7 common misconceptions about how UK anti-money laundering rules apply to the art market – debunked

Art businesses in the UK have reached an important deadline.

A year and a half after the UK stepped up surveillance of the art market as part of a broader crackdown on money laundering, businesses are running out of time to officially register for government surveillance.

As of last year, anti-money laundering (AML) rules have applied to all actors in the art market (AMP) – anyone who negotiates or brokers an artistic transaction, or a series of related transactions, valued at € 10,000 or more. (This includes merchants, auction houses, middlemen, and free ports.) Regulations require companies to perform due diligence checks on their customers and transactions in order to prevent criminals from using the art as a vehicle for laundering money.

Thursday, June 10 marks the last day for art companies to register with HMRC, the UK equivalent of the IRS, which will monitor their compliance with the new rules. Failure to do so could result in hefty fines and even jail time.

“Non-compliance is not an option,” said Azmina Jasani, partner at Constantine Cannon LLP. “While some small and medium-sized art companies might be tempted to reject these recommendations on the grounds that they are onerous or expensive to implement, the cost of ignoring them could be much higher in the long run. Regulatory changes have taken place, and more are on the horizon, whether or not the art business is ready to accept them.

Indeed, similar rules are in force in the European Union, and U.S. lawmakers are also taking action to crack down in the art market. With that in mind, here are seven common misconceptions about UK money laundering regulations.

Photo by globalmoments / ullstein bild via Getty Images.

Misconception 1: Today’s deadline is the date the regulations come into effect.

Some players in the art market have confused today’s deadline with the last day for their business to comply with the new rules.

The regulations actually came into force on January 10, 2020 and art market players have since been forced to comply. Today’s date marks the last deadline for businesses to Register now for money laundering monitoring with HMRC

Misconception 2: Artists selling their own work will be subject to these rules.

Artists who sell works valued at € 10,000 or more directly from their studios are increasingly concerned that they must also comply with the rules, which can be onerous and costly to enforce. artwork.

But on June 2, the government confirmed that artists are not, in fact, considered “participants in the art market” and are therefore not expected to comply. artists who have already paid the registration fee to the government can arrange a refund by contacting [email protected].

Misconception 3: It’s a good idea to appoint the intern as your compliance officer.

Under the new rules, companies are required to appoint an official compliance officer to report suspicious activity to the government. While all staff should be aware of the regulations and trained to recognize suspicious activity, it is not a good idea to leave this important role to a non-senior staff member.

“Anti-money laundering regulations require the involvement of senior executives who have the necessary autonomy to make business and legal decisions, particularly with regard to reporting suspicious activity to the National Crime Agency,” said Susan J. Mumford, Founder of ArtAML, a digital compliance company for the art market.

Assigning roles such as assigned officer to junior or inexperienced staff members is extremely reckless.

Cyber ​​attack crime.  Photo by Bill Hinton courtesy of Getty Images.

Photo by Bill Hinton courtesy of Getty Images.

Misconception 4: Email is a secure way to send or receive important personal documents.

While emailing identity documents may seem like a convenient way to convey the information needed for due diligence checks, it is far from a watertight system and many art companies have fallen victim to cybercriminals who intercepted messages.

As an alternative, businesses can invite customers to share documents through WeTransfer or through password-encrypted files on secure platforms such as WhatsApp and Microsoft Teams.

Mumford’s company, ArtAML, also offers a “remote upload” feature that allows collectors to securely upload their own documents directly to ArtAML’s cloud storage.

Misconception 5: You can avoid the hassle by lowering the price of a work to € 9,999.

Some merchants believe they can get around the hassle of customer due diligence by selling a work just below the $ 10,000 threshold.

But this threshold does not apply to the value of an individual work, but to the total value of the transaction, including taxes and incidental costs. And since the The amount of € 10,000 is in EUR and not in GBP, the exact value will fluctuate according to the monthly exchange rate published on gov.uk.

Art advisers, in particular, need to be careful. “As far as artistic advisors are concerned, the value that triggers the need to perform AML checks is not based on the amount the individual receives but on the value of the transaction in which he is directly involved,” said Mumford explained. Just because your commission may be less than $ 10,000 doesn’t mean you’re exempt from the rules if the total trade is worth more than that.

Misconception 6: You can break a transaction into smaller pieces to avoid the rules.

Some dealers think they can outsmart the system by splitting a big deal into several smaller ones. But splitting a € 10,000 transaction into two payments of € 5,000 is considered a “linked transaction” and will still require customer due diligence.

Mumford said there has been some confusion over what is classified as a related transaction; it does not include multiple purchases over time by a customer. “So: a deposit followed by a final payment are linked transactions. Four payments of £ 5,000 for a work of art costing £ 20,000 are related transactions. A customer buying a painting for £ 4,000 and then another three months later for £ 8,000 are not related transactions, ”she explained.

Frieze London in 2018. Photo by David M. Benett / Dave Benett / Getty Images.

Frieze London in 2018. Photo by David M. Benett / Dave Benett / Getty Images.

Misconception 7: Complying with regulations means you’ll lose customers.

Many art companies fear that asking to verify the identity and property information of their clients will scare away clients. While some customers may take a while to adjust to the new rules, the regulations apply to everyone and have been common practice for years at auction houses.

Steve Fuller, Chief Compliance Officer at Pilar Corrias, said customers have been “receptive and cooperative” to the process.

Pietro Vallone, CFO and partner of Massimo de Carlo, noted that while some collectors may be confused by requests for information, there is “a general understanding and sometimes even an appreciation for such an analysis”.

The consensus seems to be that the rules will require a bit of extra communication before they finalize a sale, but they’re unlikely to derail it. “As a gallery, you have to change your attitude: you don’t question your collector, you follow the rules for the good of all,” said Vallone. “Closing a deal may require a few more emails and maybe a few more phone calls, but the effort certainly pays off in the medium term. “

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