Art Market

The Most Secure Ways to Pay for Art

Samuel McIlhagga
Jan 12, 2021 7:06PM

There are multiple instances and possibilities of fraud in the art market, from forgery of work to the use of expensive paintings to hide laundered money. One of the most common and widely reported on problems for dealers and clients is a loss of money from payment diversion fraud. This fraud normally involves hackers gaining entry to email conversations and redirecting funds to their accounts through manipulated invoices.

Payment diversion fraud hit the news last year when hackers conned the Rijksmuseum Twenthe out of $3.1 million by posing as art dealers from Dickinson in the sale of a John Constable painting: Both parties subsequently became involved in civil litigation in the United Kingdom to resolve the issue and decide liability for the fraud.

When payment diversion fraud occurs, the buyer can be left without the work they bought and the seller can be without funds, and in the case of Dickinson, without the already transferred and unpaid artwork, too.

Consequently, for both buyers and sellers, it is worth knowing what the most secure ways to pay for art are, and what advice experts in the field have to offer. (For additional information and guidance, Artsy’s Trust and Safety team has created best-practice resources.)

Know the law

One important part of securely paying for art is understanding the rapidly shifting legal landscape that has developed, in part, in reaction to an increased internationalization and digitization of an art market that has seen its value as an asset class soar since 2002, reaching a sales total of $67.4 billion in 2018.

“The art market has, traditionally, been largely unregulated,” said members of the Art Due Diligence Group (ADDG), a London-based group offering a suite of art trade services. “That might have worked well in an age of relatively few participants…all known to each other and operating on the basis of trust and mutual respect.” However, buyers and sellers now face “the globalization of the market, [a] huge increase in prices, and the relentless growth of [information technology],” ADDG argued.

“The particular combination of the very large sums of money being moved around and the relatively informal practices of certain members of the trade” causes regulators and fraudsters to perceive a vulnerability in the payments stage of the art market, said Megan Noh, co-chair of the Art Law Group at Pryor Cashman.

This increased risk has led to a growth in regulation meant to ensure safe and legal transactions in jurisdictions involved in the art market, most noticeably the European Union and the United States. For instance, the U.S. Senate’s Permanent Subcommittee on Investigations has produced a 150-page report on how the art market is used to launder money and avoid U.S. sanctions, and recommended steps to protect buyers of art from unknowingly participating in illegal activity.

There is also the possibility that the Bank Secrecy Act, which requires a level of transparency and diligence in transactions over $10,000 to combat money laundering, could be amended to include art dealers who are not currently covered by the bill.

“Privacy [will be] a huge issue as the changes to the Bank Secrecy Act are expected to ‘roll out’ on a wider industry basis next year,” said Noh, adding that “the legislation does not itself address questions about how diligence should be conducted with respect to agents doing business on behalf of disclosed but unidentified principals; rather this issue may be addressed in the year-long rule-making process that the passage of the bill triggers.”

The other major pieces of law that will affect buyers and sellers of art have been legislated by the EU and apply in the United Kingdom. Ida Palombella and Guerino Cipriano at Deloitte Legal in Italy laid out the main pieces of legislation protecting digital payments in the EU. “The most important innovation in the European Union payments market [is] represented by…the EU Payment Services Directive (PSD1 2007),” the Deloitte Legal team said. This began a “harmonization process of the different national legislations in order to…increase transparency for both providers and users and set rights and obligations for payment service providers and users,” said Palombella and Cipriano.

This was followed up by PSD2 in 2015, which sought to “take action and to adopt a new approach to fraud prevention by intervening to strengthen the security protections for electronic payments,” according to Deloitte Legal, Italy. This new directive introduced a two-factor authentication process to payments which requires, Palombella and Cipriano said, “knowledge, something that only the user knows, such as a password or a PIN, [and] possession, something that only the user possesses, such as a token or a smartphone.”

Know your options

Buyers can practice a simple form of two-factor authentication when purchasing art by picking up the phone, said Wendy Goldsmith, director at Goldsmith Art Advisory. “Once an invoice is received (often encrypted these days), always ring the gallery to make sure that the account numbers are correct before any wire is sent,” she said.

Goldsmith added, “Be sure to speak to someone you know, especially if you have received a follow on email stating that the gallery’s bank details have changed.”

Adam Prideaux, managing director at art insurance brokerage Hallett Independent, recommended extending the practice of encryption to all vulnerable communications. “No sensitive information should be delivered over open email; it is too easily compromised,” he said. “The sending and receiving of sensitive information should be conducted outside the email channel over an encrypted connection.”

Airtight contracts

At the other end of the technological spectrum, Noh, of Pryor Cashman, advised that use of clearer legal language in payment contracts should also help protect both parties. “It has become more common for art purchase contracts to include language specifically seeking to allocate liability in the event of misdirected funds,” she said. “Relevant provisions may also require verbal reconfirmation of wire instructions with a specified contact.”

The ADDG recommends looking for red flags, such as “one of the parties refusing to be identified and seeking to remain anonymous, or [being] based in a country which the banks consider to be a high risk…or [when] there is a reluctance to agree [to] a formal contract and process for the transaction.”

Add a middleman

A commonly suggested payment process for reducing risk is an escrow. Simply put, an escrow is an agreement whereby a third party (normally an agent, bank, or law firm) holds money while the buyer and seller fulfill their contractual obligations.

“The use of an escrow structure results in some additional transactional costs,” Noh said, but “for deals that feature an instalment payment structure or a contingency event, escrowing purchase funds can provide an enhanced level of control.”

Fintech for fine art

The rise of cryptocurrency and financial technology (or fintech) offers more advanced but limited ways of paying securely for art. “Bitcoin and fintech payment methods…may provide more security in terms of traceability if not in terms of payment itself,” said Paul de Blasi and Garance Huguenin at Deloitte Legal in Switzerland.

Blasi and Huguenin explained that ledgers called blockchain, which publicly record Bitcoin transactions, can be used to track art. “The artwork is digitized into a ‘token,’ which includes the rights and obligations associated with the asset,” they explained. “Once digitized in a token, the traceability of the artwork is guaranteed.”

There has also been an explosion of fintech applications that help buyers securely transfer funds. For instance,, a platform that digitizes the escrow process; Art Money, an online hire purchase system; Arcarta, a due diligence platform that works with galleries; and Stripe, a software developed for secure online business payments (which, in full disclosure, provides payment services for Artsy).

Ultimately, Blasi and Huguenin see a complicated future for fintech and art payments. “Today, fintech payment applications have the advantage of being user-friendly, but the disadvantage of transferring limited amounts,” they said. “This could be a hindrance to the use of fintech payment application in the field of art.”

For now, no industry-standard way to pay for art securely has emerged. But there are nevertheless plenty of mechanisms, both retro and cutting-edge—from picking up the phone to blockchain ledgers—that collectors can employ to avoid fraud while acquiring art.

For additional information regarding secure online transactions, consult Artsy’s dedicated resource page.

Samuel McIlhagga