Often in the background screening world, businesses are hyper-focused on pre-hire. The word “background” itself evokes the historical nature of assessing a candidate’s history prior to onboarding. With risk being top of mind for most customers, clients are realizing that a comprehensive screening program does not end at the candidate stage. Just because an individual’s foot is in the door, it does not mean materially significant events will not occur – crimes, driving violations, sanctions, etc. after they have been onboarded.

Through thousands of client engagements and recent client case studies, let us share what we found to be the best path to developing a rescreening program that fits the needs of your company.

What Is Rescreening?

Rescreening is the process of conducting a background check on current employees at some point post-onboarding at regular periodic intervals. From point of hire to the present, changes may have occurred in your employees’ lives that could affect their suitability for their current role. The potential risks of not knowing these changes could jeopardize your organization’s safety, security, and/or brand reputation.

Why Should I Rescreen?

Motivations differ from business to business, but here is what we’re hearing from our clients. What resonates with your business?

• Safety for customers and employees.
• Protecting brand reputation from negative or adverse headlines.
• Maintaining customer loyalty and trust
• Mitigation of risk against financial loss.

Rescreening Client Case Studies

As published in the First Advantage Annual Global Trends Report, different industries had varying pre-employment reportable record rates from criminal records background screens. This ranged from 14% of backgrounds with a criminal record (Staffing industry) to a low of 4% (Healthcare industry). We looked at clients in different industries to see how this rate changed with their post-employment rescreening programs. Even in industries with a considerably lower pre-employment criminal record rate (healthcare and financial services), we still saw significant reportable criminal records post-hire or onboarding with rescreening. The question is-do you want to know about it first or hear about it in the news? While we can’t predict future outcomes, we can see from large client studies that there are records that businesses want to know on their employees.

Structuring Your Rescreening Program

Who Should I Rescreen?

According to our research, about half of our rescreening clients are rescreening all their employees. The others base it on employee access and responsibility. Those employees, often called keyholders, are responsible for having access to company funds, lines of code, system access, intellectual property, physical properties, and/or vulnerable populations.

What Services Should I Include in the Rescreening?

What services you’re including in your rescreening package will be dependent on your business requirements and/or regulations. The primary focus is to review areas that are non-static or subject to change from the original screening. Secondary are any additional screenings that may not have been applicable or considered initially – e.g., if the employee has since taken on a new type of role. Rescreening programs commonly include one or more of the following checks:

• Criminal and Sex Offender Registry
• Motor Vehicle Records (MVR)
• Drug Screening
• FMCSA as required by Department of Transportation (DOT)
• Licensing
• Sanctions and Media
• Credit
• Abuse Registry

When Should I Rescreen?

Clients will typically use a combination of the approaches below:

• Time-based such as annually rescreening based on an employee’s start date anniversary and/or a specific companywide date.
• Event-based such as promotions, transfers, acquisitions, security access changes, and/or conversion from temporary to permanent.
• Contractual such as when a company starts working on a new contract and/or an employee is placed on a third-party assignment.

Implementing a periodic rescreening program is a practical and effective way to identify and address potential issues.

Summary

A rescreening program is not just a good practice, it’s essential to an employer’s overall risk management program. Rescreening empowers organizations with information to help protect their most important assets-their employees and customers. First Advantage can help you develop a rescreening program that meets your risk mitigation goals.

Do you own any credit facilities in Singapore? Have you experienced instances where your loan or credit card applications were declined? Are you aware that financial institutions occasionally review your past loan repayment history as well? In this contributed blog, Credit Bureau Singapore discusses the fundamentals of credit reports and why it is essential on employment background screening.

What is a credit report?

A credit report is a comprehensive record of your credit payment history compiled from different retail banks and major financial institutions (FIs). Credit Bureau Singapore (CBS) collects such credit data from the contributing members in this list. A credit report displays all credit-related data of the individual. It reveals vital information such as the total credit limit disbursed, the types of credit or loan facilities applied, the amount of overdue balances you may owe and even public information like litigation charges and bankruptcy proceedings.

You will be given a credit score based on these factors and past repayment behaviour. A credit score ranges from 1000 to 2000, with a score of 1000 having the highest likelihood of default and a score of 2000 having the lowest chance of delinquency. A risk grade ranging from AA to HH (lowest risk to highest risk) will be assigned to you when your credit report is retrieved.

How does your credit report affect you?

You may have experienced instances of unsuccessful loan or credit applications, as the lenders could have perceived you as a high-risk borrower. Credit providers review the CBS credit report to evaluate the likelihood of repayment before extending a loan. This helps them mitigate the risks of borrowers defaulting on future payments.

The consequences of having a poor credit report can be dire, especially if you are planning to make important life-changing decisions such as purchasing a new house, paying for your children’s education or even starting a new business. You will have to seek alternative sources of funds, which may mean having to re-plan your finances and possibly delaying your future goals.

As a new job seeker, a poor credit report may reduce your chances of being hired compared to applicants with better credit reputations. With the rise of workplace fraud in Singapore, pre-hire credit checks are essential, especially for jobs in the finance sector or those with access to client information. Employers or recruiters may request that you submit a copy of your latest credit report to ensure your creditworthiness before hiring. Some may even conduct annual reviews on existing hires to ensure that you are financially competent and not in financial distress. Such measures are implemented to prevent workplace fraud or potential conflicts of interest, which can damage the company’s reputation.

