Divorcing spouses, debtors, determined criminals or others may hide and secretly transfer art assets and cultural heritage property. The article below was written by Leila Amineddoleh of Amineddoleh & Associates LLC, where she specializes in art, cultural heritage, and intellectual property law. Ms. Amineddoleh teaches International Art & Cultural Heritage Law at Fordham University School of Law and St. John’s University School of Law. Her article explains that art and cultural heritage property can be used to conceal assets in a variety of ways. The article covers these topics:
I. Forgeries, Illicit Imports & Smuggling
II. Valuating Art In A Divorce
III. Art Transfers By Terrorists & Other Criminals
IV. Suing Over Art
LEGAL CONSIDERATIONS FOR RECOVERING ART ASSETS & CULTURAL HERITAGE PROPERTY
By Leila Amineddoleh, Esq.
Not only are art and antiquities beautiful, fascinating, and rich in cultural significance, but they can be great investments. The growing interest in the art world has introduced a new wave of investment products; entire companies have developed in the field of art investment consultation, using art as an alternative investment type. Some economists even claim that art is more secure than stocks, citing the fact that art outperforms the stock market.[1] Since the Second World War, groups of wealthy investors purchased artwork during unstable economic periods. And as with other asset classes, art and antiquities can be used as vehicles for hiding assets.
I. FORGERIES, ILLICIT IMPORTS & SMUGGLING
One of the most frustrating aspects of art and antiquities collecting relates to valuation. There is a vast disparity between values for authentic versus forged objects. For example, where a convincing copy of a Jackson Pollock may sell for a few thousand dollars, an authentic work by the Abstract expressionist painter may sell for up to $50 million. And as the past couple decades have demonstrated, it can be difficult to ascertain which works are by the hand of a purported artist versus a talented art forger. (This difficulty recently became headline news as art investors sued the well-known Knoedler Gallery for selling multi-million dollar forgeries.[2])
These same complications arise with antiquities. It is not only difficult to determine whether an artifact is authentic, but it can be challenging to determine its origin. Smugglers bring antiquities into the US, but lie about the origin of the objects. Illicit importing has been committed in ingenious ways: some smugglers will cover an authentic antiquity in a plastic coating to make the object appear to be a cheap tourist toy; once the object has passed through customs, the plastic coating is removed and the valuable cultural object is revealed.[3] Other smugglers don’t even disguise the works, they simply claim that ancient artifacts are modern-day trinkets bought while abroad. Another way that people misrepresent objects relates to the find spot (the location where an artifact was excavated). By lying about the object’s origin, smugglers conceal valuable information regarding the work’s creation, greatly affecting the value and legality of a work. (For example, objects from Syria have been recently scrutinized for fear that looted artifacts enter the US and fuel the market for illicit objects. So smugglers now claim that these looted works are from other areas of the Middle East, thereby avoiding detection by U.S. Immigration and Customs Enforcement.)
With both antiquities and fine arts, a work’s legitimacy on the market will affect its value. An object’s provenance (ownership history) is an important aspect of valuation. Stolen objects are generally worth less. A stolen object may have a cloud on its title, deeming it difficult to legally sell, making it challenging to sell the work at auction, donate the piece to a museum, or present it to a dealer. For stolen objects sold to a good faith purchaser, the innocent owner may be unwittingly subject to legal actions from the rightful owner. If the original owner (the one from whom the work was stolen) discovers the whereabouts of his property, he or she may be able to demand return of the work. This often happens in fine art theft cases,[4] Nazi-looted art battles,[5] and foreign government restitution demands.[6]
II. VALUATING ART IN A DIVORCE
Valuation problems and defects on legal title affect divorce proceedings and any type of division of jointly shared investments. In a division of property, joint owners may have different information about the values of art holdings, and either party may claim false information about an art asset. For example, a spouse could claim that the opposing party received a $10 million Monet painting in a divorce settlement, well aware that there are authentication issues with the work, devaluing the object to a mere $1000. In the same way, a party may claim that he is maintaining a modest art collection of small figurines valued at $50,000, knowing that the collection is actually worth over a million dollars. Skate Capital Corp’s Sergey Skaterschikov (the founder of Skate’s Art Research) stated, “The good thing about art [in reference to money laundering]…is you can always say I bought it for $100 and now it’s worth $10 million. It’s very difficult to argue with that because of poor transparency of the art price.” As divorce attorneys or those in business dissolutions may not be well-versed with the art world, it may be easy to dupe an opposing party.
Another type of misrepresentation relates to charitable donations. In the case where one spouse is awarded a valuable collection during divorce proceedings, that individual may also receive benefits through donations. Although only given the value of $50,000 for a collection of artifacts, he may then have the objects properly appraised and then anonymously donate to a museum for their actual value of $1,000,000. The tax deductions is given are a windfall, and one that was unfairly awarded during a divorce, due to the lack of knowledge by one of the parties.
The art world is complex so it is prudent for art owners to consult specialized art lawyers in evaluating their assets. These individuals work with experts examining authenticity, legal title, and even disposition of works. As it is sometimes easy to palm off a fake item or disguise a valuable work as a cheap reproduction, legal investigation involves detailed inquiries related to forensics testing, connoisseurship, and provenance investigation. Art attorneys also investigate the legitimacy of title, in addition to sales limitations, including any cultural heritage law or international regulation that would restrict the collection, sale, or donation of an object.
