Why Due Diligence Matters
In the often opaque world of art transactions, due diligence is not just a best practice—it is a necessity. Conducting thorough investigations into the artwork, the parties involved, and the transaction itself is essential for protecting both financial and reputational interests. Whether you're a collector, dealer, or advisor, responsible due diligence reduces the risk of inadvertently participating in illicit trade and ensures compliance with evolving legal and ethical standards.With increased scrutiny on cultural property, especially in cases involving antiquities, ceremonial artifacts, or works with potential ties to forced transfers during the Nazi regime, the need for rigorous checks is even more pressing. Establishing the authenticity, legal provenance, and export history of such pieces requires a diligent and often multi-layered approach.
Effective due diligence can be broken down into three key areas:
1. Client Due Diligence – Verifying the identities, authority, and reputations of sellers, buyers, and intermediaries.
2. Artwork Due Diligence – Investigating the work’s provenance, condition, authenticity, trade restrictions, and valuation.
3. Transaction Due Diligence – Assessing the transaction’s structure, funding sources, and legal and regulatory compliance, including anti-money laundering (AML) requirements and cross-border trade laws.
Importantly, these efforts may involve handling sensitive personal data, bringing additional responsibilities related to privacy and data protection. This article outlines crucial due diligence steps to be taken before any art transaction. These practices not only help mitigate legal and ethical risks but also serve as critical evidence of good faith in the event of future disputes or challenges.
Provenance
Among the most critical components of due diligence is the verification of provenance—the documented history of an artwork’s ownership. A thorough provenance check can uncover potential red flags, such as questions of authenticity, unlawful transfers, or illicit trade. While tracing provenance can be particularly challenging—especially for works that have circulated for centuries through a series of undisclosed private collections—it remains an essential safeguard.
This is especially true for artworks that may have been subject to looting or forced transfers, such as those that changed hands during the Nazi regime or were removed from countries under colonial or imperial rule. In such cases, verifying the origin and ownership history is not and ethical concern but often also a legal imperative. Researching international databases, reviewing historical documentation, and seeking expert analysis are all key steps in establishing a reliable and transparent provenance.
Title
Confirming clear and undisputed title before acquiring an artwork is fundamental to mitigating legal risk. Recent high-profile disputes—such as the contested ownership of two Egon Schiele paintings loaned to New York’s Museum of Modern Art—highlight the potential consequences of unclear provenance. Though MoMA successfully opposed their seizure, the case underscored the legal complexities that can arise when ownership is disputed, particularly for works with histories tied to Nazi-era looting. Under U.S. common law, title to stolen property never legally passes, regardless of how many times the object changes hands. Increasingly, courts are placing the burden of due diligence on the purchaser, making it essential to investigate provenance thoroughly before finalizing any transaction. While museums have long established protocols for vetting acquisitions, private collectors often lack similar resources and remain more vulnerable. Historically, insurance offered limited protection in such cases. However, specialized art title insurance is now available, covering not only legal costs arising from title disputes but also compensating the insured for the artwork’s agreed value if ownership cannot be legally confirmed. This added protection offers collectors a vital safeguard in an increasingly complex art market.
Authenticity
In today’s art market, verifying the authenticity of a work is critical. As part of comprehensive due diligence, this process involves careful examination of provenance, certificates of authenticity, exhibition history, catalogue raisonné entries, and other supporting documentation. A thorough assessment also includes evaluating the work’s physical attributes—its condition, materials, craftsmanship, and overall quality—and may, in some cases, extend to forensic analysis. The approach to authentication will vary depending on the type of artwork, whether the artist is living, and whether an artist’s estate, foundation, or other recognized authority plays a role in confirming legitimacy.
Condition & Work details
Before finalising an acquisition, it is essential to gather and verify all key details related to the artwork. This includes the artist’s name, title, date of creation, medium, dimensions, edition number (if applicable), catalogue raisonné refer-ence, and the location of the signature or any inscriptions. High-resolution im-ages should accompany these details—especially if viewing the work in person is not possible. A recent condition report, confirmation of the work’s conserva-tion status, and its exhibition history are equally important. These elements not only support the legitimacy of the artwork but also provide a foundation for fu-ture valuation and insurance. A reputable seller should be able to provide this information transparently and without delay.
Valuation
Determining whether a work is fairly priced is a key aspect of due diligence. In-dependent valuations and professional appraisals offer the most reliable in-sight, though they may require time and incur additional costs due to the re-search involved. Alternatively, auction databases and market research can pro-vide a general sense of pricing, though they are less comprehensive. Regardless of the method, ensuring a fair and well-supported valuation helps protect the buyer from overpaying and informs decisions around insurance and future re-sale.
Seller/Buyer Credentials
When discreetly presented to interested parties, knowledge of a buyer or sell-er’s background can go a long way to avoid risks and is a fundamental step in mitigating both financial and reputational risk. Confirming the legitimacy of a buyer or seller, including their legal authority to transact, helps ensure a smooth and secure process. This may involve checking corporate registrations or identification documents, as well as conducting litigation, bankruptcy, lien, and credit history searches. In some cases, targeted criminal background checks may also be appropriate.
Import & Export Requirements
Artworks can be subject to complex import and export regulations that vary significantly between jurisdictions. Cultural property, especially objects falling under the categories outlined in the 1970 UNESCO Convention, can present legal risks if improperly exported from their country of origin. Buyers should ver-ify that all necessary permits and export licenses are in place and confirm com-pliance with customs requirements. Sanctions checks and anti-money launder-ing (AML) regulations have become increasingly relevant, as global authorities intensify scrutiny of the art market. Understanding and fulfilling these legal ob-ligations is not only good practice—it is essential to avoid legal exposure and potential seizure of the artwork.
Sales Agreement
An agreement of sale safeguards the interest of both buyer and seller and prevents misunderstandings and future disputes. The agreement should identities of the parties involved, provide a comprehensive description of the artwork, and specify its current location. It should also detail the date and place of transfer, terms of title and risk, insurance arrangements, purchase price, and payment terms. Additionally, it may include the seller’s warranties—covering authenticity, condition, legal ownership, absence of liens or claims, and compliance with import/export regulations. Provisions regarding the seller’s authority to transact, confidentiality clauses, governing law, and jurisdiction may also be addressed.
It all depends on your objectives
There are a large number of steps one can take when it comes to performing due diligence in the effort to not be implicated illicit art transactions or being taken advantage of. A solid basis of due diligence can give buyers and sellers sufficient peace of mind and prevent the floodgates of litigation to open. Furthermore, in a world of competitive sales, trust is a currency, and due diligence is the best way to ensure that all parties are is operating with integrity and navigating the complexities of the art trade. At the same time, it is not always realistic to expect meticulous due diligence with every single transactions due to a range of practical constraints.
Also: realistically, the art world is notoriously opaque and will most likely remain so. Depending on an individual’s or businesses’ objective for an acquisition or sale, this lack of transparency may in fact be very welcome.