News

AML and Sanctions update – Extension of Reporting Obligations from 14th May 2025

Art Market Participants (AMPs) will be aware of their legal obligations to report knowledge or suspicions of money laundering to the National Crime Agency (NCA). From 14 th May 2025, AMPs will also be required to file a report with the Office of Financial Sanctions Implementation (OFSI) if, in the course of business, they come to know or have reasonable cause to suspect that a person –

1. is a designated (sanctioned) person or in other words, a person or entity included in OFSI’s list of sanctioned persons or entities; or
2. has committed breaches of UK sanctions regulations.

The reporting obligation will therefore apply where in the course of

• trading in or acting as an intermediary in the sale or purchase of works of art (whether in a single or a series of linked transactions) valued at or above €10,000 euros; or
• storing works of art where the value of the works of art amount to €10000 euros or more,

an AMP knows or suspects they are engaging directly or indirectly with a sanctioned person or someone who has committed breaches of UK sanctions regulations such as facilitating a transaction on behalf of a undisclosed person or entity who is sanctioned. For the reporting obligation to be triggered, it is not necessary for a transaction to have taken place.

In addition to AMPs, this new reporting obligation is being extended, for the first time, to high value dealers (HVDs) who receive payments in cash of €10,000 euros or more when they deal in goods. Note though, AMPs and HVDs are not being singled out for this – sanctions reporting obligations have applied to other regulated businesses including financial institutions, accountants, law firms, casinos etc. for some years.

OFSI has indicated to key stakeholders that further engagement with the art sector will take place before May 2025 and this may lead to greater clarity on the requirements. For now, AMPs may wish to note the following –

1. Current AML due diligence procedures should suffice for the purposes of establishing whether someone is a sanctioned person as you should already be routinely screening persons and entities with whom you transact against the consolidated UK sanctions lists. As a reminder, this can be done by either using the following free link provided by OFSI – https://sanctionssearchapp.ofsi.hmtreasury.gov.uk/ or with the aid of one of the commercial ad hoc screening tools available on the market. You may also have a subscription to a commercial identity verification tool which incorporates a reliable sanctions screening feature.
   
2. Sanctioned persons and entities tend to be extremely ‘bad actors’ such as dictators and government officials in dictator regimes, terrorists, proliferation financiers etc. From experience, AMPs should know that a positive sanctions match is a rare occurrence. However, if and when the reporting requirement is triggered –
   ‎‎ ‎
   • reports must filed ‘as soon as practicable’
   • the Compliance Reporting Form which should be used can be accessed here https://assets.publishing.service.gov.uk/media/64647ba3d3231e000c32daa9/Compliance_Reporting_Form.odt Upon completion, the Form will need to be emailed to OFSI – ofsi@hmtreasury.gov.uk
     
3. Once you identify a sanctioned person for reporting purposes, there will be an immediate obligation to ‘freeze’, i.e. stop any transfers of assets, including artworks and funds that you may have in your possession.
   
4. There are very serious penalties for breaching sanctions reporting obligations ranging from fines to imprisonment.

The key here is not to panic. Sanctions reporting should be seen as a broadening of existing due diligence and reporting obligations. The obligation to report should be managed by your MLRO/Nominated Officer and will require Policy updates and increased awareness, rather than major reconstructive changes to existing programmes.

Should you have any questions in the mean time, please contact me on +44 7896 205533

‘Reliance’ by art market participants on third parties’ customer due diligence checks – use sparingly and correctly!

Anti-money laundering (“AML”) regulations which apply to the UK art market require art dealers and persons who act as intermediaries in the sale or purchase of works of art valued at or above €10,000 (“art market participants”) to comply with the Money Laundering Regulations 2017 as amended (“MLRs”). Guidance produced by the British Art Market Federation (“BAMF Guidance”) for the UK art market, https://tbamf.org.uk/portfolio/anti- money-laundering-guidelines-2023/ explains in detail what is expected from art market participants to meet their obligations under the MLRs.

This article is about ‘reliance’ as permitted by Regulation 39 of the MLRs, a mechanism, which in the context of UK art transactions, is somewhat misunderstood. I often see the term reliance bandied about incorrectly in transactions between one or more UK art market participants (“AMPs”) when it isn’t required at all. The aim here is to show the limited situations where reliance, when properly applied, has some utility and conversely, when it simply isn’t relevant.

