EUROPEAN POLICY BRIEF: TRAFFICKING OF ART AND ANTIQUES AND PRODUCT PIRACY KEY FINDINGS BACKGROUND. Key MAY 2015

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1 Key EUROPEAN POLICY BRIEF POLICY BRIEF: TRAFFICKING OF ART AND ANTIQUES AND PRODUCT PIRACY Contributors: S. Knickmeier, R. Haverkamp (MPI-CC) G. Hunter, J. Jacobson, M.Hough, M.Sato (BBK) S. Bikelis (TEISE) H. Buker (ASI) MAY 2015 KEY FINDINGS The illicit market in arts and antiques 1 attracts wealthy consumers, while product piracy 2 tends to target all age groups and social classes. However these trades share some key features, including the exploitation of poor socio-economic conditions, weak customs and regulatory control, fragile security in source countries, and a lack of public disapproval of market participation. The full effects of these illicit trades are difficult to calculate but they cause significant damage to cultural heritage and to legitimate business interests, with knock-on effects on employment within the European Union. Instrumental strategies, including customs control, training, intelligence exchange, trade agreements, or technologies to identify counterfeits, have limited effect, and are dependent on international cooperation beyond the jurisdiction of the European Union. Thus far these activities have done little to quell the growth of either market. The relative ineffectiveness of instrumental approaches raises the question of whether strategies to effect normative change would have more impact. There may be currency in promoting more ethical corporate behaviour but also in alerting consumers to the negative consequences of these markets and challenging the justifications given for illegal behaviour. However, the economic context in which the illegal markets operate necessarily limits the effectiveness of these normative approaches. BACKGROUND 1 This encompasses theft, forgery and looting of arts and antiques. 2 Product piracy is generally defined as the unauthorised exact copy of an item covered by an intellectual property right, while counterfeiting is the unauthorised imitation of a branded good. 1

2 The FIDUCIA research project is funded primarily by the European Commission through the Seventh Framework Programme for Research and Development. It aims to shed light on three crimes that have attracted much attention in the last decade as a consequence of developments in technology and increased mobility of populations across Europe: the trafficking of human beings, the trafficking of goods, and cybercrime. In addition, FIDUCIA examines the increasing criminalisation of migrants and ethnic minorities. The central idea behind the project is that public trust in justice is important for social regulation as it leads to public acceptance of the legitimacy of institutions and in turn compliance with the law and cooperation with the legal authorities. While the concepts of trust and legitimacy are highly relevant to responding to conventional forms of criminality, they are especially pertinent to our FIDUCIA crimes and form the basis of our recommended policy model - or set of principles - for applying a trust-based policy for control and deterrence. A focus of this work is the scope for better aligning formal and informal systems of regulation and the extent to which it is possible, or desirable, to infuse criminal justice systems with a normative element, so that people comply with the law less because it is in their self-interest and more because they think it is the right thing to do. Here we present findings on the trafficking of goods specifically, the smuggling of works of art and antiques and product piracy. The consumers and, often, the producers involved in the two types of illicit trade are largely from different socio-economic groups with the illicit arts and antiques market tending to attract the very wealthy, and product piracy attracting all age groups and social classes, but also those who are unable to afford legitimate products. However, it is useful to consider both markets together because they share some key features. These include the exploitation of poor socio-economic conditions, weak customs and regulatory control, fragile security in source countries, a lack of public censure and a degree of social acceptability regarding market participation. Work to better understand these crimes has included assessment of the scale and structure of the illicit markets, legal and other measures available to deter or tackle these activities, and consumers and suppliers motives for involvement in the markets. The findings of this work are used to inform trust-based strategies to support regulation and prevention. EVIDENCE AND ANALYSIS The Treaties of Maastricht (1993) and Amsterdam (1997) and the Ankara Association Agreement (1963) established free movement of goods within the European Union and the alignment of common custom tariffs and laws. While the abolition of internal controls has benefited legal markets, it has also