al. (2012).

  89. 89.

    Jin et al. (2012).

  90. 90.

    Gerstenblith (1998), p. 566.

  91. 91.

    In Europe, the New Alternative Investment Fund Managers Directive (AIFMD) finalised by the European parliament in 2010 and to be implemented into Member State law by 2013, places hedge funds and equity funds under the supervision of an EU regulatory body. This would require Art Investment Funds, as alternative investment managers, “to report to financial regulators and meet minimum capital requirements” (Deloitte 2011) for the protection of investors in the same way mutual and pension funds must do.

  92. 92.

    For instance, the International Network for the Conservation of Contemporary Art (INCCA) is a centralised database addressing the needs of conserving contemporary art.

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  1. Rare Posters Dba Art Wise Inc., Brooklyn, NY, USA

    Jason-Louise Graham

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Correspondence to Jason-Louise Graham .

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  1. Faculty of Law, Maastricht University, Maastricht, Limburg, The Netherlands

    Valentina Vadi

  2. Faculty of Law, Maastricht University, Maastricht, Limburg, The Netherlands

    Hildegard E. G. S. Schneider

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Graham, JL. (2014). Art Exchange? How the International Art Market Lacks a Clear Regulatory Framework. In: Vadi, V., Schneider, H. (eds) Art, Cultural Heritage and the Market. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-45094-5_14

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