The (quiet) extension of the AML regime: an overview
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.
In summary art market participants are now obliged to:
It is worth noting that HMRC must approve any beneficial owners and senior management of an art market participant as part of the registration process. This is to ensure they are appropriate people to undertake their responsibilities. Overseas dealers who come to the UK to sell works of art are also required to register.
This should be an assessment of the level of risk of money laundering and terrorist financing to which the individual or business is exposed by virtue of the nature of the business and also the level of risk in a particular customer. HMRC may ask to inspect this risk assessment at any time.
This is the main focus of the new legislation. An art market participant must identify the customer (which will vary depending on the business model) and, where relevant, the beneficial owner, verify the identity and assess the purpose and intended nature of the business relationship or occasional transaction. There are also prescribed circumstances when ‘enhanced due diligence’ will be required.
A nominated officer is responsible for receiving reports of suspicious activity from staff and deciding whether to report such knowledge or suspicion to the National Crime Agency (NCA). He or she must make a report to the NCA in respect of information that comes to them within the course of the business where they know or suspect or have reasonable grounds for knowing or suspecting that another person is engaged in money laundering or terrorist financing. The requirement for the nominated officer to make a report to the NCA applies even if the transaction in question does not proceed. It is also a criminal offence for an employee to do or say anything that ‘tips off’ another person that a report has been made where the tip-off is likely to prejudice any investigation that might take place.
Larger businesses must also appoint a compliance officer to ensure compliance with the regulations.
Art market participants must ensure they have a policy statement which sets out in writing the commitment and responsibilities of senior management and all employees in relation to implementing an effective anti-money laundering regime. Policies and procedures must be relevant and proportionate and kept under regular review.
Relevant employees (which include customer facing employees) and agents must receive anti-money laundering training at regular intervals. Records of this training must be maintained (which HMRC may ask to inspect).
This requires the art market participant to maintain appropriate systems for retaining records and making records available when required within specified timescales. This includes the retention of copies of evidence obtained to satisfy the customer due diligence obligations and details of customer transactions for at least five years after the end of the business relationship.
A breach of the Money Laundering Regulations could leave art market participants at risk of public censure, prohibitions on managing the business, financial penalties and at its most serious criminal prosecution for offences which carry potential sentences of imprisonment. However the secrecy surrounding the art world and the desired anonymity of those who participate in it, especially when dealing in works of art of significant value, make compliance a significant and onerous challenge and unsurprisingly the new legislation has been met with alarm by many. 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.
A recent 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.
As well as advising suspects and defendants throughout the regulatory and criminal process, we regularly provide money laundering training and conduct Anti-Money Laundering audits for individuals and corporate entities and advise on prevention measures and compliance requirements. For further information, please contact a member of our criminal team.
Gemma Tombs is a Practice Development Lawyer in our Criminal Litigation team. She is a practising solicitor with extensive experience in all areas of criminal and regulatory litigation. Gemma was previously a partner and consultant at Corker Binning, where she acted for individuals and corporate clients in high profile investigations and prosecutions.
Practice Development Lawyer
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