Art collectors need more legal knowledge


As Chinese art collectors have emerged as important participants in global art transactions and private museum establishment, they need to know more about the legal issues involved.

Art collectors need more legal knowledgeIt is projected that 1,200 private museums will be built in Asia in the next five years, according to law firm Withers. This rapid growth in private museums has been particularly prominent in China, where wealthy collectors often see the creation of a private museum as a way to give back to society.

In terms of art investment, China was the leader in the global art market in 2016 with auction turnover close to US$4.8 billion, while auctions in Western markets have declined overall by more than 35% across the year. In addition to the strong auction sector, Chinese collectors are also purchasing more Western works of art through private sales.

However, the cross-border physical transfers of artworks at soaring prices have become a growing concern of global anti-money laundering regulators, according to Diana Wierbicki, partner and global head of art law, and Christine Steiner, of counsel at Withers. Switzerland introduced new disclosure laws in 2016 to better track the movement of artworks, and Luxembourg has done the same. More jurisdictions are likely to follow.

Diana Wierbicki, Withers
Diana Wierbicki

Wierbicki said Chinese art investors should pay attention to some behaviour that may cause money laundering risks. “If Chinese art investors use art advisers who are connected to the Chinese auction houses, those art advisers may also be connected to the government,” she told China Business Law Journal.

“There are rules in other countries, such as the US and UK, that restrict money transfers to government agents, so additional due diligence is required for those art transactions. Banks have stronger due diligence practices in place than galleries or individual collectors would, and those practices would be followed if you inject a bank into an art transaction by using them for escrow services.”

The escrow account is one of the instruments the art market is using to address the money laundering issue. Such an account has stringent know-your-customer (KYC) processes in place and can facilitate transactions between individuals with no prior connections. “The convergence of private art sales with highly regulated KYC standards in the financial sector is a major benefit to the art market, and will assist regulatory efforts on anti-money laundering in the future,” said Wierbicki.

In terms of building private museums, Asian art collectors are still in the early stage, according to Wierbicki and Steiner, who noted there was a knowledge gap in Asian art collectors’ elementary understanding of the fundamentals of museum establishment, compared to their US and European counterparts.

Christine Steiner, Withers
Christine Steiner

Steiner said Asian museum founders were still commonly unaware of the comprehensive international standards created by the International Council of Museums (ICOM), which are essential for the professional management of museums.

“The ICOM sets non-binding standards, applicable to ICOM members only but looked to widely as satisfying minimum objective museological standards,” said Steiner, adding that sticking to the standards was crucial for museums that wanted to lend art to, and borrow art from, other institutions. Proper legal advice on the creation of agreements that are consistent with ICOM standards is essential for private museums that want to collaborate with other parties.