Hong Kong expert questions security in the China art market

As we reported ten days ago, a heart-stopping presentation during Asian Art in London, sponsored by Edinburgh-based auctioneers Lyon & Turnbull, was made by a Senior Inspector in the Hong Kong Police, also a private art security consultant, Toby J A Bull. In our view, it was probably the most significant talk in a long series of events.


Toby J A Bull of Trackart Art Risk Consultancy, Hong Kong  Photo Paul Harris

The talk, entitled A Quest for Authenticity in the Chinese Art Market, dealt with a range of areas of concern for dealers and collectors ranging from the nebulous role of Hong Kong in the international trade to tomb robbing, fakes and forgeries, money laundering and theft. He started his presentation with a dramatic quotation from the novel The Gilded Seal by James Twining: ‘Forgery is the paedophilia of the art world. Once the suspicion is raised, you are presumed guilty, even when proven innocent. It’s a shadow that never leaves, poisoning everything you touch. So you need to be either very brave, or very sure that you’re right, before you try forgery in this city . . .’. As a result, the Hong Kong art business is a tightly held industry difficult to penetrate and opaque in the extreme.

Bull emphasised initially that he was not talking on behalf of the Hong Kong Police, although he is a Senior Inspector there. There is no art crime squad within the Hong Kong Police. As he spun his tale, however, it became quite clear why he was not talking on behalf of the Police: the Police Authority simply has no role in preventing illegal activities related to the art world.

The 1997 agreement between China and the UK specifically provided for strict Chinese laws on the protection of cultural relics NOT to apply to Hong Kong: one country, two systems. There are separate Export Laws and in terms of Hong Kong’s Import and Export Ordinance (Part IV), there is provision for a Freeport handling ‘Unmanifested Cargo’ which simply facilitates smuggling. Once goods have passed through the Freeport of Hong Kong they are effectively legitimised with all the necessary export-import paperwork. This is particularly relevant in relation to the import of antiquities to mainland China where an import duty of around 35% is imposed.

The vast volume of goods in containers means that a statistically minute proportion is ever examined. Between 1992 and 1996 (under the UK) HK$ 15 million of Chinese antiquities were seized in HK; the figure went down dramatically between 1997 and 2006 totalling HK$2.3m.; between 2007 and 2012 no Chinese antiquities at all were seized ! Many of these containers carry thousands of copies of antiquities: forgeries. Not only is porcelain copied on an industrial scale within mainland China, but, even, Kuomintang stickers to accompany items said to originate from the haul of evacuated antiquities during the dying days of the civil war 1948-49. The quality of fakes is now extremely high.

There is no unit in the Hong Kong police these days engaged in investigating illegal activities in the local art world despite the fact that large quantities of stolen and forged artefacts pass through the Freeport every week. These include the products of tomb robbing in China. Such looting “requires an elaborate, multi-layered network of grave robbers, middlemen and art dealers.” Such networks flourish in China.

Hong Kong very often benefits. In 2002, antiquities looted from eight outer temples of The Forbidden City were included in a Christie’s Hong Kong auction catalogue and were ultimately withdrawn from sale. Christie’s deemed it an isolated case’ and averred that it ‘devoted considerable resources to investigating the provenance of all objects offered for sale’.

“The majority of art is stolen for money laundering purposes and art sales are often components of the laundering process,” Bull said. The media usually reports in terms of dramatic value the stealing of works of art. This helps the criminals who will fund their ongoing activities at around 3-10% of such publicised value. Effectively, stolen art is used as a financial underpinning to the China-Hong Kong underworld.


One of Toby Bull’s slides from his presentation    Photo Paul Harris

In Hong Kong, anti-money laundering regulatory action is based within the Anti-Money Laundering task Force (AMLTF) of which China and Hong Kong are both members. It investigates both financial institutions and Designated Non-Financial Businesses and Profession (DNBFs). Incredibly, the art market is not classified amongst the DNBF’s!

On occasion, thefts are particularly brazen. In April 2014, the Chinese mainland auctioneer Poly International held an auction in the Hong Kong Grand Hyatt Hotel where the hammer went down for the equivalent of US$3.7m. on a painting by the popular Chinese artist Cui Ruzhuo (see below). It was packed up for delivery to the buyer and stacked for collection whereupon it disappeared and has never been seen since. The Hong Kong Police were involved but were obliged to back off after Poly roundly declared it was simply ‘lost property’. Many in the Police Authority believe it was simply stolen and that Poly were keen to have the whole unedifying matter dropped . . .


Going, going, gone . . . but where exactly is the $3.7m. painting?

Snowy Mountain, by Cui Ruzhuo, was sold by Poly Auctions this week in Hong Kong for US$ 3.7m. But where is it?

A 28.8 million Hong Kong dollar (US$3.7 million) Chinese ink painting sold at a Hong Kong auction is missing. And the best guess is that it went out with the rubbish . . .

The painting Snowy Mountain by highly rated Chinese contemporary artist Cui Ruzhuo was sold at a Poly Auction event on Monday at the Grand Hyatt Hong Kong. But by the following day, the auctioneers had reported the painting missing to Hong Kong police.

A hotel spokesperson said it allowed police officers to view video footage from its security cameras that monitored the auction area. It is reported in local media that police officers saw video footage of a neatly packaged painting sitting near a pile of hotel rubbish that was later thrown away. Police were reported to be diligently searching a landfill in Hong Kong’s northern district of Tuen Mun for the missing painting.

Poly failed to respond to requests for comment. In a statement two days after the sale, police said the painting was now considered “lost property”. The matter was no longer being treated as theft apparently.

Snowy Mountain was the second most expensive item sold Monday at a special event that featured 28 of Mr. Cui’s ink works. His Landscape in Snow sold for HK$184 million – a record auction price for the artist. Fortunately, it was not lost . . .

Poly is China’s largest auction house and the world’s third-largest, after international powerhouses Christie’s and Sotheby’s. It is based in Beijing and began holding Hong Kong sales in 2012.

Over the past week, Poly, Sotheby’s, Christie’s and China Guardian (China’s second-largest auction firm), have held multi-day sale events spanning several categories including traditional Chinese paintings, contemporary Asian art, Chinese antiques, jewellery and wine.

Our legal expert writes: In the event of the painting not being found, a legal quagmire opens up. Technically, the legal situation is that ownership of an item sold at auction passes to the purchaser with the fall of the auctioneer’s gavel. In practical terms, if the buyer has not actually paid for it and the lot is lost by the auctioneer, his servants or agents, the buyer would most probably refuse to pay up. The situation arising has become more complicated since the imposition of Buyer’s Premium by all auction houses. This brings the buyer into a contractual relationship with the auctioneers (although, confusingly, auctioneers will always claim the relationship is with the vendor, usually unknown to the buyer). Many buyers will claim that the auctioneer owes a duty of care – that is what is being paid for with the buyer’s premium. If the buyer has, in fact, paid for the picture and engaged other parties or party to pack up and deliver the picture in question, then his claim would be against them. That may be fine if the carrier is a large international company but a small local carrier may simply have insufficient funds to make due compensation. What this incident does illustrate is the dangers auctioneers face when they sell out of relatively insecure premises – like an international hotel. Their own premises represent a far more secure environment where security and systems are well practised.