HMRC identifies AML risks facing the art market

Nathalie Sherborn of Pinsent Masons, the law firm behind Out-Law, was commenting after HMRC issued guidance on understand the risks of money laundering and act for art market players.

The global art market is valued at over £50 billion, of which around £2.3 billion a year is linked to financial crime. To address this risk, European lawmakers introduced the Fifth Anti-Money Laundering Directive, which came into force last year. This directive, finalized before Brexit, was implemented in the United Kingdom by the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (the MLR 2019), which expanded the scope of obligations under the Money Laundering Regulations 2017 and brought ‘art market participants’ (AMPs) into the regulated sector for the purposes of anti-money laundering. money (AML) where the value of the works of art exceeds €10,000. As a result, since January 10, 2020, everyone involved in the sale process or operating a freeport is required to carry out due diligence, risk assessments and enhanced record keeping, with the obligation to report suspicious transactions to law enforcement.

The extended deadline to register as an AMP with HMRC expired on June 10, 2021. Continuing to trade after this date without registering could result in civil fines or criminal prosecution. HMRC recently released regulatory guidance which identified key areas of risk that SAPs should consider in their business activities.

Sherborn said the HMRC guidance provides its own AML risk assessment for the art market. She said the assessment should be read alongside advice produced last year by the British Art Market Federation and approved by HMRC. Other relevant documents, such as the 2020 National Risk Assessment and guidance produced by the Financial Action Task Force (FATF), divide the identified risks between those applicable to all PGAs and those related to AML regulations.

“The increased shift to online sales, precipitated in part by restrictions imposed in response to the pandemic, for example, is identified as a particular risk,” Sherborn said. “Transactions conducted online, over the phone, or through an intermediary reduce customer exposure, decrease effective identification, and may increase vulnerability to money laundering and other financial crimes.”

“HMRC’s assessment highlights the risk of criminals seeking to profit from legitimate business and recommends that the reason for a transaction be discussed, to satisfy its effectiveness,” Sherborn said. “Special attention should also be paid when the transaction involves unusual or inexplicable sales/purchases of artwork; unusual delivery requests; payment in cash or from “high risk” countries; anonymity and a lack of business history or business references.

HMRC confirmed in its guidance that AMPs can rely on customer due diligence (CDD) carried out by another “duly supervised entity”, but said the strict conditions attached can be easily misunderstood.

“For example, the entity on which the CDD depends must operate in the United Kingdom and be subject to the requirements of the regulations on money laundering; or carrying on business overseas and subject to equivalent legislation in another country,” said Fiona Cameron of Pinsent Masons. “In addition, the AMP must know the identity of the customer or beneficial owner, what level of CDD has been performed, and have an agreement in place with the third party that all CDD documentation will be provided immediately upon request.”

Sherborn said: “While the HMRC guidance does not change legal requirements or the approach to be taken for AML risk assessments, its publication highlights the efforts made by law enforcement not only in the UK but worldwide, to restrict the channels available. for those who intend to launder the proceeds of crime. The guidelines emphasize the importance of LDCs carefully assessing and documenting the specific risks they face and establishing and maintaining effective policies, controls and procedures to address them. HMRC is likely to take a dim view of those who don’t.

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