A breach of the Anti-Money Laundering Regulations could leave art market participants at risk of public censure, prohibitions on managing the business, unlimited financial penalties and at its most, serious criminal prosecution for offences which carry potential sentences of imprisonment of up to 14 years.
Money laundering can take many forms as funds derived from criminal activities are passed through corporate entities, businesses, bank accounts and/or assets in order to disguise their true origins. In the art sector, examples might include a criminal exchanging ‘tainted’ funds for high-value assets that are then returned to the dealer with ‘clean’ funds refunded, or simply buying an artwork with the proceeds of crime at a very high price and then anonymously selling it to a third party (possibly at an undervalue). Another example might involve borrowing ‘clean’ money using art purchased with proceeds of crime.
Those falling within these new categories (defined as ‘art market participants’) must now take a thorough risk-based approach to their business which includes customer due diligence, record keeping, reporting suspicious activity and regulatory supervision by HMRC. Failure to comply with the Money Laundering Regulations can result in financial penalties and criminal prosecution and the British Art Market Federation (BAMF) has issued guidance which has been approved by HM Treasury and HMRC to help the art market understand and meet its obligations.
Art market participants are now obliged to:
- Register with HMRC before June 10th 2021.
- 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.
- Appoint a nominated officer (and deputy) and report suspicious transactions to the authorities.
- Maintain a prescribed range of policies, controls and procedures.
- Train staff appropriately.
- Keep appropriate records of customer due diligence and transactions.
It is said that the art sector could be a fertile ground for money laundering due to the extremely high value of some artworks and the secrecy that is customary in the industry. They may also face criminal sanctions if they do not make an internal report to their nominated officer when necessary. It is important, therefore, that employees are made aware of their legal obligations, and are given training on how to discharge them.
The impact of the pandemic and lockdown is likely to make the situation worse; the closure of auction houses and art galleries means auctions and sales of works of art have moved online, which is likely to increase the incidences of money laundering but also makes it harder for art market participants to properly discharge their customer due diligence and risk assessment requirements.
In many sectors this might seem like the kind of basic compliance that has been conducted for years and with the same pretty fierce penalties for defaulters. But, an article in the Financial Times declared that ‘in the secretive art market, new anti-money laundering legislation has landed like a bomb.’ The stakes are certainly high given that Britain is the biggest trader of art in Europe and, after the US, the second biggest art market in the world.
Anti-Money Laundering Services for AMPs
At AML and Compliance, we work with Art and Antiques Dealers to secure their authorisation or those who already have it to ensure they have effective AML policies and procedures in place to meet their regulatory requirements on an ongoing basis.
Details of the services we provide are contained on our service page which you can review to obtain detailed information on how we work with dealers in the art and antiques sector.