provided greater scope for the trafficking of illegal goods both from outside and within the borders of the European Union. Key features of the markets Trafficking of arts and antiques There is very little information about the illicit market in art and antiques, partly because of a tradition of private sales and some preference for anonymity among buyers in the legal trade. Only a small number of new products enter the legitimate market at any one time, making sales highly competitive and increasing the motivation for trafficking of forged or stolen products. These products can include fine or decorative arts, antiquities and ethnographic objects. Illicit activities encompass theft, including looting of historical and contemporary cultural property 3 from unstable or war-affected countries, for sale elsewhere; forgery; and buying or stealing authentic art for the purpose of money laundering or as collateral for drugs transactions. As applies to most illicit markets, there is significant overlap between legal and illegal trades, with forged and looted pieces being sold on the legal market and in the process gaining certification of authenticity for future re-sale. There are various dimensions to the social, cultural and economic damage associated with the trafficking of arts and antiques. The illicit art market is economically damaging for art dealers, buyers and the artists themselves. It is a threat to cultural heritage source countries for antiquities, such as Iraq, Afghanistan and Egypt, are often in social or political turmoil and more broadly, trade in the most valuable stolen arts and antiques, reduces the public s exposure to these items and thus diminishes the cultural wealth of society at large. Furthermore, trafficking routes often follow those of the drug trade (e.g. from Lebanon via 3 Arts and antiquities which make up the cultural heritage of a group or society. 2

3 Turkey to the Netherlands). Products are also transported through military or diplomatic shipping channels which are not subject to customs inspection, making risk of detection low. On the other hand, custom controls are ineffective where officials are corrupt or lack the expertise to identify stolen objects or to properly assess a product s authenticity. Product Piracy Product piracy and counterfeiting is widespread and the merchandise more visible than trafficked or forged art and antiques. Key drivers include opportunities for large profits, the high tariffs and taxes on legitimate products, globalisation, the mass appeal of powerful worldwide brands, and weak national and international law enforcement. Illicit activities include trademark piracy, counterfeiting of patented inventions, violations of intellectual property rights or overproduction and diversion of legitimate products intended for one market (e.g. the USA) for illegal import to another (e.g. the EU). Pirated products include luxury clothing and footwear, perfume, pharmaceuticals, electrical and high tech commodities such as computer games (along with counterfeit cigarettes and alcohol, which are discussed in a separate Policy Brief). The legal markets of the European Union are an important destination for some counterfeit products, especially clothes and shoes. Malaysia, the Russian Federation, the Philippines and some African and South American countries are important sources of counterfeit goods, but China is the main country of provenance. A few countries (in particular in Eastern Asia) tolerate - or at least fail to vigorously prohibit - the violation of intellectual property rights, despite international trade agreements, in the interests of their own economic development. Product piracy and counterfeiting negatively affect economic growth within the European Union and in turn the job market. These crimes incur heavy costs for legitimate companies, who have invested in research, development and advertisement of their products and whose market reach and profits both within and outside of Europe are undermined by piracy and counterfeit production. Governments lose taxes and duties and there are likely hazards to safety and health from the use of products which do not meet European safety standards. For example, use of unsafe electrical appliances or from the consumption of counterfeit or unlicensed pharmaceuticals - one estimate suggests that 700,000 people worldwide are killed annually through the use of counterfeit medicine. As with many other trafficked goods, entry to the European Union is mainly through the Eastern borders or via international ports and airports. In 2013, nearly 97% of pirated or counterfeit products were brought into the European Union by freight traffic and the remainder via passenger traffic. Illegality can occur at various points in the production chain and the links between legal and illegal trade are strong. For example, an illegal manufacturer can distribute products via a legal distributer or retailer. Offenders include small family-run