What is reliance and how is it achieved?

Reliance is designed to permit a party that is subject to customer due diligence (“CDD”) obligations to rely on the CDD conducted by another party that is subject to equivalent CDD obligations. Reliance does not negate the requirement for the relying party to know the identity of the customer. What is does, is avoid them having to duplicate the CDD efforts of the party that has conducted CDD checks on the customer.

Reliance under Regulation 39 of the MLRs applies if specific conditions are met by the third party performing the CDD. These are usually set out in a reliance letter addressed to the relying party confirming that the party offering to be relied on –

1. is subject to the MLRs or rules of equivalent standard
2. has carried out CDD in accordance with the MLRs or rules of equivalent effect
3. will provide CDD documents to the relying party immediately upon request
4. will retain copies of CDD documentation for a period of 5 years

Regulation 39 prohibits the placement of reliance on any third party established in a high risk third country.

A common example of reliance under Regulation 39

Reliance may come into play when an art collector, having viewed and agreed to buy an artwork from an AMP leaves the AML formalities to their wealth manager. If the wealth manager is subject to equivalent CDD rules, they might offer the AMP a reliance letter in lieu of providing them with the collector’s CDD documentation. While this is neat and convenient, the catch is that the relying AMP remains liable for any failure on the part of
wealth manager to apply CDD measures. It is therefore wise to use reliance in situations where the AML processes of the party providing the reliance letter can be trusted.

Three examples of what is not reliance under Regulation 39

I sometimes see letters offered from one AMP to another AMP when they are transacting with each other to confirm that they are registered for AML supervision and listed as such on HMRC’s register of supervised businesses. Such letters, helpful as they may be, are often wrongly termed reliance letters when their purpose is solely to provide comfort or facilitate simplified (as opposed to standard) due diligence between AMPs.

2. Certain AML service providers refer to reliance in terms of extending assurance that those AMPs that subscribe to their services are in good standing, registered with HMRC, AML compliant etc. Again, this should not be confused with reliance under Regulation 39.
3. Reliance under Regulation 39 does not come into play in a sale from AMP1 to AMP 2 where AMP 2 pays AMP 1 but then sells on to another buyer. In 2022, the BAMF Guidance was updated to clarify who the customer is in art transactions for CDD purposes. The Guidance (Part II, para 5.6) states that “The customer of an AMP who is selling or acting as an intermediary in the sale or purchase of a work of art, will be whoever is paying the AMP for the artwork, or for services in relation to the transaction (see Para 5.21 for examples).” The most relevant example at Para 5.21 is example 6 which illustrates that if AMP1 sells a painting to AMP2 who is then selling the artwork to another buyer, then AMP1 need only do due diligence on AMP2, unless AMP1 is being paid directly by AMP2’s buyer. The rationale for this update was to permit CDD obligations to be divided between regulated AMPs who are subject to the same CDD obligations. It also avoids the unnecessary duplication of CDD efforts and the potential commercial disadvantage of having to reveal the identity of a private collector to competing AMPs in a deal chain. This clear-cut approach of limiting CDD to the paying customer has nothing to do with reliance – in fact, it takes away the need for reliance under Regulation 39.

Reliance aspects aside, at the end of the day, whether an AMP chooses to extend their due diligence to a party beyond the AMP customer that is paying them is a decision that will be based on their risk appetite and internal policies which take account of suspicious activity reporting and sanctions compliance. Of course, red flags, should never be ignored. Listen to what is being said and pay attention equally to what is not being said. At the same time, don’t disregard that in certain situations, there may be legitimate sensitivities around the disclosure of a collector’s identity. Absent red flags, the ideal outcome of a risk-based approach is to find a safe and happy balance that that builds, rather than kills trusted relationships.

Contact me for further information on +44 7896 205533

The UK has updated its Anti-Money Laundering Guidance—here’s what it means for the art market

Published in The Art Newspaper 29th July 2022.

Read the article here

The complexities of Russian sanctions for art dealers

Published in Antiques Trade Gazette, July 2022.

Read the article here.

The Economic Crime Levy – what art dealers need to know

The Economic Crime Levy (“ECL”) is now in play and introduces significant costs for medium to large art market participants.

