Having worked at Sotheby’s for 30 years and married to an antique dealer for 20 years, I appreciate how art specialists dread the words “Anti Money Laundering Compliance”.
However, ignoring MLA compliance is not an option in the UK and is no longer optional as of January 10, 2020. It’s just one of those things that needs to be done, like paying taxes.
It looks like the United States will be regulating their art market soon. A March 9 advisory from FinCen, which is part of the US Treasury Department, makes it clear that the Treasury, FBI and Homeland Security are conducting an “art study” on money laundering and the “trading of money”. works of art “. Many believe this study will lay the groundwork for the US to regulate its art market in the same way the UK has been for the past 15 months.
As far as the UK is concerned, the UK’s implementation of the 5th EU Money Laundering Directive is in force and applies to all eligible participants and transactions in the money laundering market. ‘art. These participants initially had until January 2021 to register with HMRC as an art market participant. But following the Covid-19 pandemic, the British government has extended the registration deadline to June 10, 2021.
Unfortunately, some in the business have confused the postponement of the HMRC registration deadline with the postponement of the effective date of the UK anti-money laundering regime.
It is a very dangerous misunderstanding. This is of particular concern because, under the UK’s new anti-money laundering regime, the government is allowed to conduct AML compliance audits in much the same way that the Inland Revenue is allowed to. perform tax audits.
Prepare for a compliance audit
To be ready for an audit, you must show in your record keeping that you have performed tasks such as:
- Carry out a risk assessment for the company and its customers.
- Have selected, trained and supported a Money Laundering Reporting Officer.
- Training of new and existing staff.
- Creation and implementation of anti-money laundering policies, controls and procedures in response to the risks discovered in the assessment.
It would also be wise to establish that for each relevant transaction, proper Know Your Customer (KYC) steps have been taken and proper customer due diligence and screening performed.. If these investigations revealed “red flags”, that is to say a report or a fact that could give rise to suspicion of money laundering, it would then be important to show additional steps. These steps may be necessary to help make a decision about whether or not to file a suspicious activity report with the National Crime Agency. All of these steps should be documented for an audit.
Although there is no generally accepted evidence that a significant number of art transactions are in fact linked to money laundering, the UK Treasury and Home Office nonetheless officially consider the art market. art as “high risk”..
Thus, the art market ignores these obligations at its own risk. The market faces criminal prison terms for violating these laws, ranging from two to 14 years. There are also civil and reputational risks to consider. As remote as the risk to a gallery, auction house, or art consultant may seem, is it worth the risk of jail?
The news is not all bad. The scope of the law is limited in two essential ways. First, by the value of the art market participant’s transactions, and second, by the types of “works of art” that a participant trades. In terms of value, an actor in the art market can fall outside the scope of the new law if he is:
1. Do not negotiate or act as an intermediary involving a “work of art” in a single transaction, or a series of related transactions of € 10,000 or more.
2. Do not store in a free port “works of art” of 10,000 € or more, individually or in series.
The transaction amount includes all added taxes, commissions, etc.
Definition of a “work of art”
They may also escape the regulatory regime if the objects they sell do not fall within the definition of “work of art”. For the purposes of combating money laundering in the UK, a “work of art” is the same as the definition in the Value Added Tax Act. Generally speaking, the definition of VAT includes objects such as paintings and drawings and certain sculptures, ceramics, photographs and enamels on copper. While this is a relief for those who only deal in items such as furniture, keep in mind that while even a small percentage of a gallery or auction house’s bids include “works of art” with a transaction value of € 10,000 or more, the obligation to comply with the UK AML regime is triggered.
More good news is that there is technology (existing and pending) to help the art market, such as search services and apps to help with due diligence and client selection. Such tools can alleviate some administrative burdens, but should not be fully invoked. Perhaps more importantly, there are specialist art market consultants available to help with broader obligations, such as proper risk assessment, policy writing, training, and required record keeping. for a compliant AML program.
The reason I say AMLA compliance is not optional is because it is the truth, it is a legal requirement. If history is our master, the government may well set an example of a gallery, advisor or auction house that does not comply by punishing them with a penalty of imprisonment.
So no matter how wasteful of time and money compliance may seem, the risks of non-compliance far outweigh the burdens. Once the heavy lifting has been done, its upkeep should become as routine as filing a tax return.
- • Rena Neville is the founder of Corinth Consulting, which provides AML compliance advice to art companies,