Tips for building your credit reputation

Do not feel disheartened if your credit report is not ideal currently. Instead, start now, be disciplined about repayment, and you will see a gradual improvement in your report. Remember, credit providers and employers consider other factors before they make a decision, and the credit report is just one of the few tools they use for their credit assessment.

About the contributor:

Credit Bureau (Singapore) Pte Ltd (CBS) is Singapore’s most comprehensive consumer credit bureau, with full-industry uploads from all retail banks and major financial institutions. It is a joint venture between The Association of Banks in Singapore (ABS) and Infocredit Holdings Pte Ltd. For more information about your credit score, visit www.creditbureau.com.sg. Lastly, follow Credit Bureau Singapore’s (CBS) Facebook for more updates and tips on how to stay credit active.

About First Advantage:

First Advantage provides easy-to-understand background reports so you can confidently make talent decisions. We offer employment screening including criminal history; education, employment, and professional license verifications; global sanctions; credit checks, and more.

Hire smarter and onboard faster with First Advantage! Send in your queries to info.asia@fadv.com and visit https://fadv.com/apac/industries/financial-background-checks/ to learn more.

First Advantage supports its employees and their passion for helping others, advocacy, and civic engagement through the FA Cares program. FA Cares is the company’s employee volunteerism initiative, created for staff so they can engage with the philanthropic causes of their choice. Mariah Mellor, Sr. Director of Corporate Communications, believes FA Cares empowers staff to take the initiative to find the organizations that excite them.

“If there’s a cause team members are passionate about and they want to get involved, having a Volunteer Time-Off (VTO) program [in the U.S.] empowers them to go out into their communities and start making a difference,” she said. 

 “Maybe they felt they didn’t have the time and now this is giving them that extra push. Not only are they going to be doing something good for their community, but they’re also going to be representing their company – and I think there’s some pride in that,” Mellor said. 

Matt McGregor, Director of Non-Profit & Education Solutions, is passionate about driving community engagement. He suggests that those lucky enough to have employee volunteer opportunities at their companies should make use of their programs, such as FA Cares, to find their niche and start connecting. “From an advice perspective, it’s get involved, connect – connect with your community, connect with your peers, connect with your clients,” McGregor said.  

McGregor did just that during Collaborate, First Advantage’s annual customer conference. Held in Las Vegas, the event welcomed current and potential customers, employees, sponsors, and partners from several different markets. One of the conference highlights was an FA Cares table, sponsored by Aliro and Military Connected, featuring program resources and an opportunity for attendees to write letters to soldiers. First Advantage employees who didn’t attend the in-person conference also participated in the service activity. 

In total, more than 100 letters were written – a tremendous success given this was the first time FA Cares had a presence at Collaborate. It speaks to the appetite for community impact and engagement found throughout First Advantage’s ecosystem.  

Amanda Meagher, Customer Success Director, also helped oversee the FA Cares booth at the conference alongside McGregor and Ashley Guistizia, Project Manager. Meagher said she wanted to get involved with FA Cares as soon as she heard about it. She has taken her personal passions of volunteering and giving back and turned them into a part of First Advantage’s culture. Last year, she planned her first volunteering event with the company, and she’ll do it again this upcoming May.  

 “Volunteering has always been close to my heart and an integral part of my life. Having the opportunity to incorporate First Advantage is a huge bonus and I’m so happy that it’s just as important to the company I work for,” Meagher said.  

FA Cares leaders agree that the program is still evolving and welcome the idea of having more staff and customers join in to help shape its future. While the program is still U.S. based, the hope is to grow and expand. In the interim, First Advantage has joined the Global Mentorship Initiative, which is open to all employees. The program allows First Advantage employees to mentor students from underserved communities around the world. There’s a plethora of ways to get involved, so any time is a wonderful time to start!  

“We’re people – everybody needs a community,” said Elizabeth (Liz) Ryther, Talent Acquisition Manager. “This is just another way to be a part of a community and to network and to make a difference. Some days you’re going to be the one volunteering, and other days you’re going to be the one asking for help.”  

Diana Hornung, Executive Assistant to the COO, agrees. She helped procure the materials needed to ensure the FA Cares booth was successful at the conference. Though she didn’t attend in-person, her support was felt throughout the event, serving as a reminder that people can create impact in an array of capacities. “There’s just so many ways to give back to your community. My advice to others on how to start giving back – find what you like to do, and I bet there’s an organization out there that will fit your interests,” she said. 

Visit First Advantage’s YouTube channel to watch a Collaborate recap video, where many attendees engaged in First Advantage’s mission to make an impact through FA Cares.  

Employment-related identity fraud is nothing new, and since the increase in remote workforce following COVID, the employment background screening industry has seen an increase in job candidates using stolen identities in an attempt to gain employment. 

Over the last 12 months, First Advantage customers have been talking with us more and more about a new fraud vector they are seeing. Essentially, the person who interviews and is hired for a job role is not the person who shows up to work on their first day. This phenomenon is called “Bad Apple” fraud, and it seems to be a growing trend across several different industries. 