The ECL was introduced via the Finance Act 2022 which received Royal Assent in February 2022. The Economic Crime (Anti-Money Laundering) Levy Regulations 2022 is the instrument that sets out the key provisions.

Why has the ECL been introduced?

The aim of the ECL is to raise £100 million a year from around 4000 businesses to fund the Government’s commitments to tackle money laundering and meet the 2019 Economic Crime Plan.

Combined public and private sector resourcing is seen as the most sustainable method for such funding.

Who is liable?

The ECL applies to all businesses that are subject to the Money Laundering Regulations with a UK revenue of over £10.2M.

How much are businesses required to pay?

The amount of levy payable is linked to the size of the business as determined by its total UK revenue. UK resident art dealers with permanent establishments outside the UK will be permitted deduct the revenues attributable to the activities of the non-UK permanent establishments by applying a fair and reasonable apportionment.

Arguments during the consultation stage to make the levy proportionate to the AML regulated activities of a business (as opposed to total revenue) were not upheld. Nor was the argument that gross profit would be a more proportional basis of applying the levy to art market participants.

UK Revenue	Size	Levy
Between £0-£10.2m	Small	Nil (exempted)
Between £10.2m – £36m	Medium	£10,000
Between £36m – £1bn	Large	£36,000
Over £1bn	Very Large	£250,000

Who will collect the levy for AML regulated art dealers?

HMRC will be responsible for collecting the ECL.  Art market participants will be required to declare on an annual basis to HMRC whether the ECL applies to them and the band they fall under.   

When will the levy need to be paid?

The ECL will be imposed from the financial year 1 April 2022 – 31 March 2023 and charged at the end of each financial year. First payments will fall due in the financial year 1 April 2023 to 31 March 2024. The ECL is due to be reviewed at the end of 2027 and could be subject to revision.  

Contact me for further information on +44 7896 205533.

Reality kicks in as HMRC launches art market ‘interventions’

HMRC have begun conducting ‘interventions’ to ensure that UK art market participants (AMPs) are complying with the Money Laundering Regulations (Regulations).

Currently, HMRC supervise 30,000+ businesses across nine sectors, allocating their resources using a risk-based approach. Individual AMPs are selected for intervention based on risk profiling and other relevant information gathered via the registration process, suspicious activity reports etc.  AMPs that are seen to have a higher risk profile should expect more frequent and intense supervision.

Interventions may be desk-based (conducted by phone and in writing) or face-to-face or both; desk-based interventions may lead to an on-site visit where it becomes apparent that a more in depth investigation is required. In 2019/2020, there were 817 face-to-face and 1,012 desk-based interventions and despite a decline through part of 2020/2021 due to the impact of the pandemic, indications are that 2022 will see a rise in activity.

What to expect

After nearly two years of art market regulation, it would be a mistake for AMPs to treat interventions as light touch ‘educational’ affairs. They are very real.

Prior to an intervention, HMRC will generally call and speak to the Nominated Officer (MLRO) to arrange a convenient time for a meeting which could be an on-site or phone appointment.  This will be followed up with formal written confirmation of the date, time, details of the appointment and contact details of the HMRC Officer in charge.  

HMRC may ask AMPs to provide copies of their AML Risk Assessment, Policies, Controls and Procedures (PCPs) in advance of the first meeting.  PCPs should be in writing, tailored to the business and reflect the current state of play.

During an intervention, in addition to the MLRO, HMRC may ask to speak to ‘responsible persons’ including directors and other staff members engaged in the compliance function. Each of these should be able to demonstrate that they have a sound grasp of the risks, weaknesses and strengths of their business in relation to detecting and preventing money laundering.   

Interventions can be time consuming. A phone meeting may last several hours and in-person visits may take up an entire day.  AMPs may be asked to provide further documents after the first meeting such as evidence of customer due diligence relating to specific transactions as well as training records. In some cases, HMRC may request a further meeting to ensure that they have fully understood the information provided.

In exceptional cases, HMRC may visit AMPs without prior arrangement.  If this happens, the Officer will present their ID card and provide a reason for the unannounced visit. 

Reacting to an intervention

AMPs should be cooperative and forthcoming when providing information to HMRC, being mindful of deadlines but also having regard to the proportionality and fairness of HMRC’s requests.

