Denunciations of the art market are a dime a dozen, the bogeymen equally manifold: speculative collectors, corrupt dealers, artists enlisted to mint an alternative currency for global circulation. But when one of the world’s most high-profile economists calls for the art market’s regulation, as Nouriel Roubini did last month at the World Economic Forum in Davos, Switzerland, people tend to listen. Speaking at a lunch event hosted by the weekend edition of the Financial Times, Roubini denounced the use of art “for tax avoidance and evasion.” “While art looks as if it is all about beauty, as a business it is full of shady stuff,” Roubini, who is an art collector himself, said.
Yet what would regulating the art market look like? And what is the true scope of the misdeeds Roubini identified, which, according to the Financial Times, comprise “routine trading on inside information, price manipulation through guarantees offered by dealers on auctioned work, and tax avoidance by the transfer of paintings within families”? By way of assent, the FT quotes Martin Roth, director of the Victoria & Albert Museum, who offered that illicit dealings are “a camouflage thing that is called the arts but it is money laundering.” Experts interviewed by ARTINFO agree, to an extent, that the issues Roubini identified are real, but question their scope, uniqueness to the art market, and the possibilities of regulation as a solution.
“The issue with that panel and Roubini’s comments on that panel is that they were vague and lacking in specifics — the idea that the art market needs to be regulated separately from other markets makes no sense because anti-money laundering protocols exist throughout the world,” Marion Maneker, a publisher and editor who runs the popular Art Market Monitor website, said.
Daniel Schnapp, an attorney at Fox Rothschild specializing in the art market, concurred, adding that the prospects for a new regulatory regime for art in the United States are remote. “Perhaps what [Roubini] is calling for is greater regulatory oversight of the art market itself — so, for example, an administrative agency that will be tasked with overseeing transfers of art — but with other Congressional priorities that may be a stretch right now,” he said. “It seems to me that the art market for the time being is going to continue to be either self-regulated or governed by laws that already exist, for example tort or contract laws that already play into the typical sale between an auction house and a purchaser and a dealer or a collector.”
For his own part, Belgium-based investment banker and collector Alain Servais pointed to the twentyfold expansion of the market for contemporary art between 2000 and 2013 (from $41 million to $826 million) as having introduced a new species of collector. “What dramatically changed is the broadening of interest by new buyers, and the sharks are kind of looking at that market: ‘It’s not real estate, but it’s a place where I can make money,’” he said. Servais is also concerned by what he calls “the law of the strong” that dominates the art market, a subject about which he has written at length, and believes a more sustainable environment is needed, particularly between artists and dealers.
As for the untaxed freeports that, according to a 2013 article in The Economist, are used to stash art and other valuables and are “among the beneficiaries as undeclared money has fled offshore bank accounts as a result of tax-evasion crackdowns in America and Europe,” Maneker is slow to criticize. “There are legitimate reasons for freeports to exist, there’s a whole point of the freeport. It matches the growth of using objects as a store of value, as a reserve currency, they are essentially physical banks,” he said. Servais noted that it makes sense to associate freeports with speculative practices in art, but their use does not necessarily portend illegal activities. “Freeports are catering to that element… If you are talking about speculation, a very clear intention of reselling, it’s better to try to avoid VAT [Value-Added Tax] legally by putting it in a freeport,” Servais said.
The use of art as a financial asset in investment funds or securities is also a trend associated with the increase in a purely speculative market around art. “There’s a difference between money laundering and art as an asset; it’s clear there’s a great deal more interest in that. So far, the people who are doing that are coming up with very bespoke solutions, some talking about turning it into an industry, all this talk of CDOs [Collateralized Debt Obligations], but very little evidence that anyone has been able to be successful at it,” Maneker said, adding that the art market is simply too small to sustain a serious market in investable securities backed by art.
Regardless of its potential size, the possible market for art-backed securities is another area that would fall under the purview of existing regulators. “Securitization of art may become a more fertile ground for regulation because it can be deemed within the province of securities regulators, and the government may determine that oversight of the securitization of art should not be treated differently than the securitization of other more traditional financial products,” Schnapp said.
The real economic growth in demand for contemporary art and the concomitant rise of its share in the overall art market has all the markings of a boom. And booms, be they in tulip bulbs or contemporary art, invite the interests of those who know little about the underlying thing itself. Few understand this better today than Nouriel Roubini, who earned himself the sobriquet “Dr. Doom” over his apocalyptic naysaying about the mortgage market years ahead of its collapse in the 2008 financial crisis. And though moments of economic exuberance invite spades of cheerleading and condemnation, what distinguishes prophecy from mere hype is the rigor of the critique. “It’s not that there aren’t real problems, it’s just that the people who are going on about them have very little to say,” Maneker said.