Cracking down on 'the ring'
April 27 2014
The Art Newspaper reports on a new EU law designed to 'crack down on auction rings':
The new regulations, part of the Enterprise and Regulatory Reform Act 2013, state that dealers who enter into a legitimate agreement must provide details of the contract to the auction house, including the names of the parties involved, the lots being bid on and a description of the arrangement. This could include a percentage breakdown of the financial stakes. Previously, dealers only had to notify the auction house that an agreement was in place, or submit a copy of the contract. New provisions also mean that prosecutors no longer have to prove that members of an auction ring have acted “dishonestly”.
Some in the trade say that dealers may be reluctant to disclose details of such contracts, particularly in the light of the encroachment of auction houses in the private sale market. “Dealers may only agree to act in conjunction with one another immediately before the sale, and possibly only by oral agreement, so for practical reasons it may be difficult to disclose the agreement in time,” [art lawyer Pierre] Valentin says. He says that larger dealers may be at greater risk of prosecution, because it would be more difficult for them to prove that they could not afford a work outright and so any joint agreement might be seen as anti-competitive.
The major auction houses would not be drawn on the number of joint acquisition agreements they receive, but a spokesman for Bonhams said that the practice is “far from unusual”. Dealers contacted by The Art Newspaper would not comment on the matter.
There's a difference between an 'auction ring' and dealers buying a part share of a picture. In the former, dealers agree not to bid against each other, and then have an informal auction afterwards amongst themselves. Buying a picture in part shares is quite common amongst art dealers, and perfectly legal - but it does leave the 'trade' open to accusations of murkiness and anti-competitiveness. We don't do it at Philip Mould Ltd, because it's usually more trouble than it's worth - some dealers end up trading eights of a picture, and then the only person to benefit is your accountant. Also, if like us you like to hunt out auction 'sleepers', then having a fellow dealer ring up and say 'are you bidding on...' before a sale obliges you either to tell porkies, or give the game away. So it's better to have a reputation for flying solo, so to speak. Such approach sometimes has its drawbacks; it leaves you outside the fold of a tight-knit world of dealers, and exacerbates a feeling of 'them and us'.
Update - a reader writes:
The anti-competitive behaviour which is being opposed with new rules only served to lower auction prices, benefitting all buyers at the expense of the sellers and the auction firms’ commissions and premia. It might have helped the auction firms convince some sellers that private sales would yield higher prices because of this “market imperfection.”
The result of the new rules, if any result, will be to increase auction prices. Also, apparently dealers, one step ahead, can still form rings for private sales.