By ANDREW JACOBS and CLARE PENNINGTON
Published: July 16, 2012
BEIJING — The frothy contemporary-art scene here has lost some of its ebullience in the three and a half months since a German art handler and a Chinese associate were detained on charges that they undervalued imported art to avoid customs duties.
Gallery openings are a bit more subdued, anxious art dealers have been keeping a low profile, and several wealthy collectors have been barred from leaving China while the investigation continues. Auction house giants like Sotheby’s and Christie’s have been asked to cooperate with the authorities in what has become a wide-ranging investigation.
“Lots of people here are not going into work, or they are only using junior staff at their offices and galleries,” said a Beijing gallery director who spoke on condition of anonymity because of the tension surrounding the issue. “They can’t arrest everybody, but everyone is still nervous.”
In the meantime Nils Jennrich and Lydia Chu, employees of the art-handling company Integrated Fine Art Solutions, languish in a Beijing jail on suspicion of smuggling, a crime normally associated with the illegal importation of drugs or arms. The charges carry a maximum of a life sentence.
Mr. Jennrich, 31, the company’s general manager and a German citizen, was taken away on the evening of March 30 during a raid of the business’s Beijing offices; hours later Ms. Chu, 29, its operations manager, was summoned for questioning. Mr. Jennrich’s family and colleagues have expressed concern for his health, saying he has been forced to share a cell with 11 others. During the first days of his detention, they added, he was interrogated for 36 hours straight, a violation of Chinese law.
“It’s a living nightmare,” said Mr. Jennrich’s fiancée, Jenny Dam, who said the couple had planned to marry in May.
No trial date has been set.
The detentions have put a spotlight on the mercurial Chinese legal system and raised questions among collectors and industry executives about the potential pitfalls of China’s fast-growing art and antiques market, which last year surpassed the United States to become the world’s largest, according to the European Fine Art Foundation. The crackdown, industry professionals have warned, could dissuade Chinese collectors from bringing home art purchased abroad.
Some have privately questioned the government’s motivation, noting that Integrated Fine Art Solutions has handled the work of Ai Weiwei, the maverick artist who has earned the government’s wrath for his criticism of the ruling Communist Party. Others have suggested that the case is aimed at taking down a foreign-owned company to clear the way for a well-connected domestic player that recently began lavishly investing in the art-handling business.
“China is supposed to be a lot more integrated with the world economy,” said Jonathan Schwartz, chief executive of Atelier 4, an art logistics company based in New York. “The decision to throw someone in jail tells you that China is not really playing by similar rules as the other large nations that are dealing with culture and transit.”
The Foreign Ministry has declined to comment on the case.
Speaking from Hong Kong, the chief executive of Integrated Fine Art Solutions, Torsten Hendricks, dismissed the allegations — that the accused tried to help buyers avoid $1.6 million in import duties — saying his company does not get involved in art valuation.
“We forward, store and install artwork, that is all,” said Mr. Hendricks, who was also questioned in Beijing by the authorities but was later allowed to leave the mainland. “Determination of value, the statement of this value, is not our responsibility.”
Legal experts said that art handling firms simply work with the values provided by their clients, but that Chinese law is murky on whether individuals employed by shipping companies can be held liable for undervaluing a work.
Nancy M. Murphy, a lawyer at the Beijing firm Jincheng, Tongda & Neal, who is advising Mr. Jennrich’s family, said she hoped that the authorities would take into consideration whether the accused personally profited from undervaluing the work in question.
Ms. Chu’s fiancé, Benoit Granier, said he found the accusations hard to fathom, given Ms. Chu’s modest life, including sharing an apartment with five others. “She’s just trying to find a way in her life,” he said.
Setting aside questions of Mr. Jennrich’s and Ms. Chu’s culpability, several industry experts say the practice of undervaluing art and antiques on Chinese customs forms is widespread. The International Convention of Exhibition and Fine Art Transporters, a trade organization, noted the problem last year in a newsletter and suggested that the practice was harmful to all involved. “There is no way around these regulations without breaking the law,” it wrote.
In China imported art is often levied with duties that can reach 35 percent of an object’s value. Many industry veterans complain of a customs process that is notoriously onerous.
International art experts acknowledge the difficulty of valuing contemporary art, noting that a wild jump in price at auction after a piece passes through customs does not necessarily suggest undervaluing at the border.
Ms. Murphy, the lawyer, said it took an experienced appraiser to know the difference between fraud and the vagaries of a white-hot art market.
She suggested that the arrests were aimed at sending a message to bigger players in the international art scene. “Kill the chicken to scare the monkey,” as she put it.
The crackdown has touched other companies and individuals. Officials have detained three Chinese citizens, including the editor of an art magazine and the chairman of an art investment company. A Chinese transport company, Noah Fine Art Shipping Agency, was forced to turn over a list of its clients, according to The Oriental Morning Post.
Given how lucrative the art market has become, Chinese authorities have a keen interest in reducing tax dodging. Last year China accounted for 41 percent of worldwide auction revenues and about 30 percent of the overall art and antiques market, according to artprice.com and the European Fine Art Foundation.
Karen Sanig, the head of art law at Mishcon de Reya, a firm based in London, said that customs authorities around the world often impose fines after accusations of undervaluing art but that they rarely use their full powers to detain suspects. “It is unusual for two agents from a shipping firm to be arrested,” she said.
Integrated Fine Art Solutions is a relatively small player in art shipping but it has high-profile clients, including the Ullens Center for Contemporary Art — one of China’s best-known museums — and it handles major international art fairs in Hong Kong and Shanghai.
A number of art professionals, speaking on the condition of anonymity out of fear of drawing unwanted attention from the authorities, have suggested that the government may simply be trying to remove the competition as it prepares to enter the lucrative art-handling business.
Two weeks before the detentions, the state-owned Beijing Gehua Cultural Development Group presided over the groundbreaking for a free-trade zone in the capital that will include an advanced art-handling warehouse. According to the state news media, Gehua is investing $785 million in the venture.
There is little precedent for the case against Ms. Chu and Mr. Jennrich, although if the recent prosecution of a Belgian Sinologist accused of smuggling an ancient sarcophagus out of China is any indication, the punishment may be stiff. In 2008 the Belgian, Kurt de Raedemaeker, was convicted of illegally exporting the relic, despite his insistence that he had obtained the necessary government permits.
He received a life sentence, but after spending some time in prison he was allowed to serve his sentence in a Beijing hotel. The former Belgian ambassador, citing Mr. de Raedemaeker’s heart problems, called the punishment a “slow death sentence.” Mr. Raedemaeker, who was 48, died in March in his hotel room.