Anecdotally, customers have told us they believe Bad Apple fraud is “growing” and appears to be a larger concern in the Retail, Staffing, and Business Services industries.

However, customers in other industries have alerted us to this new trend as well. Beyond avoiding a negative background screen, or bad interviewing skills, some believe “Bad Apple” fraud may be used to generate fraudulent unemployment claims. However, we have not been able to validate that hunch just yet. 

To better understand the problem of Bad Apple fraud, we conducted a webinar poll with roughly 100 First Advantage customers. We asked questions related to our customers’ experience with Bad Apple fraud, the perceived size of the problem of Bad Apple fraud, and a question related to their level of concern. 

In the survey, we found a little more than half of the respondents (51.4%) have experienced Bad Apple fraud directly. Almost 75% of survey participants believe that Bad Apple fraud is growing substantially, with 20.8% relating “fast growth” and 52.1% feeling that there is “medium growth.” Not surprisingly, when asked how concerned they are with Bad Apple fraud, 27.1% said they were “very concerned,” with 41.4% responding with “concerned.” Only 27.1% said “slightly concerned, and a very small amount, 4.2%, said they are “not concerned.” 

To help solve the problem of Bad Apple fraud, First Advantage recently announced the release of RightID.  RightID is designed to flag inconsistencies in a job applicant’s identity and leverages responsible generative AI and machine learning to help recognize potentially fraudulent applicants in real-time before a First Advantage background check begins. Learn more about RightID.  

This content is offered for informational purposes only. First Advantage is not a law firm, and this content does not, and is not intended to, constitute legal advice.  Information in this may not constitute the most up-to-date legal or other information. 

Readers of this content should contact their attorney or lawyer to obtain advice concerning any particular legal matter.  No reader, or user of this content, should act or refrain from acting on the basis of information in this content without first seeking legal advice from counsel or lawyers in the relevant jurisdiction.  Only your individual attorney or legal advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.  Use of, and access to, this content does not create an attorney-client relationship between the reader, or user of this presentation and First Advantage. 

In response to this as well as other uses, First Advantage is introducing its next-generation RightID product, which responsibly harnesses the power of generative artificial intelligence (AI) and machine learning to help identify erroneous, and in some cases, potentially fraudulent identity information that has been submitted in advance of the background screening process. This updated product will help U.S. employers mitigate risk while offering them a convenient and secure resource to address identity fraud.

First Advantage leaders will discuss the increased concern around job applicant fraud during an upcoming webinar. One of the behaviors noted is the rise of candidates who submit incorrect information on the person’s PII to subvert the background screening process. The goal is to educate employers about how to protect their brands against bad actors, particularly as more companies continue to offer remote-first and hybrid working opportunities. Hiring people with ill intentions can have frustrating consequences, so it is critical to consider how to utilize screening processes to “foil the fakes.”

This timely conversation will touch on what government agencies define as deepfakes, or “multimedia that has either been synthetically created or manipulated using some form of machine or deep learning (AI) technology.” In a Cybersecurity Information Sheet called “Contextualizing Deepfake Threats to Organizations,” the National Security Agency (NSA) and its agency partners outline some of the trends they’ve witnessed related to the prevalence of deepfakes.

Their advice? Organizations should find ways to use technology that can spot deepfakes by using tools that have “real-time verification capabilities” and other detection mechanisms. With products such as RightID and others included in the First Advantage suite, companies can feel more empowered when fighting against fraud to better protect their organizations, colleagues, and customers.

To learn more about how to help safeguard your company’s employment process, register for our upcoming webinar, Foil the Fakes in Today’s Virtual Job Applicant World. The event starts at 1 p.m. EST on March 28.

Recognizing this, the Credit Bureau (Singapore) Pte Ltd offers discerning employers a strategic advantage in the recruitment industry. In this contributed blog, you will learn the key role of informed hiring decisions, specifically, the credit credential of jobseekers and how organizations can foster efficiency and compliance.

Importance of Credit Report in Employment Screening

Contributed by Credit Bureau Singapore

Finding the right group of employees is crucial to the growth and productivity of a business and we can all agree that employees are the backbone of the company.

Companies will wish to hire the right person so as to eliminate any unnecessary performance distractions, this will allow the employees to focus on what is relevant to accelerating the growth of the company. Whereas bad hiring decisions may potentially lead to more frequent follow-ups or even disciplinary actions that might reduce the efficiency and productivity of their work.

How then can companies ensure that they really picked the right person for the job?

Importance of Credit Reputation for Jobseekers

Most jobseekers already know that it is important to prepare a good resume and perfect their job interview skills to land into their dream jobs but few are aware that employers will also take reference from your credit report during pre-employment screening. This is especially crucial for companies who are in the finance industry as employers will request for your Credit Report to assess your overall credit health and financial stability.

Credit Bureau (Singapore) Pte Ltd has evolved to provide employers with reliable credit screening tools to make well-informed hiring decisions. This is especially relevant for banks and financial institutions as they are closely regulated by the Monetary Authority of Singapore (MAS). Under MAS’s Guidelines on Fit and Proper Criteriahttps://www.mas.gov.sg/regulation/guidelines/guidelines-on-fit-and-proper-criteria, be it an institution, exempt financial institution, exempt entity or a fund management company, they are recommended to do employment checks which include credit report checks on pre-hires.

