The investigation centres on the Tate Gallery in London following allegations that its archives were tampered with in order to authenticate forged paintings by modern Masters.
Scotland Yard has already made several arrests during the investigation, which began several months ago and involves works by, among others, Ben Nicholson and Giacommetti.
"We can confirm that our Arts and Antiques Focus Unit, which is part of our Specialist Operations Organised Crime Group is conducting an ongoing investigation relating to records kept in the Tate Gallery," a Scotland Yard spokeswoman said yesterday. Police would not comment further, saying that the investigation was at a "sensitive" stage.
The fraud, thought to stretch back over five years, appears to have been operated by a number of people. One creates a painting and a second visits an archive and alters or adds to information in the artist's file so that the new work appears to be authentic.
A third person, the "dealer", is then able to sell the work as genuine, telling the buyer that it can be authenticated at a reputable archive source. Police fear that the same technique is being employed in numerous other galleries, involving other artists' work.
It has been discovered that catalogues, widely used in the art world as the authoritative guide to an artist's work, are said to include references to the forged artworks, giving them false credibility.
Those arrested have been released on police bail, pending further inquiries. They are not thought to be related to the art galleries concerned, none of which have been implicated in the inquiries.
The investigation is thought to have been triggered when a London-based art dealer bought a watercolour painting by the British artist Ben Nicholson for pounds 18,000 "in good faith" - that is without official records to authenticate it.
The dealer went to the Tate archives to check the work's history, and discovered it was a forgery. A number of alterations to the Tate's archive of Nicholson material, in order to validate the new, forged works of art, were later discovered.
All the forged works were described by one source as having "an extremely strong provenance" (authenticated history), which is why the fraud went undetected for so long.
"I have seen Nicholson paintings over the years which at first I accepted in good faith but then I came to realise something was wrong," said one expert. He added that if a work seemed a little "off", in some cases experts would assume that "the artist had had a bad day".
A spokesman for the Tate Gallery yesterday confirmed that the investigation was taking place, but refused to comment. "It is ongoing and we're co- operating," he said.
During the course of its investigations, Scotland Yard's Arts and Antiques Squad is said to have been searching for one man in particular, who is believed to have been using the pseudonym "John".
The Tate's archives are available to the public by appointment and are widely used by students and dealers attempting to authenticate or trace the history of works of art.
Staff at the Arts Council, which also holds an extensive archive of British art, are also believed to be among those people questioned by police to determine whether they have been approached by the man.
Pamela Griffin, who manages the Arts Council archive, said she knew nothing about the inquiry and added that all files were given out individually and only available to be studied under supervision.Reuse content