New due diligence company formed for art world transactions

Oct 17th, 2013 | By | Category: Journal

Difficulty with or lack of interest in conducting due diligence has long been a problem in the art world and particularly in the Russian art market.

Not believing in the future or, as Osip Mandlestam put it, “We live without feeling the country beneath our feet, our words are inaudible from ten steps away” is a Russian characteristic.  Some say that is a legacy of Soviet times when the future could disappear with no warning with a knock on the door.  However, a cursory glance at Russian history and an examination of the Tsar’s and Aristocrat’s spectacular extravagance on jewellery, art, palaces and yachts( and often equally spectacular bankruptcy’s) indicates that worrying about the future  has never been a Russian strong point.

Thus, in art transactions Russians often just want to get the deal done without doing due diligence and worrying about problems that may arise in the future such as authenticity, clear title, provenance etc.  They are more instinctual and emotional buyers than logical.   They also come from a cultural and financial background where most matters operate in a shade of grey that lies somewhere between black and white.  “Why worry about clear title when nothing in Russia has clear title?” etc etc.  

However, Russians are less relaxed on the subject of dubious authenticity as was seen by Victor Veckselberg’s successful lawsuit against Christie’s.   In a public court case the judge, Mr Justice Newey, agreed with Veckselberg that there was compelling “connoisseur evidence” that indicated that Odalisque by Boris Kustodiev was not by Kustodiev and he ordered Christie’s to refund the pounds 1.7m Veckselberg had paid in 2005.

A new company has been formed, The Art Compliance Company, which aims to provide an art transaction due diligence service for those who want it.  Most western dealers and auction houses have learnt how to do their own due diligence by trail and error over the years.  Ignoring this critical step in an art transaction tends to create lawsuits down the line.

The Art Compliance Company is a joint venture between K2 Intelligence( run by the Kroll family formerly of Kroll Inc) and Marion Maneker who runs the popular  Art Market Monitor news service.  “The value of art is skyrocketing,” said Mr. Maneker in the New York Times, pointing out that the global market topped $58 billion in 2012. “You can’t treat this as a purchase on impulse.”

Lack of due diligence, particularly on authenticity but also on provenance, has been in the news recently for those who are following the situation over the former Knoedler Gallery.

 Knoedler & Company one of the oldest galleries in the US, closed suddenly in November 2011 and is being sued by high-powered clients for selling dozens of paintings that were supposedly by Modern masters such as Jackson Pollock and Robert Motherwell but have turned out to be fakes churned out by an old Chinese artist living in the US.

Buying art has always been a complicated business.  Clients used to work more closely with dealers but in the last 10 years, with the encouragement of the auction rooms, who are rapidly developing their private clients business, have increasingly been buying at auction with little third party advice.  Many clients learn the hard way the meaning of the old art world expression that, “You don’t really find out what you have bought until you try and sell it.”

Scholars, often museum curators, used to give their opinions freely but increasingly, worried about being sued, have been pulling back from authenticating works.

“People in this industry could use a little more security,” said Jeremy Kroll of K2 Intelligence in, which he operates with his father, Jules Kroll, formerly of Kroll Inc. K2 is a minority owner and is contributing its investigative resources to the new venture.

This new company combining the art world knowledge of Marion Maneker and the investigative abilities of the Kroll family will be a welcome addition to those who do not know how to do due diligence in the art market and could also be a welcome addition to those who do.  The Art Market remains one of the least regulated and policed markets on earth and it is a credit to the effectiveness of PR machines of the leading auction rooms that businessmen, who will spend a year having forensic accountants examine the books of a company and agonising if they should buy it, will commit to buying a painting from an image on their computer screen and a few minutes consideration.

According to its website the new company offers:-

One-Stop Transaction Due Diligence

Art Compliance will provide 360˚ due diligence on any significant art transaction, including detailed information on the seller, the work and any claims or encumbrances connected to the work.

Seller’s Assurance

Buyer’s value works with clear and undisputed title, attribution and provenance. Before offering a work for sale, The Art Compliance Company’s experts can provide a detailed document that corroborates art historical, custodial and transactional information to increase any potential buyer’s confidence in the work.

Compliance Services for Art Market Enterprises

The growing size of art market enterprises along with the volume and value of transactions has brought them under greater scrutiny from regulatory agencies. The Art Compliance Company can help with Anti-Money Laundering, Know Your Customer and other compliance matters.

Counter-party Vetting

Learn everything you need to know to be more comfortable with a private art transaction.

UCC Searches

Be sure no one else has a claim on the work you want to buy.


Tags: Due diligence in the art world, K2, Knoedler and Company, Kroll family, Marion Maneker, The Art Compliance Company

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