Art dealers fight to save tarnished image

Allegations of art smuggling by Sotheby's staff hit the trade at critical time

JAuction houses were yesterday closing ranks in the face of accusations that employees of Sotheby's were guilty of smuggling art into Britain. But many admitted that their timing could not have been worse, as the industry fights a "triple whammy" of new regulations that threatens to send much of the lucrative trade abroad.

Sotheby's, the oldest and largest firm of auctioneers in the world, yesterday suspended some of its senior staff members after allegations of involvement in smuggling Italian art treasures, whose movement is restricted under law.

It also emerged that officials from the Department of Trade and Industry and the Department of National Heritage were planning to meet to discuss the matter but no official inquiry has been launched.

George Bailey, the managing director of Sotheby's Europe, although critical of the methods used to obtain the evidence, said he could not condone actions against the law or the firm's strict rules. The allegations were made in last night's Dispatches programme on Channel 4 and followed an investigation by the arts journalist Peter Watson.

Many dealers said yesterday that they were appalled by the news, because of the damage to the industry's reputation at an "particularly sensitive" time.

Auction houses are facing what has been described as an unprecedented threat from three new areas of legislation; droit de suite - a levy on contemporary art sales; unidroit - a treaty which returns "stolen" goods, and the imposition of Value Added Tax on art imports into the European Union after 1999. These issues threaten to send much of London's long- standing and lucrative trade to New York and Switzerland.

Mr Bailey said that while he accepted that wrongdoing had been uncovered, the implications of widespread corruption in an industry that had made great efforts to regulate itself were "unhelpful". He added: "It would be a great pity if this particular incident within Sotheby's was allowed to blemish the reputation of the London market which is now better regulated than ever before." Roger Hollest, managing director of Phillips of Bond Street, said he was very concerned that fall-out from the Sotheby's case could be damaging to the industry as a whole.

"Any adverse publicity for one auctioneer is inevitably liable to affect all of us. Now is a particularly sensitive time because so much change is in the air. The whole of the art market is under a hell of a lot of pressure."

Droit de suite is a levy on the resale of contemporary art. The EU wants to apply it to Britain, but dealers say it would devastate the international market in 20th-century painting in London, worth about pounds 300m a year.

The VAT issue is just as pressing. Until 1994, there was no import VAT in the United Kingdom and dealers in London could persuade sellers from around the world to send their works of art here. The British Government secured a special rate of 2.5 per cent, but there are signs that even this is damaging the London market. Dealers are now concerned about the prospect of VAT being raised to 5 per cent, to match other parts of the EU.

The unidroit agreement, which has been signed by a number of governments, covers stolen or illegally exported cultural objects. The British government has been pressed to sign the treaty, which would allow original owners to reclaim artefacts, on proof of origin.

In response to these issues dealers have joined to form the British Art Market Federation, which is lobbying hard against the new legislation. Should the three be implemented, according to auctioneers, Britain will lose one of its most lucrative trades. Last week, a standing committee meeting between ministers and representatives did little to reassure the trade.

A limited exodus from Bond Street in central London has already begun. Last month, Pace Wildenstein, the biggest art dealership in the world, sold its Bond Street premises.

Phillips yesterday admitted that it had opened premises in both New York and Geneva last year "so that we are covered whatever the outcome".