As a newly regulated sector, it should not be assumed that the Officer will know the ins and outs of an art business; AMPs should be prepared to talk at a very basic level about how an art business works but also be able to explain the specific workings of their business.  Preparation is key – relevant facts should be available to demonstrate compliance with the Regulations and provide assurance that risks have been properly identified and mitigated.  

Customer Due Diligence records

HMRC may check customer due diligence records relating to specific transactions. As responsibility for customer due diligence lies squarely with the AMP conducting the transaction, they must be equipped to demonstrate that appropriate risk-based measures were undertaken in advance of concluding a transaction. In particular, they need to be able to produce evidence that their customers’ identities have been properly and reliably verified. AMPs who use external providers for identity verification and screening/document collection/storage should ensure that they have ready access to underlying identity verification information in a format that is acceptable to HMRC.

Perimeter policing

A focus area for HMRC is ‘perimeter policing’ to identify businesses that are trading while unregistered. Any AMPs that are trading without registration should be aware that upon discovery, they could be subject to a civil penalty and prevented from further trading until approved for supervision. There were 219 perimeter policing cases in 2019/20.

Material changes

A requirement that is sometimes overlooked is the need to inform HMRC about material changes to information supplied during registration.  For instance, a change of nominated officer must be notified within 14 days. Penalties may be payable for each instance of failing to notify HMRC of a material change or inaccuracy within the required period.

Sanctions for non-compliance

Sanctions may take the form of financial penalties on a business or any persons knowingly concerned in the contravention of the Regulations. Enforcement may also include censure statements, cancellation or suspension of business registrations, the suspension or prohibition of management personnel or a criminal prosecution.

In 2019/20, 31 fines were imposed by HMRC with an average value of £290,000.  Notable within these were two significant fines imposed on a Money Services Business (£7.8 million) and an Estate Agent (£1 million).   

Regulation 85 places HMRC under a duty to publish information about penalties and persons prohibited from management on their website. In appropriate cases, publication may be deferred, waived or achieved without revealing the individual’s identity. 

An opportunity and a warning

AMPs that are confident about their PCPs should treat interventions as an opportunity to demonstrate to HMRC how they have prioritised compliance and put in place robust, risk-based AML programmes.

The UK’s third National Risk Assessment (NRA) of Money Laundering and Terrorist Financing (December 2020) scored the UK art market as high risk. The NRA acknowledged that it was too early to fully assess the effectiveness of new mitigations in place by AMPs and did not cite any evidence to support abuse by money launderers within the UK art market, but based the rating on the inherent properties of the UK art market (international in nature, large in size), works of art (wide-ranging values, portability etc.) and “the ability to conceal the beneficial owners and final destination of art”.

This finding, while unfortunate, leaves the door open for down-scoring in coming years; the more that AMPs within the UK can demonstrate, through well implemented PCPs, that they are responsible gatekeepers, the greater the chances of countering widely peddled views that money laundering is rife in the art sector. 

Those AMPs that embraced their AML obligations early on will by now have mature and well embedded AML programmes; others may still be grappling with the basics. AMPs that have neglected to put in place measures to comply with the Regulations should act with urgency to avoid sanctions and, given the symbiotic nature of the art dealing community, to not let their peers down. 

Contact me for further advice on +44 7896 205533.

Paying for Art With Cryptocurrency

Art dealers have been asking me whether it is okay to accept cryptocurrencies such as bitcoin as payment for art sales.  Everyone knows it is nigh on impossible to trace bitcoin to an owner and this is understood to be the position for most cryptocurrencies.  It is this feature of ‘pseudonymity’ which makes crypto money attractive to people who wish to engage in illicit activity or avoid financial sanctions regimes.  While every cryptocurrency transaction is immutably recorded on the blockchain to form what some call a ‘fingerprint’, no one can tell who the fingerprint belongs to.  And therein lies the problem.

The art market is now subject to anti-money laundering regulation throughout Europe which means that for regulated art dealers to confidently meet their anti-money laundering obligations, they need to know that the person that they have done their ‘KYC’ checks on is paying for the artwork with their own funds.  The usual way they do this is by checking the sender’s details on the wire transfer notes.

