What do we law firms have in common with art dealers? We both must comply with strict money laundering regulations!
In January 2020, new anti-money laundering regulations were introduced as the EU’s 5th Money Laundering Directive came into force, amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Regulations) and imposing new requirements to conduct identity checks and due diligence procedures. The Regulations impose a large administrative burden on art-market participants, requiring anyone participating in an art-market transaction worth 10,000 euros (£8,500) or more to carry out the same level of due diligence on their clients that lawyers do.
What is money laundering?
Money Laundering, as defined in section 340 of the Proceeds of Crime Act 2002 (POCA), covers a wide range of scenarios involving any activity that might concern the monetary proceeds of crime. It can take many forms, including:
- Attempting to ‘clean’ money made through criminal activity;
- Criminals investing the proceeds of their crimes in the whole range of artworks;
- Possessing or transferring the benefit of crimes such as tax evasion, fraud and theft; and
- Possessing or transferring stolen goods.
How might this occur in the art market?
The most likely situation is where an art market participant handles or facilitates a sale of art that has been stolen or purchased with the proceeds of criminal activity.
According to the British Art Market Federation, the British art market is the third largest art and antiques market in the world with a global share of 22%, and a 65% share of the European Union’s art and antiques market. With this in mind, it comes as no surprise that UK legislators are taking measures to prevent the trading of art and antiques funded by the proceeds of crime.
What do you need to do?
Any person or organisation defined as being an art market participant under the Regulations will be required to do the following:
- Register with HMRC before they carry on with their business, where this involves a transaction of 10,000 euros (£8,500) or more, or a series of linked transactions of 10,000 euros (£8,500) or more;
- Carry out a risk assessment of the extent to which they are exposed to money laundering;
- Carry out customer due diligence measures on customers before they conclude a transaction;
- Train staff appropriately;
- Appoint a nominated officer;
- Keep appropriate records of customer due diligence and of transactions;
- Maintain a prescribed range of policies, controls and procedures; and
- Report suspicious transactions to the authorities.
Alongside this, there are strict rules under POCA surrounding the disclosure of any suspicion or knowledge that another person has been involved in money laundering. Failure to report, or tipping off somebody involved in money laundering can result in a prison sentence and/or a substantial fine.
How we can help
Anyone that might be classed as an art market participant must now implement the required processes and procedures to enhance their duties in line with the Regulations.
At Counterculture Partnership LLP, we understand the inconvenience for smaller art market participants to comply with these Regulations, especially with the art market already under pressure from the temporary closure of galleries and exhibitions. However, with the wider legal implications of failure to comply with the Regulations, and with POCA, it is best practice to reach out for legal guidance to assist in implementing the necessary processes and procedures to trade properly.