Similar to a report card, employers will be able to use the individual’s credit report during pre-employment screening to evaluate the individual’s credit health before eventually determining the employability of the potential candidate. Through the individual’s credit reports, employers will be able to pick out any adverse payment history or possible recent law litigations and bankruptcy record. Poor credit score or report serves as an indicator that the employee might be financially irresponsible and also serve as an early warning sign to prevent companies from hiring potential data monger who might seriously damage the company’s reputation in the future.

What do employers look out for?

Employers use your credit report as an assessment tool to your financial history, they look out for any potential red flags and whether you are financially stable before confirming that you are the right person for the job. Here are some common indicators that employers will look out for in your credit report:

1. Non-Scored or Public Records. Employers will look out for public records such as past and/or existing writ of summons, bankruptcy record filed against you. This information will be retained in the credit report for 5 years from the date of discharge from bankruptcy.
2. Bureau Score. The Bureau Score is calculated from an algorithm based on information in your current available credit data and is a fluid number which may change from time to time in tandem with changes in your credit information. Lenders will assess the Risk Grade and Probability of Default to determine if you are a high risk borrower.
3. Account Status History. Lenders will be able to use this information to assess your repayment behaviour for the past 12 months. This information is displayed on a rolling 12 months basis (with the most current cycle on the left) while closed accounts will have the last 12 months payment status history as at the date of closure displayed for 3 years.

Read on further to understand more about what the CBS Credit Report comprises of: https://www.creditbureau.com.sg/enhanced-consumer-credit-report.html

**

Hire smarter and onboard faster with the right talent while receiving compliance guidance with First Advantage! Send in your queries to info.asia@fadv.com and visit https://fadv.com/apac/industries/financial-background-checks/ to learn more.

This measure legalizes and regulates recreational cannabis for adults aged 21 and older. Adults can possess up to 2.5 ounces of cannabis, up to 15 grams of cannabis concentrates, and can cultivate up to six cannabis plants at home (up to 12 per household). This will become effective 30 days after approval, which is December 7th, 2023. Distribution facilities will take up to 9 months to be licensed beyond the December effective date.

Ohio Recreational Cannabis Legalization in the Workplace does not:

• Require employers to permit/accommodate the use, possession, or distribution of cannabis.
• Prohibit employers from refusing to hire, discharging, disciplining, or taking other adverse employment action in terms of hiring, tenure, terms, conditions, or privileges of employment because of an individual’s use, possession, or distribution of cannabis.
• Prohibit employers from establishing/enforcing drug testing policies, drug-free workplace policies, and/or zero-tolerance drug policies. Interfere with federal employment restrictions, including federal Department of Transportation (DOT) regulations.
• Permit individuals to commence a cause of action against an employer for refusing to hire, discharging, disciplining, discriminating, retaliating, or taking other adverse employment action against an individual with respect to hiring, tenure, terms, conditions, or privileges of employment related to that individual’s use of cannabis.
• Impact the authority of workplace’ compensation program administrators to grant rebates or discounts on premium rates to employers that participate in a drug-free workplace program.

Additionally, any individuals discharged because of their cannabis use are considered to have been discharged for just cause of purposes of unemployment benefits eligibility if the individual’s use of cannabis was in violation of an employer drug or related cannabis policy. The measure prohibits operating a vehicle, motor vehicle, streetcar, trackless trolley, bike, watercraft, or aircraft while using or under the influence of cannabis, which may impact some workplaces. Employers should review and update their policies prior to this Ballot Measure’s effective date in December 2023.

The foregoing commentary is not offered as legal advice but is instead offered for informational purposes. First Advantage is not a law firm and does not offer legal advice.  The foregoing commentary is therefore not intended as a substitute for the legal advice of an attorney knowledgeable of the user’s individual circumstances or to provide legal advice. First Advantage makes no assurances regarding the accuracy, completeness, currency, or utility of the following information. Regulatory developments and impacts are continuing to evolve in this area.

According to the amended regulations, employers are still prohibited from inquiring into information related to the criminal history of applicants until after making a conditional offer of employment. This includes but is not limited to inquiring about criminal history information through an employment application, internet search or a consumer background report.

There are a few exemptions found in the regulations, however in order for the exemption to apply, the employer or the employer’s agent must be required by law to conduct the criminal background check. A state, federal or local law that requires another entity, such as an occupational licensing board, to conduct the background check, will not exempt the employer from the prohibitions found in the regulations as well as the other requirements.

Employers are still prohibited from considering certain types of criminal history, as under the current California Fair Chance Act; and employers must still perform an individualized assessment and provide specific information to the applicant during the adverse action process; however, the amended regulations provide greater details and examples regarding this process.

INTRODUCTION

Despite the rise of NFTs and AI-generated art, warning signs of a recession, and nagging inflation, the fine art market reigns supreme. In fact, 2022 was a record-breaking year for fine art sales, with Christie’s ($8.4 billion), Sotheby’s ($6.8 billion), and Phillips ($1.3 billion) each raking in record profits^[1]. Paintings by iconic artists can fetch eye-watering amounts. Due to a surge of interest in Black artists, “The Sugar Shack,” a painting by Ernie Barnes and valued conservatively at $200,000, went for $15.3 million at Christie’s in 2022 ^[15].