Recently, I bought bitcoin via an app on my phone.  It was a scarily impressive process – checks (including the capture of an image of my driving license, as well as a selfie likeness test) were done via the app, my bank account was linked to my new wallet, and after some tech wizardry that took all of nine minutes, I had bought my little slice of a bitcoin.  It couldn’t have been easier.   

A couple of days ago I had an in-app chat with ‘support’.  It went like this… 

“Can I pay out of my wallet direct to a seller if they accept bitcoin?

“If you want to transfer BTC directly to someone, you can do that from your app”. 

“Thanks, so if I want to transfer BTC to them do they need to also have a BTC wallet? 

“They would need a bitcoin wallet but this wouldn’t need to be with us. They’d be able to see it as soon as it arrived with them!”

“Perfect.  And would they be able to tell the payment came from my wallet?”

 “They wouldn’t, wallets are anonymous with Bitcoin.”

The next thing I did was to ask a couple of super clever friends (who provide tech solutions and code for the leading businesses in the world and who also happen to be hobby cryptocurrency investors) about how to solve this so that art dealers can start accepting bitcoin with impunity.

They thought that in theory it could be done if art dealers define a limited and controlled process for accepting crypto payments.  Dealers might be able to form an agreement with one or two crypto exchanges such as Coinbase, Binance etc. to communicate with them via an API and obtain confirmation of the identity of the wallet holder and that the wallet is linked to their personal bank account.  The API would be necessary because it is impossible to imagine that an exchange would be interested in providing the information manually.

So, while there might be a number of technical and practical hurdles to overcome, including agreements between the art dealer and crypto exchange; the wallet holder and crypto exchange and a change to dealers’ terms and conditions of sale, tracing the payment back to the owner’s bank account is theoretically possible. 

Will I be advising my clients to accept bitcoin?  Not without running the idea past HMRC first!   

Contact me for further advice on +44 7896 205533.

MLROs – Protect Your Assets

MLROs of newly regulated art businesses are rightly worrying about the personal risks they face if they fail to ensure compliance with anti-money laundering regulations. They often ask what they can do to protect themselves if things go wrong.

I asked Steven Francis, a Partner at Addleshaw Goddard who advises businesses on ongoing or anticipated regulatory interventions to provide his perspective on the subject. His thoughts and insights are illuminating.
 
RT – Where do MLROs face the greatest personal risks in fulfilling their anti-money
laundering duties?

SF – Bear in mind that the MLRO is not a function created by statute and therefore has no precisely defined role or obligations. The MLRO is often the name often given to the ‘nominated officer’, although the two roles can vary. I see the greatest risks relating the nominated officer’s responsibility, as the person designated by his employer to receive any disclosures (internal suspicious activity reports) made under section 330 of POCA 2002. It is an offence for a nominated officer within the regulated sector to receive a disclosure under section 330 that causes him to know, suspect or have reasonable grounds for suspicion that money laundering is taking place, and then fail to make a disclosure to the National Crime Agency.

RT – That is interesting. Many MLROs have sleepless nights about not making the right judgement call in situations where there is a lot of pressure to get a deal done. What would you say to them?

SF – Commercial pressures are common when in a risk or compliance function. Part of the skill of the MLRO is persuading his/her company to do the right thing and comply with law. But bear in mind that ultimately, if appropriate disclosures are not made, it may be the MLRO that is held accountable.

RT – HMRC have repeatedly reassured art market participants that they will be lenient during the first year of regulation. After this honeymoon period, how likely is it that a nominated officer will be personally framed for a money laundering offence and would it not be so much simpler for HMRC to slap a fine on the company?

SF – Yes, many regulatory authorities give firms time to get their house in order. It is obviously easier for an authority to fine a company. But the current hot regulatory theme is personal responsibility.  There will likely not be many individual cases.  But the authorities will bring a few to set an example to others and to show that the MLRO position is one that carries responsibility and should be taken seriously. There is therefore a risk – probably low, probably very low – that an MLRO could find him/herself the target of an investigation or prosecution. Nonetheless that risk is real.

RT – So what practical advice would you give to MLROs who have nobly stepped into these roles at auction houses, galleries, art advisory businesses etc?

SF – MLROs need the authority to discharge their role.  To be given responsibility without authority is a situation of particular danger. Many MLROs are not members of their firm’s board.  That is fine provided they have sufficient power to make the decisions they need to and they have the full support of the board.