III. ART TRANSFERS BY TERRORISTS & OTHER CRIMINALS
However, the use of art as a hidden asset is not limited to divorce cases. Criminals also use art as a precious commodity. It is easy to hide art assets, in places such as freeports and safe deposit accounts. And while there are complications with shipping drugs, weapons, and vast amounts of cash, it is simpler to move a painting, particularly if it is disguised as a cheap reproduction. There is a growing body of research proving that organized crime syndicates use art to sponsor their activities. In fact, it has been widely reported that ISIS receives some of its funding from antiquities.[7] If art and cultural objects are discovered to be stolen or illicitly imported, the US government may have grounds for seizure and restitution to the rightful owner. Asset forfeitures proceedings have been used against paintings and cultural heritage objects during the past few decades. (In a case in which my law firm is presently representing clients, a painting was seized by US federal agents because it was listed as stolen by international law enforcement agencies, including Interpol.[8])
IV. SUING OVER ART
A disappointed party may also find relief under other grounds, namely fraud or breach of contract. If a party had knowledge of the value of an asset and misrepresented that value, the aggrieved party could sue under a theory of fraud. To assert fraud in the US, the damaged buyer must prove five elements: (1) a false statement of material fact; (2) knowledge that the statement was not true; (3) the intent to deceive by making the false representation; (4) reasonable reliance on the statement; and (5) actual loss suffered (in the case of a fraudulent sale or agreement, this usually relates to monetary loss). Of the five elements, the most difficult to prove is that the party had knowledge of his misrepresentation.
It is reasonable to assert that the true nature of an art object (its valuation, its origin, its authority, and its authenticity) is a material term of a contract. In contract law, a material term is a provision that concerns significant issues, such as subject matter, price, quantity, or payment. Misrepresenting an art object and its worth should be classified as a fundamental breach, arguably allowing an aggrieved party to terminate the contract (or agreement). Article 25 of the United Nations Convention on Contracts for the International Sale of Goods states that a contract breach is fundamental if it results in detriment substantially depriving a party of what he is entitled to expect under the contract, unless the party in breach did not foresee (and a reasonable person of the same kind in the same circumstances would not have foreseen) such a result. In analyzing whether a breach is fundamental, the core element is “detriment.”[9] Economic loss is classified as a detriment, if it is substantial and deprives the other party what he or she is entitled to expect. In a divorce proceeding, this equates to what is fairly given under the equitable division of assets, as in the equitable division after the dissolution of a business relationship. This breach should render a divorce agreement or business agreement invalid (as related to the asset in question).
Aggrieved parties may also be able to rescind an asset division agreement under unilateral mistake, if an error is held by only one party and not shared by the other (the party concealing the actual value of an asset). Since only one party is mistaken and does not have all the relevant information related to the asset, it may lead to an unfair advantage in bargaining power; therefore, it may lead to remedies such as rescission or contract reformation. To rescind an agreement under this doctrine, the valuation error must have had a material effect on the outcome of the contract. In addition, the effect of the mistake is such that enforcement of the contract would be unconscionable, if the other party had reason to know of the mistake or that his fault caused the error (the same burden in proving knowledge in a fraud case).
Even with these legal remedies, the victim is in a difficult position. Once the division of assets occurs, there is nothing to compel parties to maintain their assets. The more victorious party may sell or donate their property. To avoid such a negative outcome, owners of art must properly protect themselves before the finalization of any asset negotiation. It is advised that joint owners of art and cultural objects consult with legal professionals to thoroughly research their assets, obtain valuations that include consideration of legal doctrines and optimally advise clients on the disposition of assets.
[1] Harry Bradford, Wealthy’s Art Investments Beat Stocks , Real Estate Over Last Decade, Huffington Post (May 2, 2012), http://www.huffingtonpost.com/2012/05/02/art-market-is-attractive-investment_n_1470800.html
[2] http://www.vanityfair.com/culture/2012/05/knoedler-gallery-forgery-scandal-investigation
[3] http://www.independent.co.uk/news/egyptian-treasures-smuggler-is-jailed-1256685.html
[4] Solomon R. Guggenheim Found. V. Lubell, 153 A.D. 2d 143 (N.Y.App .Div. 1990), aff’d, 77 N.Y. 2d 311 (N.Y. Ct. 100. 1991).
[5] Vineberg v. Bissonnette, 529 F.Supp.2d 300 (D.R.I. 2007); aff’d, 548 F.3d 50 (1st Cir. 2008).
[6] Kunstsammlungen zu Weimar v. Elicofon, 678 F.2d 1150 (2d Cir. 1982).
[7] http://www.ibtimes.com/islamic-state-antiquities-trade-stretches-europe-united-states-1724733
[8] http://www.cnn.com/2014/06/25/us/sothebys-missing-madonna-and-child/
[9] CISG Article 25
Photo: National Archives and Records Administration
Copyright Fred L. Abrams 2015