A dealer asked an interesting question at a recent seminar on money laundering. Here is the background that prompted her query:
Whereas previously art dealers and those in the trade were subject to money laundering regulations only if they accepted cash over €10,000, next year, under the Fifth Anti- Money Laundering Directive, the regulations will likely apply above €10,000 whatever the method of payment.
This would mean dealers will have to conduct ‘customer due diligence’ on their clients more often and even becoming regulated by HMRC.
The regulations emphasise that the exercise is ‘risk-based’. This means you have to assess the degree of risk arising in all the circumstances of the particular transaction.
The dealer raised her hand and asked this interesting question:
A client/customer comes to her and she does the risk assessment on that client. She pointed out that this client may just be an agent of, for example, a dodgy principal. She then said: “My duty surely is just to check out the agent, that’s my customer. It’s for the agent to check out who they are dealing with. Presumably I’ve discharged my duty by doing my due diligence on the agent?”
I responded that a primary concern is to discharge your duty under section 330 of the Proceeds of Crime Act 2002, which makes clear that “a person commits an offence if … he … knows or suspects or … has reasonable grounds for knowing or suspecting, that another person is engaged in money laundering” and then doesn’t disclose this to the relevant authorities. This could be you, the dealer.
I explained that much hinges on the definition of “suspects”, on which the judges commented in various cases. In one of these, in the Court of Appeal, the judge made clear that suspicion means that the defendant [the dealer] must think “that there was a possibility, which was more than fanciful, that the other person was or had been engaged in or had benefited from criminal conduct…”
The judge further stated: “It seems to us that the essential element in the word ‘suspect’ …, is that the defendant must think that there is a possibility, which is more than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice …”
This is the ‘subjective’ test, ie dealing with your actual state of mind at the time.
If, however, from an objective point of view you have “reasonable grounds for knowing or suspecting” that skulduggery is afoot, then, if you don’t report the conduct to the authorities, you also risk conviction. In other words, stupidity is no defence – what should a reasonable person have done?
Coming back (in light of the above) to the art dealer’s interesting question at the seminar, the devil, as is so often the case, is in the detail.
For example, if a 16-year-old schoolboy turns up saying he has a £100m Picasso to sell, in his own right, acting for nobody else, one’s suspicions should be aroused.
If, however, Jeff Bezos, the world’s richest man, turns up and says the same thing then you could be more relaxed. If the schoolboy says they are the agent of Bezos, as a matter of common sense you would of course check out if that was in fact so. Once you know for sure who the principal is – here Jeff – you would be a lot more content.
In other words, the issue is not really whether someone presents themselves as ‘agent’ or ‘principal’. The issue is the general background facts on the client which may or may not reasonably give rise to further investigation by a diligent dealer.
‘Diligence’ is indeed the key.
Milton Silverman is senior commercial dispute resolution partner at Streathers Solicitors LLP, London.