operations, legitimate companies and well-organised international criminal networks which are also involved in various other serious criminal activities. The internet is being used increasingly for distribution and sales. (The specific topic of cybercrime is discussed in another Policy Brief.) Scale of the markets Estimating the scale of any illicit market is difficult because by nature the activity is clandestine. Additionally, there is no common European criminal law or criminal procedure with respect to illicit trade, resulting in a lack of reliable or comparable recorded crime data at cross-national levels. One method of establishing the scale of illicit activity is to extrapolate from data about the legal market for example, via numbers of sales, import, export and total turnover - and to compare this to information about consumer behaviour and statistics on custom and police seizures in order to provide some estimation of market scale. This, however, is not a useful approach to assessing the scale of trafficking of arts and antiques because of the dearth of reliable data about the legal market. For example, a significant but unknown percentage of sales are conducted in private, and the pricing of art at any given time is based on cultural judgements about value rather than on any systematised commercial calculation. Further, the proportion of forged work sold on the legal market is unknown. Trafficking of arts and antiques Within the European Union, there is no common information source on seized property, and the cataloguing of lost or stolen art is incomplete and inaccurate, particularly regarding the theft of cultural property; an estimate from the 1990s states that under 15% of stolen art in the European Union is recorded. It has been suggested that around three-quarters of the world s art crime take places within Europe (although all such figures should be treated with caution). The Art Loss Register, which is based in the UK, held details of 300,000 lost or stolen items in 2013, and this number is said to increase by around 10,000 items per 3

4 year. In a stark example of the scale of theft of cultural property, 9,000 of 15,000 exhibits were still missing when the National Museum of Iraq reopened in Baghdad in 2009, six years after it was looted following the US invasion of Iraq in A number of international agencies have estimated a worldwide annual turnover for the illegal market in art and antiques of approximately $6 billion, and if one accepts that a high proportion of art crime takes place in Europe, an annual figure of several billion euros across the EU is plausible. Product Piracy Product piracy and counterfeiting are thought to be among the fastest growing illicit markets. They cover a range of sectors, including manufacturing and pharmaceuticals, and levels of police and custom seizures are a main indicator of market scale. While these data can only ever give a partial picture, they do tell us a little about the type and frequency of products being trafficked. In 2013, customs within the European Union registered 87,000 cases of product piracy (concerning nearly 36 million articles). The most commonly seized articles were clothes, followed by medicines. TAXUD statistics 4 show that there has been an increase over time in cases within the EU concerning violations of intellectual property rights (IPR), and fluctuations in the number of counterfeit pharmaceuticals seized. The latter increased from around 4 million articles in 2007 to 27.5 million in 2011 but then decreased to 3.6 million articles in 2013 In 2005, the Organisation for Economic Cooperation and Development (OECD) estimated the word-wide value of product piracy to be in the region of US$200 billion (this excluded domestically produced and consumed products or digital products distributed via the internet) and the cost to companies of international infringements of intellectual property to be more than 150 billion per year. In 2011, the German Engineering Federation estimated losses to their sector of 7.9 billion due to product piracy, and in the UK, Business Action to Stop Counterfeiting and Piracy (BASCAP) suggested that annual costs to the UK economy amounted to 4.1 billion (this includes the cost of lost taxes, lost jobs and associated welfare spending). The World Health Organization (WHO) has reported in 2006 that 1% of pharmaceuticals sold in industrial countries and 10% in developing countries are counterfeits. Motives, attitudes and justifications A high level of specialist knowledge and expertise is a likely requisite for art thieves and forgers successful exploitation of the market. One typology describes three categories of art thief: those who steal less valuable art to sell on the legal market; those who steal high value art to sell on the illegal market; and those who steal art to enjoy it themselves. As also applies to the theft of antiquities, economic gain is a key incentive; however, the desire to own a valuable piece of art, and