However, just like in any other high-stakes, speculative industry, the fine art world is riddled with fraud. The path to successful fine art investment is far from straightforward for wealth managers, corporate collectors, high-net-worth individuals, and institutions like banks, museums, and endowments. Fine art is a commodity, and, as with any high-priced commodity, both its buyers and sellers must be held to the highest ethical standards. To safeguard themselves and others from fraud, it is imperative that investors conduct due diligence on art dealers before any transaction.

For those unfamiliar with the fine art market, there are three main players at work in a transaction: sellers, dealers (who are also gallery owners), and investors. Typically, sellers are private individuals who own fine art. Sellers sell their pieces to art galleries, which are run by dealers, who in turn sell artwork at a profit to investors.  Art dealers are able to sell artwork at a steep markup because of their expertise in the fine art market and their connections to serious investors.

To better demonstrate the relationship between sellers and dealers, imagine the following scenario: A seller enters a small high-end gallery. Other than the carefully mounted paintings on the walls, the space is unassuming. The off-white walls are spackled and re-painted, and the clean looking trim runs the length of the warm hardwood floor. The seller approaches the gallery owner (or art dealer) and tells her he’s looking to sell an early Jackson Pollock piece. There’s only one problem: the early Pollock isn’t a real Pollock, and the seller knows it’s fake. The wisdom, wit, and savvy of the gallerist are the only things preventing the seller from passing this piece off as genuine. Does the gallerist have a process in place to catch the con, or are their business practices lax, leaving them vulnerable to fraud? Without being in the same room at the time of sale, what recourse do investors have for gauging a gallerist’s performance in this situation? Art dealers are supposed to vet sellers; however, there are no industry-standard processes in place for investors to vet art dealers.

At First Advantage, we deliver innovative solutions and insights that help our clients manage risk and make sound investment decisions. When investors partner with us, they may gain valuable information about a potential art dealer’s past performance and business acumen. As we know from more than two decades of experience, past business performance is often evidence of future results. Understanding an art dealer’s methods, qualifications, and legal entanglements may help to inform responsible investment decisions.

ART GALLERIES AND FRAUD IN THE NEWS

The art world consists of a close-knit and highly guarded market of eager buyers who, if they wish to invest in fine art, must conduct business in an industry that values expedience and discretion.  Recent news items paint a damning picture of ongoing fraud in the art world:

• The New York-based Knoedler Gallery was the topic of Netflix’s 2020 documentary, Made You Look: A True Story About Fake Art. Starting in 1995, this famed gallery allowed $80 million worth of forged art to pass unencumbered into the market for over a decade. The gallery’s approach to certifying these works was, to put it mildly, a bit lax.  In lieu of asking scholars and experts to vet the paintings in person, the gallery sent them pictures instead. (One expert called a painting “beautiful,” which seemed to “constitute a proxy authentication.”) The experts and Ann Freedman, the gallery owner and an art dealer, were duped because a master forger, Pei-Shen Qian, was reproducing these works.  During these transactions, the seller’s identity was never revealed to Freedman, because an intermediary approached her to sell the works. (Transacting through intermediaries, instead of directly communicating with the seller, is not considered abnormal in this industry.) The intermediary for the transactions almost managed to escape scrutiny altogether – a Long Island woman, Glafira Rosales, “who didn’t have much of an art pedigree but claimed to represent a wealthy anonymous collector”^[2][3].

• In 2016, the Revolver Gallery in California, “the largest Andy Warhol gallery in the world,” purchased two fake canvases from Warhol’s “Shadows” series for $80,000. Brian Walshe, an art seller, listed the paintings on eBay. He claimed that he had overpaid for the two Warhols and that going through an auction house would take too long, thus offering the reduced price online. The gallery owner and art dealer, Ron Rivlin, did not want to complete the transaction on eBay because the site charges a fee. Instead, the gallery flew employees out to Massachusetts, Walshe’s home state, to pick up the art.  When the employees arrived, “the authentication stamps were not visible because the frames were covering the back of the paintings.” The employees took photos of the art and sent them to Rivlin, who “was in his car at the time and did not have the original eBay photographs with him to make the comparison. But he thought the photographs looked like the ad’s [sic.] so he authorized the purchase.” Walshe received payment for the fake art. Later, when the frames were removed, their authentication stamps were missing, and the con was exposed. Separately, Walshe was indicted for the murder of his wife in late 2022, for which he remains in prison ^[4][5][6].

• From 2005 to 2020, brothers Donald Henkel and Mark Henkel allegedly “forged or modified works of art, music collectibles, Hollywood memorabilia, and sports items” and profited by the use of “straw sellers.” Purportedly, the brothers modified the items and recruited other parties to act as the owners of the pieces. While in other schemes the owners were said to have been unnamed parties with intermediaries acting on their behalf, in the Henkels’ scheme, the owners’ identities were fabricated to create an air of authenticity. Three unnamed buyers of the Henkels’ forgeries collectively lost just shy of $1 million, while the Hirschl & Adler gallery reportedly lost “$500,000 on paintings.” As the director of Hirschl & Adler put it: “This is every dealer’s nightmare” ^[7][8].

