[MSN] Due Diligence is just a ruse. Tom Flynn about the Art Loss Register

[MSN]

'Due Diligence' is just a "ruse"

How can we trust a 'Due Diligence' database company that dissembles when
approached by a client to check the provenance of a work of art? 

The UK-based antiques trade newspaper, Antiques Trade Gazette (ATG),
recently reported the case of art dealer Michael Marks, who has been ordered
by a judge to return to their rightful owner two paintings by the late
Indian modernist Francis Newton Souza (1924-2002), stolen some years ago and
which Mr Marks believed he had subsequently bought in good faith through
trade sources. 

High Court judge Mr Justice Tugenhadt ruled that Mr Marks had failed to keep
a reliable audit trail for the works Head Of A Portuguese Navigator and
Chalice With Host by Souza and ruled that they should therefore be returned
to Dubai-based collector Aziz Kurtha from whom they were originally stolen. 

Having bought the works, and intending to sell them on at a tidy profit, Mr
Marks checked with the Art Loss Register to ensure that the works were not
listed as stolen. This process is known as 'Due Diligence', although what
subsequently occurred explains why that term has become something of a
laughable concept in the art trade and beyond. According to the ATG, Mr
Marks paid a search fee to the Art Loss Register in order to check the title
of the works and "was told there was no problem." The ATG article continues:

"But the High Court revealed that the ALR knew the works to be the subject
of a claim by Dr Kurtha and deliberately misled Mr Marks. ALR chairman
Julian Radcliffe explained to Antiques Trade Gazette that this was part of a
ruse to keep lines of communication open with Mr Marks. The judgment stated
that Mr Radcliffe went as far as telling Mr Marks that he had a client who
would be interested in buying the paintings from him. Mr Radcliffe further
explained that this was all part of bid to recover the works by persuading
Mr Marks to bring them into the ALR offices."

A "ruse"? Is this, perhaps, a variation of the ruse that brought the stolen
Bakwin Cézanne Bouilloire et fruits (above left) to market in 1999
(US$29.3m/£18.1m at Sotheby's, of which the ALR took a not insignificant
percentage)?

On successful recovery of a work, the ALR charges a fee based on the current
value of the items at the time of recovery — 20% plus VAT for items worth
less than £50,000 ($100,000), and 15% plus VAT for items in excess of
£50,000 ($100,000). Souza's record price at auction (at India's Saffronart
in 2005) is $1.4m, (or around £700,000) for Lovers (above right), with two
further works having sold at Christie's and Sotheby's New York in 2006 for
$1.3m. 

Am I missing something here, or is there not a conflict of interest where a
company offering 'Due Diligence' checks also stands to profit when the
recovered item comes back to market (which is the most efficient method of
price discovery, as the 1999 sale of the Cézanne made clear.) The fact that
Mr Justice Tugenhadt admonished the ALR for being economical with the
actualité, perhaps confirms that all is not right with this process.

Isn't it time the auction houses and insurance companies that support such
dubious instruments of 'art recovery' woke up to the fact that "ruses" of
this kind do nothing to improve the public relations profile of the art
trade? With prices in the art market at stratospheric levels and antiquities
looting having a catastrophic effect on the future of archaeology, the need
for integrity among trade-funded Due Diligence organisations is more
critical than ever. 

If a dealer cannot lodge a bona fide inquiry with the leading
provenance-checking database (for a fee!) without running the risk of having
the wool pulled over his eyes, what future for the already endangered
concept of Due Diligence? But then with everyone, including the art recovery
companies standing to profit from art theft in some way when stolen works
finally make it to market, such revelations are perhaps hardly surprising.

WEDNESDAY, APRIL 2, 2008
The ALR again: the brickbats have begun

I have just received a very unpleasant comment in response to my recent
piece on the Art Loss Register (and to my letter on the same topic published
in this week's Antiques Trade Gazette), accusing me of bitterness and
hypocrisy. "You have no right or justification to make such comments about
the ALR," writes this anonymous commenter. "It is well known that you were
FIRED from Trace." 

Allow me to put the record straight, a record which my former colleagues on
the Invaluable board will corroborate.

First of all, I never worked for Trace, although I did sit on the board of
Invaluable, which owned Trace, the other main UK Due Diligence service and
main competitor to the Art Loss Register. Having written on art crime and
art recovery as a journalist for many years prior to joining Invaluable I
held Trace and its staff in the very highest regard since it at least
offered some hope for more integrity in art recovery than had hitherto been
available. 

The record shows (the board minutes will support this) that from the outset
I was a vocal opponent of the art market's approach to Due Diligence. I was
convinced that the system as it was then constituted was fundamentally
flawed and I consistently argued for a not-for-profit approach that would
bind in all the trade bodies on mutually agreeable terms that would benefit
the common good. 

Many high-profile people in the industry agreed with me, and judging from
the (rather more polite) emails and phone calls I have received this week as
a result of my ATG letter it seems many still do. Five years ago I could
find no means of raising the necessary finance to set up an independently
administered body to conduct Due Diligence on behalf of the auction houses
and the trade, but it was not for want of trying. I remain convinced,
however, that the system is still seriously flawed and I believe recent
developments vindicate that view.

Finally, contrary to that damaging implication, I was not fired from
Invaluable, but was made redundant due to lack of funding following the
dot-com fallout. Again, the board minutes will corroborate this. Indeed I
was re-hired by Invaluable a few years later on a short-term consultancy
basis and again campaigned hard to reform the industry approach to Due
Diligence, albeit sadly to no avail.

I have no reservation whatsoever in speaking out on this issue and have
endeavoured to do so in a spirit of transparency and openness that is
(perhaps unsurprisingly) not shared by those close to the ALR. Tellingly,
the embattled correspondent who posted that offensive comment to my blog has
chosen to remain anonymous. I rest my case.

http://tom-flynn.blogspot.com/