May 17 (Bloomberg) -- The German manager of an art-freight company is being detained in a Chinese jail for allegedly falsifying values of imported artworks to help buyers avoid 10 million yuan ($1.6 million) in import duties and value added taxes.
Customs officials raided the Beijing office of Integrated Fine Arts Solutions Ltd., which specializes in contemporary art, on March 30, seizing records and arresting Nils Jennrich, 32, and his Chinese colleague, according to Torsten Hendricks, IFAS’s Hong Kong-based Asia director. They’ve been held ever since. Hendricks denies the allegations against his employees.
Sotheby’s and Christie’s International, the world’s two biggest art-auction companies, said they have been contacted about the case and are cooperating with authorities. It may be part of a wider probe into tariff-dodging in the art world that has been dubbed Tax-Inspection Gate by the Chinese media. China’s Ministry of Foreign Affairs said in a faxed statement that Jennrich was being held on smuggling allegations.
Mainland China’s import duty and value added tax on fine art total about 23 percent, compared to no levies in Hong Kong. The investigation may damp demand among Chinese art buyers, who last year surpassed Americans to become the world’s largest art and antiques buyers, according to data from the Helvoirt, Netherlands-based European Fine Art Foundation.
Chinese collectors routinely underreport the value of their purchases and may buy less if they can’t bring the works home, said Nancy M. Murphy, a Beijing-based partner at Jincheng Tongda & Neal with a specialty in art law.
“This will have a big impact on Chinese who are buying expensive art abroad,” Murphy said. “They’ll be inclined to hold it overseas for longer because they don’t want to pay their taxes and because it’s become dangerous.”
The Hong Kong International Art Fair opens today and features 266 galleries from 39 countries including works by Zeng Fanzhi, the late American artist Cy Twombly and Paris-based Anselm Kiefer. Organizers expect 50,000 people to attend.
Integrated Fine Arts Solutions’ Beijing lawyer, Xiao Yongcheng, confirmed the charge against Jennrich. It carries a maximum penalty of life imprisonment, according to Chinese law.
No information is available on Lydia Chu, 29, a Chinese national working at the firm who was also detained. China’s Ministry of Foreign Affairs said in a faxed statement they arranged a visit for German Embassy officials after Jennrich was held. It said China is handling the case according to the law.
Christie’s, Sotheby’s Cooperating
Authorities have also contacted auction houses New York-based Sotheby’s and London-based Christie’s.
“At this moment we are cooperating with authorities on an investigation concerning a third party,” Christie’s Hong Kong-based spokeswoman Jiang Luyang said in an e-mail. “We are providing the required assistance in accordance with the law.”
“We confirm that Sotheby’s, among other companies, has been contacted by the Chinese authorities and we are complying with their requests,” Carmen Ting, Sotheby’s spokeswoman in Hong Kong said in an e-mail.
Neither of the companies would give any more information.
At least one other art and antiques importing company has been targeted by customs officials investigating at least 40 million yuan in unpaid tariffs, Shanghai-based newspaper Dongfang Daily reported.
At the Beijing offices of Noah Fine Art Shipping Agency (Beijing) Co., officials seized an 800-name list of clients, according to the Securities Journal, a state-owned publication. No one at Noah Fine Art responded to phone calls and e-mails to their office.
Reversing Art Flow
China used to struggle to keep art treasures at home. These days, about two-thirds of Chinese art bought overseas is going to buyers from China, estimates Nicolas Chow, Sotheby’s Asia deputy chairman.
“If you look at the number of objects that are sold yearly at Sotheby’s or other auction houses in New York, Beijing or Paris, the flow is going back to China,” said Chow, who wasn’t commenting on the smuggling case. “It seems we’re in a one-way elevator going up.”
Arresting someone in connection to customs violations is unusual in China, said John Larkin, a former U.S. customs official who founded Larkin Trade International LLC, a consulting firm that advises companies on import and export compliance and has offices in Washington and Beijing.
“Normally, they just hold the goods at the border and you come up with a solution through consultation,” he said.
Frank Hartmann, a spokesman for the German Embassy in Beijing, said a German citizen had been held by Chinese authorities since the end of March. He declined to reveal more details, citing policy.
IFAS was founded in 2008 and Jennrich joined a year later.
“For me, this is a person who would never run a red light,” said Michael Schultz, the owner of galleries in Berlin, Seoul and Beijing who has used IFAS for several years and says he knows Jennrich well. “That’s my impression of him.”
Clients of IFAS include the Ullens Center for Contemporary Art in Beijing and the Asia Pacific Contemporary Art Fair Shanghai, known as SH Contemporary, which hosts more than 100 galleries annually.
The company has handled works by Ai Weiwei, the multimedia artist famous for his confrontations with China’s government. In a separate case, Ai is in dispute with Beijing authorities over their claim the company that markets his art owes the government 15 million yuan in back taxes.
IFAS’s climate-controlled warehouses in Beijing, Hong Kong and Shanghai are monitored by guards, equipped with high security strong rooms and special fire sprinklers that use gas instead of water to protect the art.
Part of the company’s job is navigating China’s customs regulations, which require permission from the Ministry of Culture for imports of art. Forms include questions on the purpose of the artist for creating a work. Hendricks said they had seen art rejected on the grounds that it wasn’t historically accurate.
Chinese authorities have denied Jennrich bail and have at least 6 months during which they will continue their investigation, Xiao, the lawyer, said. Until the start of the trial, his attorneys won’t have access to the evidence against their client and will have only limited contact, he said.
“We just don’t know why we are the target,” Hendricks said.
To contact Bloomberg News staff for this story: Shai Oster in Hong Kong at email@example.com