the esteem or notoriety gained from deceiving the experts through forgery, have also been described as motivations. In contrast to the sellers and forgers, looters are often poor and unemployed, and living in economically and politically unstable regions, where law enforcement is weak or corrupt. They gain little from the illicit trade, with one estimate suggesting that local excavators receive less than 2% of any profits gained. Target consumers are mainly art and antique dealers, museums or private collectors who buy art as a financial investment or out of desire to own some celebrated work or antiquity. There is also evidence that art is bought or stolen as a means of laundering money gained from involvement in the illicit drug trade. Consumption of looted antiques (in political unstable countries) is sometimes justified with reference to the moral imperative to save objects for posterity or for educational purposes and to rescue items from destruction in politically unstable or war-affected countries. This kind of justification has likely been reinforced by evidence of the deliberate destruction of antiquities in Syria and elsewhere in the Middle East by members of Islamic State. Profit and low risk of detection are also key motivations for involvement in product piracy. The prohibitive cost of original products and the cultural or social status attached to owning expensive and exclusive brands build consumer demand for significantly cheaper, pirated and counterfeit alternatives. With respect to the purchase of counterfeit pharmaceuticals, poverty rather than bargain hunting is the most likely impetus. A consumer survey in Germany found that over one-third of respondents would buy counterfeit goods to save money. A survey conducted in the UK in 2013 found that 18 to 34 year-olds were more likely than those in other age groups to buy counterfeit products, but no association was found between level of education and willingness to buy, suggesting that consumers are a largely heterogeneous group. A review of studies examining consumer decisions to purchase illegal goods found that influences included previous positive experiences with counterfeit or pirated products and perceptions about the low risk of sanction. The social acceptability of the behaviour also emerged as a factor: this is often considered to be a largely victimless 4 European Taxation and Customs Union Directorate General 4

5 crime, or a crime of which the only victims are high-profit companies which garner little or no sympathy. Some consumers, however, are duped into believing the counterfeit products they are purchasing are genuine; the channelling of counterfeits through legal markets can create the best opportunity for large profits. Instrumental strategies for control and deterrence There is no common European criminal law or criminal procedure covering trafficking of art and antiques and product piracy; therefore the specific nature of infringements varies by member state. Reference has been made above to the kinds of offences committed by those involved in the markets. Approaches to control and deterrence include legislative, political and practical measures. Various international and European regulations and directives 5 provide the basis for cooperation between key agencies. These seek to ensure controls at the external borders of the European Union, establish systems of licensing and administrative cooperation and impose a duty to institute proportionate national penalties for infringement of the rules. The UNESCO Convention to Prohibit and Prevent the Illicit Import, Export and Transfer of Ownership of Cultural Property (1970), for example, aims to protect cultural property against theft and looting and to provide terms concerning the restitution of cultural property. The World Trade Organisation (WTO) 6 agreement (1994) on the protection of IPR, and subsequent European regulations, define minimum rights and obligations to provide procedures under national law to protect IPR, including provisions for border control outlining customs action to be taken against suppliers of goods suspected of infringing IPR and how these goods should be disposed of - and legal measures to be taken against suppliers of goods found to have infringed such rights. In 2012, a new European Union Customs Action Plan was established to improve customs enforcement and the exchange of intelligence on infringements of IPR. The EU has also sought to engender cooperation with external states; for example, in 2010 the European Commission and China signed The Strategic Framework for Cooperation to enhance customs cooperation and to promote legitimate trade between China and the European Union. Training of police and customs officers to improve their recognition of stolen art or pirated or counterfeit products is another strategy. For example, the European Police College (CEPOL) holds annual courses where specialists can exchange information about the prevention and investigation