Wednesday, December 22, 2010

New anti-bribery legislation to change the way dealers earn commissions

LONDON. The Bribery Act 2010, which is set to come into force in the UK next year, is likely to change the way dealers do business in the UK but potentially also abroad given its wide territorial reach. The payment of commissions will continue to be a legitimate business practice though subject to increased scrutiny; the payment of finder's fees, on the other hand, will require disclosure to and consent from the collector or otherwise constitute "bribery" under the new legislation. The example cited in the article is illustrative: if a dealer were to pay a decorator a commission for making possible a sale of a painting to the collector the client of the decorator, the dealer would have to disclose the payment to the collector and it seems also obtain his consent. The rule is an "information-forcing" rule in that it penalizes the failure to disclose certain behavior thus forcing the payor (what about the payee?) to reveal what lawmakers consider to be "improper performance." However, the example is not correct if, as the article also states, the Act captures payments to (and by?) intermediaries "owing a duty of trust to art collectors" -- I don't think dealers are fiduciaries of art collectors (at least not in the US) but I will look into it.

Other crucial details of the legislation include the fact that it is a strict liability offense (i.e. the prosecution need not prove intent, only that the defendant's conduct was that prohibited under the Act) and the maximum penalty is ten years' imprisonment or, in the case of an organizational defendant, unlimited fines. The first of these is particularly important because intent is the hardest element to prove in a fraud action and the enactment of the Act will mean individuals can instead be charged and prosecuted more easily for "bribery."
That the Act is not aimed at the art trade but at eliminating corruption generally does not preclude it being applied to prosecute those operating in the art world. As Pierre Valentin (leading art lawyer of Withers, London, and cited in Art Meets Law on other occasions) warns: “it only takes one prosecutor to receive a complaint from a collector or a dealer in competition with another dealer for an investigation to be launched.”

I am currently traveling but when I return, I will review the legislation itself and update this post. I will also look into whether dealers owe collectors a duty of trust and are therefore held to the highest standards at law. I know auction houses do owe their clients (i.e. those consigning art to the auction house for purposes of selling it) a duty of trust but I was under the impression no such duty was imposed on dealers or galleries, the policy reasons being that such actors, unlike auction houses, are not "affected by a public interest" (Cristalling case) and it would be unduly onerous to hold dealers and galleries to such high standards. In the US, to mitigate the effect of this general rule, the majority of states have passed "consignment statutes" that impose a duty of trust on dealers and galleries when artists consign their work to them for sale. However, where such a statute applies, the duty flows to the artist and not to the collector buying the art. The principal of caveat emptor -- "buyer beware" -- is just as relevant to art sales as it is to real property sales and save for known defects, the person selling the art does not owe any dutires to the prospective buyer.

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