We recommend conducting due diligence on art dealers. When art dealers purchase forgeries from private sellers, they may lose tens to hundreds of thousands of dollars, suffer reputational risk, and contaminate an artist’s oeuvre^[2]. Very little shields art galleries from this danger. Con artists benefit from a dealer’s need to complete a speedy transaction, lest the opportunity be lost to a higher bidder, and from a dealer’s untested belief in a piece’s authenticity^[9]. All art galleries, both large and small, are at grave risk of bad actors, no matter how well-intentioned, passionate, and enthusiastic they may be about fine art.

WHY DOES THIS TYPE OF FRAUD OCCUR?

Consider the galleries’ position in the fine art market. According to the 2016 Global Art Gallery Report, “Art galleries are small enterprises in terms of employment numbers. A companionless 11% of gallerists run their business with no assistance, and only 25% employ more than four people.” What’s more, “40% of art galleries do not have a full-time employee…and only a small minority of 8% have more than four full-time employed staff members.” Practical factors like outrageous commercial rent costs are cited as a deterrent to bringing on full-time, well-paid staff^[10]. These small businesses are tasked not only with managing high-end commodities, which can sell at the same price as a new car or starter home but also with fending off bad actors and staying competitive in a market that values expedience and discretion. No wonder there is an issue with fraud!

A strong majority of professionals in the art market agree that the industry needs to change.  According to Deloitte’s Art & Finance Report 2021, “83% of wealth managers said lack of transparency was a key factor that undermined trust in the art market (compared with 77% in 2019).” For younger respondents, the number was 86%, suggesting that as a younger generation enters the fine art market, the expectation of transparency will increase^[11].  However, these statistics are at odds with one word repeatedly used to describe the current state-of-the-art market: opaque. ^[12a,b,c] Although many industry insiders agree that greater transparency is needed, the art world remains a mirky swirl of color in which any investor can easily get lost.^[13]

How many forgeries pass undetected into the art market? The exact number will always remain unclear, but experts peg the number at around 50%, and a Fine Arts Experts Institute expert has said that between 70% and 90% of pieces that go through their laboratory come out as fakes”^[14].

DISCRETION VS. DUE DILIGENCE

Anyone hoping to invest in high-end art needs to conduct proper due diligence before working with art dealers. A dealer’s reputational and professional history, as well as that of their employees, must be made known for proper due diligence to be conducted.  This, however, is not industry standard. According to attorney and art law expert Daniel Weiner, “‘[art investors] are stepping into an exclusive world,’ and are thus inclined not to overstep boundaries while seeking acceptance from key players in this unfamiliar—and largely unregulated—territory.”^[5]  Discretion is what undergirds this market, not transparency (and thus, not due diligence).  To curb fraud, the industry must develop a desire for transparency and adopt new practices for due diligence, which will in time become definitive industry standard practice (as in the hedge fund world, which many art investors also inhabit).

Some would argue that there is legal precedent and competitive reasons for discretion. According to Tom Christopherson, Head of Art and Law Studies, Sotheby’s Institute-London: “Confidentiality will continue to be the valid commercial choice of participants and might also be their legal obligation. How so? In commercial terms, knowledge continues to be key to a dealer or auctioneer’s business, from protecting key clients and their business from competitors and counterparties to a dealer’s ability to monetize their research and knowledge about an object and its market in the form of a margin between acquisition and sale prices.”^[12a] Discretion for legal and competitive purposes are certainly valid, but discretion for fear of “overstepping boundaries” should not be the chief characterization that defines this billion-dollar industry.  Are there any better options?  When discreetly presented to interested parties, knowledge of an art dealer’s background can go a long way in helping to separate poorly run, careless galleries from galleries with deservedly sterling reputations.

THE FIRST ADVANTAGE PROCESS

First Advantage’s BackTrack® Report has been an industry leader in the field of investigative due diligence since 1993.  Our background investigations provide clients with important insights that help them manage risk and make important investment decisions. We are uniquely positioned in the market to partner with any institution wanting to invest in high-end art. Our signature BackTrack Report can provide insight into the following questions held by investors about their potential business partners in fine art investment:

