As a magic aficionado my bet is that the picture was rolled into the frame and a pre torn version popped out the bottom. Like the old dollar bill trick. Still impressive.
From the video that Banksy posted, the shredding mechanism just doesn’t make any sense. X-acto blades at that angle wouldn’t shred in the way it come out of the frame. There’s clearly something else happening here.
That was my initial thought, too, because it would be very difficult to store the required power for a high torque shredder for that many years.
Then I realized there must have been a big ass slot in the bottom of the frame, something no art inspector would miss. If the auction house had known about it and then it really could have been done any number of ways.
It's hard to be absolutely certain given the limited photographic evidence, but I think in light of those concerns it's the most likely option.