of art crime. In some counties, for example Germany and the UK, specialist policing units have been set up, in part, to deal with stolen art and antiques, although these units are small and lack the necessary resources to make a significant impact on the markets. Another instrumental strategy entails the development of technologies to mark products, for example through use of photogrammetry, data-matrix codes, or RFID-technology 7 to enable customs or consumers to identify legitimate merchandise or in the case of the art world, gas chromatography and spectrometry to analyse and date coatings and resins on antiques or paintings to help assess their authenticity. Improving databases for cataloguing stolen art and antiques or for recording instances of IPR infringement is also promoted. For example, Interpol has developed an international database on the most recent stolen items of art and antiques and supports the exchange of this information between law enforcement agencies, and also among art and antiques dealers and owners. Those holding trademark or IPR within the European Union can alert customs if they suspect an intellectual property right has been violated and request that customs officials take action. The details of such requests are stored on COPIS, an EU-wide information system for customs officials on counterfeiting and piracy. Commercial companies have also sought to raise awareness of product piracy. For example, BASCAP was founded in 2004 and aims to foster cooperation between different sectors and to pool resources for the purpose of strengthening intellectual property enforcement. The scope for trust-based strategies 5 E.g. UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property; Council Directive 93/7/EEC of 15 March 1993 on the return of cultural objects unlawfully removed from the territory of a Member State. 6 This WTO agreement is legally binding to all members and outlines agreement on trade related aspects of IPR. 7 Various techniques used for verifying authenticity of products through processes including, the detailed measurement of goods or 5 scanning for electronic data codes or micro-chips contained in genuine products.

6 The impact of instrumental strategies to deal with the trafficking of arts and antiques and product piracy is necessarily limited as these are dependent not only on the scarce resources of customs and law enforcement agencies but also on international cooperation outside the jurisdiction of the European Union. Thus far enforcement activities or cross-national agreements and directives have done little to quell market vibrancy. In this context, what lessons for tackling these illicit trades can be offered by the FIDUCIA project and its focus on the normative aspects of compliance with the law? A policy focus on business behaviour is one option. The overlap between the legal and illegal markets highlights the potential role of professional ethics and liability for due diligence. Such approaches combine normative and instrumental elements and can include imposing obligations (underpinned by fear of legal action or damage to reputation) on art dealers and auction houses to inform the police if they suspect an item they are handing is stolen or forged. While these types of agreements may be difficult to implement within the notoriously secretive art and antiques market, a relatively successful example of this is the aforementioned Art Loss Register (ALR). This is the world s largest private database of lost and stolen art, antiques and collectables. It is intended, to encourage registration of stolen items but also routine database searching to protect against unknowingly selling or buying a stolen item. It operates a due diligence service to sellers of art and is also the worldwide focus for any suspicions about illegitimate ownership. In addition, the ALR provides a recovery service to return works of art to their rightful owners or to negotiate compensation for the victims of art theft. The ALR records its contribution to the recovery of over 230 million worth of stolen items. Art Recovery International, a second register along the lines of the ALR, was established in early 2014, working on similar principles but with image recognition software built into its searchable database. It has similarly reported some notable successes in recovering artefacts in its first fifteen months of operation. The German art database Kritische Werke is only accessible to members of the Federal Association of Art Auctioneers and because of such selectivity may increase the social pressure for its members to focus on due diligence. The difficulty of regulating or controlling internet sales is highlighted by some pilot work conducted by ebay. In 2008 in Switzerland, Austria and Germany, the company collaborated with the authorities to seek proof of authenticity before listing an item of art or an antique for sale for a short period of three months. however, the trade in antiques slumped