They should also ask the company to indemnify them against legal costs they incur in properly defending themselves against allegations that are made against them in the course of their work. And they should ensure that their company has D&O insurance which can operate for their benefit.

RT – A couple of questions on indemnities – from what I have seen, employers don’t offer these up on a platter. Are indemnities against fines and penalties enforceable? And bearing in mind that less senior members of staff will often find themselves encouraged into MLRO roles, how should they go about convincing employers to provide an indemnity?

SF – There is often confusion here. The company’s article will probably permit the granting of indemnities (the company may indemnify) rather than obligatory (the company shall indemnify). So directors may think they and others are indemnified, but this is not the case. In addition, the articles are deemed to be a binding commitment between a company and its members, and directors and the MLRO will likely not be members (i.e. shareholders). When this is explained, directors will typically see the need for indemnities – to protect themselves as well as the MLRO!

RT – Is D&O insurance an alternative to an indemnity from a company? And is this type of cover available to MLROs who are not statutory directors?

SF – Often the two go hand in hand and provide overlapping and complementary protection. D&O will also indemnify the company if it has to pay out under an indemnity. But it will also indemnify the director or senior manager should the company (for example) be insolvent and be unable to pay.

RT – What does D&O cover?

SF – D&O will indemnify against wrongful acts, for the MLRO the important point will be covering the costs of defending him/ her against what could be a very expensive investigation and legal proceedings. D&O will not cover criminal fines and penalties.

RT – How do you go about getting D&O insurance – it sounds daunting to shop for and possibly expensive. What should one look out for?

SF – MLROs would not buy D&O themselves. They would seek to make sure that their company has the cover and that they can benefit from it.  Some covers protect not just directors and officers but also managers such as MLROs.  The quality of cover varies considerably.  For example, some policies will offer legal costs protection to the individual only when he is charged with an offence.  That will typically be too late, legal advice and support is needed where the individual is first suspected of wrongdoing. The wider the cover the more expensive it is. Premiums will also depend on the nature of the firm, its history and the quality of its systems and controls.  It seems to be the case that D&O is becoming more expensive. There are many reasons for this (COVID, lack of capacity in the insurance market) but a key reason is insurers’ general belief that legal action against individual managers is more likely than it used to be.

RT – To conclude, do you think D&O insurance is pragmatic for a small gallery that is owner managed and employs a few sales assistants?

SF – D&O is not compulsory.  But many non-executive directors would not contemplate being a director of a company that did not have D&O. A company indemnity is important but of little use if the company is insolvent. I would think that many companies already have D&O, and it will just be a case of checking that it covers non-director MLROs.  An MLRO of a company that doesn’t have D&O might just enquire why it is that the other directors do not think it is worth purchasing. A properly phrased enquiry will probably lead to an urgent call to the company’s broker. After all, other directors are likely to be in the firing line too!

Contact me for further advice on +44 7896 205533.

When AML Compliance Transgressions Come Back to Haunt Us

My most animated discussions with clients centre around AML compliance transgressions. Here are
my insights on the three questions that art dealers ask most frequently.

1. Where are we most at risk of tripping up?
   
   The most obvious risk comes from basic compliance failures such as not having a written risk assessment, policies and procedures, poor customer due diligence and not keeping records. After 10th January 2021, penalties may also be imposed on dealers who fail to register with HMRC and/or fail to inform them of changes to their business.
   
   The more insidious risk is unwittingly transacting with persons who are subject to sanctions, criminal investigations etc. The British Art Market Federation’s Guidance for UK art market participants clarifies that for the purposes of the Money Laundering Regulations, the customer is the “purchaser of a work of art, and any broker or agent acting for them”. In a world where art intermediaries abound, it is critically important to know the precise role an intermediary plays in a transaction and the limits of any authority they have, who the ultimate client is and that their source of funds is legitimate.
   
   There is also the less well known risk of corporate criminal liability for failing to prevent the facilitation of tax evasion. This offence, which carries unlimited fines, can occur if any employee, agent or anyone else acting on behalf of a company, (including a shipper or customs clearer,) knowingly facilitates tax evasion on behalf of another person. The risks of facilitating tax evasion are not always apparent in art deals; they could arise from agreeing to unusual payment arrangements and deal structures or the evasion of customs duties, sales tax etc. If you find yourself being drawn into an over-complicated transaction, you should insist on doing things in the way you understand or seek advice from a tax specialist. Be particularly cautious about the involvement of special purpose vehicles. These may have a legitimate purpose, but they can be used to disguise the identity of the true beneficial owner.
   
