The international art world, like most other industries, was taken aback when it was revealed, in the Panama Papers scandal, that many high-end art dealers and collectors have used Mossack Fonseca to form offshore companies to own million dollar paintings. While the tax evasion and asset protection aspects of the Mossack-formed BVI companies are well, known, the dangers posed by placing the title to valuable personal property in the name of a bearer share offshore company are not.
When it comes time for the client to convey good title to the Picasso that he or she placed in the name of a BVI company, and now intends to sell, the legal issues one must confront are far more complex than those of a traditional company, where the shares of stock are registered on corporate records, and the chain of title to the shares can be readily ascertained.
The questions which may be asked by the purchaser's counsel could include these:
(1) Can you produce documentary proof that you have the power to convey the art ?
(2) Can you prove that you are the sole beneficial owner ?
(3) Do you have evidence to confirm that the officers and directors who are conveying the personal property are duly authorized to make that transfer ?
(4) Were there prior beneficial owners, other than yourself ? Do you have releases from them ?
(5) Can you prove the absence of liens, encumbrances or other possible hypothecations, that may exist against the art ?
These issues are, of course, in addition to the usual requirements of proof of continued corporate existence, and a current certificate of good standing, as well as certified copies of all relevant filings for the present year, and the certificate of incorporation, and corporate resolution, approving the sale.
One doubts where the paralegal assistants, who formed the BVI companies for Mossack clients, actually covered these issues with them. Given the boiler-room, assembly line nature of Mossack Fonseca operations, any client who should have ben counseled, or advised, by an attorney, probably never received any advice on the consequences of his using the BVI company to hold personal property.
So, was Mossack Fonseca also guilty of professional negligence, more commonly known as malpractice ?