during the trial period (e.g. in Germany from 1300 items listed on a specified day pre-pilot to 300 on a day during the pilot). Another trust-based method is to tackle attitudes and perceptions on the part of potential consumers that crimes associated with the trafficking of arts and antiques and product piracy are trivial, victimless or only affect those who deserve victimisation (e.g. the wealthy, banks or high-profit companies). Various companies and organisations (e.g. BASCAP in the UK and Aktion Plagiarius in Germany) have sought to raise public awareness of the consequences of piracy or counterfeiting, including reduced tax revenues and threats to legitimate employment, the reinforcement of other forms of criminal behaviour (e.g. engagement in the drugs trade) among producers and sellers, and the potential health and safety hazards associated with using counterfeits. In 1980, a non-governmental organisation - the Anti-Counterfeiting Group (ACG) was founded by 18 brand owners in the United Kingdom and now represents around 160 organisations worldwide. ACG aims to change society's perception of counterfeiting as a harmless activity by advocating for more effective use of law enforcement, strengthening co-operation and education on the harms of the illicit markets via training days, seminars and lectures. In an effort to tackle the looting of arts and antiques, a group of young Egyptians started a campaign to stop the theft of historical artefacts from their country by publishing a list of lost antiques on Facebook. Such a direct appeal from the generation who will be responsible for protecting Egypt s cultural heritage serves to undermine the justifications of illicit consumers based on ideas of guardianship and the preservation of antiquities. POLICY IMPLICATIONS AND RECOMMENDATIONS There is certainly some currency in targeting the consumers of stolen art and antiques and challenging the types of justification given for participation in illegal markets. This group, because of market secrecy but also wealth and possibly high-ranking contacts in source countries, are least likely to be apprehended through law enforcement. A focus on the ethical and cultural implications of this trade may have some effect on consumer behaviour. 6

7 We know that the markets in pirated and counterfeit products are extensive and worldwide. There is some irony in the fact that European companies have invested greatly in promoting their products and creating wide consumer appeal but are unable to control how this demand is satisfied. It is more realistic to target normative approaches on consumers of pirated products within the European Union rather than on those from poorer countries who are less likely to have access to legitimate alternatives. Messages about health and safety hazards may be particularly important in challenging ideas about the equivalence in quality between counterfeits and genuine products. As applies to efforts to tackle markets for other trafficked and counterfeit products, awareness-raising about the trades or messages about negative impacts and links to serious criminality have to be delivered by the right kind of messenger. Wealthy companies whose profits are being damaged by product piracy or counterfeits are unlikely to be regarded as objective or to receive a sympathetic ear. Company entreaties to buy real not fake will have limited effect when buying the genuine article is beyond the means of most would-be consumers. ABOUT THE PROJECT PROJECT NAME FIDUCIA: New European Crimes and Trust-based Policy. COORDINATOR Stefano Maffei, Universita Degli Studi di Parma, Italy, Stefano.maffei@unipr.it CONSORTIUM Ankara Strateji Enstitusu Dernegi ASI Ankara, Turkey Birkbeck College, University of London BBK London, UK Centre for European Policy Studies CEPS Brussels, Belgium Center for the Study of Democracy CSD Sofia, Bulgaria The University of Oxford - Oxford Oxford, UK The European Institute for Crime Prevention and Control, Affiliated with the United Nations HEUNI Helsinki, Finland European Public Law Organisation EPLO Athens, Greece London School of Economics and Political Science LSE London, UK Institute of Political Science Hungarian Academy of Science MTA-TK Budapest, Hungary Max Planck Gesellschaft zur Foerderung der Wissenschaften e.v. MPI-CC Freiburg, Germany Teises Instututas TEISE Vilnius, Lithuania Universidad de Salamanca - USAL Salamanca, Spain 7

8 FUNDING SCHEME FP7 Framework Programme for Research of Criminal Behaviour and Policy Response in the European Union. Collaborative project Activity X DURATION February 2012 May BUDGET EU contribution: 2.7 million WEBSITE FOR MORE INFORMATION Contact: Susanne Knickmeier, s.knickmeier@mpicc.de Contact: Mike Hough, m.hough@bbk.ac.uk FURTHER READING FIDUCIA: New European Crimes and Trust-based Policy. Volume 1. Edited by: Stefano Maffei & Lenga Markopoulou FIDUCIA: New European Crimes and Trust-based Policy. Volume 2. Edited by: Stefano Maffei & Lenga Markopoulou 8