2. How might we get found out?
   
   HMRC are empowered, and expected, to carry out inspections of the businesses that they supervise. For the newly regulated art market, most inspections will start out as benign ‘educational’ interventions but could extend into protracted investigations if weaknesses are exposed.
   
   Transgressions can also come to light as part of an investigation by the authorities into your client. If there is a possibility that you continued to transact with a client in circumstances where you should have filed a suspicious activity report, this may attract unwelcome scrutiny of your control environment and training procedures. Investigations can also come about where concerns are raised by an auditor or where a suspicious activity report is filed by other parties or banks involved in a transaction chain. Finally, concerns can be raised by internal whistleblowers who make an internal disclosure or flag a concern directly with HMRC.
   
3. What penalties do we face and where does the buck stop?
   
   HMRC have made it clear that most breaches will attract civil penalties, but that in more serious cases they will consider criminal prosecution. Penalties will be set by applying principles of fairness, proportionality, deterrence and removal of financial profit. Other than issuing fines, HMRC have powers to

• refuse or remove approval and/or prohibit individuals from holding a managerial role
• refuse, suspend or cancel a business’s registration
• issue public statements naming and censuring a business or person
• seek a court order to enter a premises or to restrain a person from committing a breach.

Penalties are generally applied to the business, but the buck doesn’t have to stop there. Officers – including the company directors, secretary, chief executives and the nominated officer are also in the frame and anyone who is convicted of one of the three principal money laundering offences could face prison sentence of up to 14 years.

For information contact Rakhi Talwar on +44 7896 205533

Anti-Money Laundering for Dealers In Works of Art

The Government has now published the amendments to the Money Laundering Regulations that bring ‘art market participants’ in scope for money laundering regulation as from 10th January 2020 http://www.legislation.gov.uk/id/uksi/2019/1511. Here is a summary of what we know.

1. An art market participant (AMP) is defined as anyone who by way of business trades in, or acts as an intermediary in the sale or purchase or works of art and the value of the transaction or a series of linked transactions amounts to €10,000 or more. AMPs may include art dealers, auction houses and operators of freeports when storing works of art for a person valued at €10,000 or more.
2. For the purposes of the Money Laundering Regulations, works of art are defined in s21(6) of the VAT Act 1994.
3. All AMPs will be subject to regulation and supervision by HMRC. Existing obligations under the Proceeds of Crime Act 2002, which require all art dealers to prevent money laundering and report suspicious activity for al transactions, irrespective of value, remain in place.
4. For those who are now impacted by the regulations, new obligations include:
   – Registration with HMRC after 10th January 2020 and at the latest, before 10th January 2021
   – Conducting an AML Risk Assessment of the extent to which your business is exposed to money laundering risk
   – Writing and implementing policies and procedures
   – Carrying out customer due diligence (CDD) or Know Your Customer (KYC) checks on buyers of works of art
   – Appointing a nominated officer or Money Laundering Reporting Officer (MLRO)
   – Training staff on AML risk and the internal measures designed to manage these risks
   – Reporting suspicious activity to the National Crime Agency
   – Record keeping
5. Art dealers must also ensure that they do not transact with sanctioned persons and entities.
6. Your AML policy statement and procedures should reflect the findings of your AML Risk Assessment. The checks and controls which you implement should be proportionate and risk-based.
7. CDD or KYC checks involve collecting information about the identity of your customer, verifying this information via a reliable independent source, managing the risks of dealing with high risk persons (including persons who are politically exposed) and ensuring that red flags are investigated.
8. CDD should be completed when the client first approaches you with a transaction in mind. In cases where this is simply not possible, the transaction may be progressed, but should not be concluded until CDD has been completed. In practice, this means that when selling a work of art, it should not be passed to the client until all CDD aspects have been concluded.
9. If you haven’t already done so, ensure that you allocate time and financial budget for compliance in
10. HMRC have wide ranging powers to inspect and impose penalties for non-compliance.

For further information please contact Rakhi Talwar on +44 7896 205533