• Verification of an art dealer’s education and past employment qualifications. What qualifications does a dealer have for running a gallery? Are there any omissions or exaggerations in their professional history?  Have they worked at a gallery that was exposed to fraud, only to leave and start another gallery? These answers can lend insight into a dealer’s character, as well as past business performance.
• Comprehensive adverse media searches. Once a dealer’s education, professional history, and affiliations are known, we use these identifiers to cull through several decades’ worth of news.  Has a dealer ever worked at a gallery that purchased forged art?  Were they forthcoming or dismissive about the matter to the press?  What are the gallery’s purchasing practices?  In their personal life, has a gallerist ever had any run-ins with the law, such as a DUI/DWI?  News articles can lend further color to lawsuits found in our litigation searches.
• Comprehensive litigation searches. The results of our litigation searches can reveal a dealer or gallery’s legal entanglements with purchasing forged art.  Is an art gallery currently entangled in business litigation?  Did they sue their sellers for selling them fake art?  In their personal life, are they involved in divorce litigation?  Have they had multiple divorces in short succession? How might these issues detract from an art dealer’s ability to perform their job effectively?
• Understanding of gallery and dealer’s financial history through judgment and lien, bankruptcy, and credit history searches. Management of personal finances can lend insight into how an art dealer may handle a gallery’s finances.  Is an art gallery experiencing issues with liens, foreclosure, or bankruptcy?  In their personal life, is an art dealer struggling financially with the same?  How might these issues detract from an art dealer’s ability to perform their job effectively?
• Targeted criminal searches. In addition to a nationwide search of criminal matters, we also search the National Sex Offender Registry, Office of Foreign Asset Control, and Politically Exposed Persons databases. Conducting these searches may help protect you and your institution from reputational harm.

Investors have the potential to transform the fine art market by conducting routine background checks on art galleries and dealers.  While art dealers are often depicted as the only victims of fine art fraud, the real victims are investors and artists.  Dealers have an important role to play within the market, that of gatekeeper.  If that duty is neglected, either due to sloppy business practices, inexperience, or legal entanglements, dealers open themselves up to con artists.  If investors gain the confidence to buck the trend and conduct due diligence on art dealers, high-risk and shady dealings with gallerists will become remnants of the past, and a once-opaque fine art market will thrive amid transparency.

Sources:

[1] Sullivan, Terry . “Why the Fine Art Market Soared Last Year.” Yahoo. March 7, 2023. https://www.yahoo.com/lifestyle/why-fine-art-market-soared-140049374.html.

[2] “Duped You: The Story of Knoedler’S $80m Art Fraud – Netflix.” Artlyst. February 28, 2021. https://artlyst.com/news/duped-story-knoedlers-80m-art-fraud-netflix/.

[3] Gleiberman, Owen . “‘Made You Look: A True Story of Fake Art’ Review: The Most Spectacular Art Forgery Ever?” Variety. February 23, 2021. https://variety.com/2021/film/reviews/made-you-look-review-barry-avrich-1234913471/?sub_action=logged_in.

[4] Dutton, Jack. “Brian Walshe Had History of Art Fraud, Meddling With Inheritance.” Newsweek. January 13, 2023. https://www.newsweek.com/brian-walshe-art-fraud-meddling-inheritance-1773550.

[5] Pease, Alexander. “Warhol Fakes Become National News.” The Mass Media. UMass Boston, January 14, 2023. https://umassmedia.com/16040/art-lifestyle/warhol-fakes-become-national-news/#.

[6] Cristantiello, Ross . “Brian Walshe Indicted for the Murder of His Wife, Ana.” Boston.Com. March 30, 2023. https://www.boston.com/news/local-news/2023/03/30/brian-walshe-indicted-murder-wife-ana-cohasset/.

[7] Kuta, Sarah . “How Fraudsters Allegedly Fooled the Art World in 15-Year Scheme.” Smithsonian Magazine. May 2, 2022. https://www.smithsonianmag.com/smart-news/three-men-charged-in-art-and-sports-memorabilia-fraud-scheme-180980005/.

[8] “Three Men Charged With Scheming To Create and Sell False Works of Art and Memorabilia.” Justice.Gov. United States Attorney’s Office Northern District of Illinois, April 21, 2022. https://www.justice.gov/usao-ndil/pr/three-men-charged-scheming-create-and-sell-false-works-art-and-memorabilia.

[9] Mather-Lees, Pandora. “The Problem with Due Diligence in the Art Market.” ArtRatio. May 25, 2020. https://www.artratio.co.uk/due-diligence-art-market.

[10] Resch, Magnus. 2016. The Global Art Gallery Report. New York, NY: Phaidon Press Limited.

[11] 2022. Art & Finance Report 2021. 7th ed. Deloitte Private. pg. 280, 287.

[12] Regarding the word “opaque,” it appeared in numerous sources and is an apt word to describe the fine art market.  To further demonstrate the point, quotes from various sources that use the word to describe the market appear below.

Art & Finance Report 2021:

• “In the still opaque market of art, collectible and luxury items, the challenges faced by family offices that manages these assets are vast and often complex.” pg 139
• “If art is to be treated as a financial asset, we must be in a position to measure and communicate risks with appropriate financial metrics. This could allow the unlocking of a vast opportunity, moving beyond what is today a highly manual, subjective, opaque, and unregulated activity.” pg 218
• “In 2020, the global stock of artwork and collectibles was estimated at US$1.7trillion. However, the main constraints of this stock are its extreme illiquidity and opaque profiles, which makes it difficult to fully take advantage of the asset class’ specificities.” pg 249
• “Although there are signs that certain areas are being addressed, in many cases the threats have amplified, such as the art market’s continued opaqueness.” pg. 287
• “…international payment flows in the art market are becoming increasingly complex and opaque.” pg 297
• “This major step toward greater transparency aims to shed light on the art market, which is often perceived as obscure and opaque…” pg 300
• “Compared with other sectors, the art market is seen as opaque…” pg 308

[12a] Christopherson, Tom . “Art Law and the Art Market: Disclosure or Discretion?” Sotheby’s Institute of Art. Sotheby’s, October 2, 2017. https://www.sothebysinstitute.com/news-and-events/news/art-law-and-the-art-market-disclosure-or-discretion.

• “While the art market has traditionally been regarded as somewhat opaque…”

[12b] Adam, Georgina . “Is the Art Market Corrupt to the Core? Balderdash.” The Art Newspaper. December 2, 2021. https://www.theartnewspaper.com/2021/12/02/is-the-art-market-corrupt-to-the-core-balderdash.

• “Its opaque deals and lack of transparency provide plenty of opportunity for fraud, forgery and the like.”

[12c] Porterfield, Carlie . “Pulitzer Prize-winning Photojournalist Says He Was Conned in Dealer’S $1.6m Art Fraud Scheme.” The Art Newspaper. February 13, 2023. https://www.theartnewspaper.com/2023/02/13/pulitzer-prize-winning-photojournalist-says-he-was-conned-in-dealers-16m-art-fraud-scheme.

• “Cases of art dealers defrauding artists and collectors have repeatedly made headlines in recent years, prompting some to suggest that the opaque nature of the art market makes it an ideal arena for such behavior.”

[13] “Four Takeaways on BSA/AML Reform under the Anti-Money Laundering Act of 2020.” Thomson Reuters. August 9, 2021. https://legal.thomsonreuters.com/en/insights/articles/4-takeaways-on-bsa-aml-reform.

[14] Bambic, Ana . “ART FORGERY – More Than Half of Art Is Fake?” Widewalls. October 19, 2014. https://www.widewalls.ch/magazine/more-then-half-of-art-is-fake.

[15] Sullivan, Terry . “Why the Fine Art Market Soared Last Year.” Worth. March 7, 2023. https://www.worth.com/why-the-fine-art-market-soared-last-year.

The new law amends Minnesota’s Consumable Products Act (CPA), which prohibits employers from disciplining or discharging employees (or refusing to hire applicants) who use lawful consumable products outside of work. Effective August 1, 2023, the term lawful consumable products will specifically include cannabis flower, cannabis products, lower-potency hemp edibles, and hemp-derived consumer products, as such terms are defined by Minnesota law. The law goes even further to explicitly provide that the aforementioned products are considered lawful consumable products under Minnesota law regardless of whether federal or other state law considers cannabis use, possession, impairment, sale, or transfer to be unlawful.

More specifically with respect to employers, the new law prohibits:

1. Refusing to hire an applicant because they engage in the use of lawful consumable products (including cannabis flower, cannabis products, lower-potency hemp edibles, and hemp-derived consumer products) as long as said use/enjoyment occurs off the premises of the employer and during nonworking hours.
2. Disciplining or discharging an employee because they engage in the use of lawful consumable products (including cannabis flower, cannabis products, lower-potency hemp edibles, and hemp-derived consumer products) as long as said use/enjoyment occurs off the premises of the employer and during nonworking hours.
3. Requesting or requiring an applicant to be tested for cannabis solely for the purpose of determining the presence/absence of cannabis as a condition of employment unless otherwise required by state or federal law.
4. Refusing to hire an applicant solely because they submitted to an authorized cannabis test or drug and alcohol test and returned a positive result indicating the presence of cannabis, unless otherwise required by state or federal law.
5. Requiring or requesting an applicant or employee to undergo cannabis testing on an arbitrary or capricious basis.However, the new law specifically allows an employer to:

1. Discipline, discharge, or take adverse action against an employee for the use, possession, impairment, sale, or transfer of cannabis flower, cannabis product, lower-potency hemp edible, or hemp-derived consumer product while the individual is working, on the employer’s premises, or operating the employer’s vehicle, machinery, or equipment if:
   1. As a result of said consumption, the individual does not possess clearness of intellect and control of self that they would otherwise have.
   2. A cannabis test returns a positive result following a confirmatory test.
   3. Conditions provided in the employer’s written work rules are met, provided that the rules are in a policy that meets the minimum information required by state law.
   4. Authorized or required under state or federal law/regulations, or if a failure to do so would cause the employer to lose a monetary or licensing-related benefit under federal law or regulation.

Moreover, employers may continue pre-employment and routine physical examination cannabis testing for safety-sensitive positions (i.e., a job in which an impairment caused by drug, alcohol, or cannabis usage would threaten the health or safety of any person) as well as positions requiring face-to-face care, training, education, supervision, counseling, consultation or medical assistance to: children, vulnerable adults, or patients who receive health care services from a provider for the treatment, examination, or emergency care of a medical, psychiatric, or mental condition. There are other similar exceptions such as when federally required.

Given the intricacies of this new law, employers should consult with counsel about updating their drug testing policies to comply with the changes.

The foregoing commentary is not offered as legal advice but is instead offered for informational purposes. First Advantage is not a law firm and does not offer legal advice.  The foregoing commentary is therefore not intended as a substitute for the legal advice of an attorney knowledgeable of the user’s individual circumstances or to provide legal advice. First Advantage makes no assurances regarding the accuracy, completeness, or utility of the following information. Regulatory developments and impacts are continuing to evolve in this area.