From January 10 this year, the UK’s anti-money laundering law spread its net to include high-value letting agents and – as flagged consistently by trade bodies and ATG over the past two years – the art market.
The art market is now subject to the existing Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
At a seminar on February 6 organised by the RAM London Committee, held at Phillips’ Berkeley Square headquarters, a panel of experts fielded questions from art market attendees on the new rules. Here is an edited selection of their answers.
See bottom of the page for panellist information.
Guide to acronyms used in AML law
AMP – Art Market Participant
AML – Anti-Money Laundering
CDD – Customer Due Diligence
KYC – Know Your Customer
NCA – National Crime Agency
SAR – Suspicious Activity Report
POCA – Proceeds of Crime Act 2002
Q: How do I define who my customer is for AML purposes?
Tom Christopherson: This is an absolutely critical aspect of AML. Look at Section 5.5 and the tables at 5.19 of the Guidance for definitions of the person you need to do CDD on if you’re an Art Market Practitioner (AMP). Be clear in your mind who this is, as the ‘customer’ for Customer Due Diligence (CDD) purposes will be different depending on the circumstances.
Start with this question as your guiding principle: where is the money coming from? Do you know that the money coming to you has come from sources you are comfortable with?
If it’s a dealer or private buyer doing the buying, and they’re the source of the money, you do CDD on them. If you are an auctioneer or dealer providing a service to a seller and there is money going that way, then you need to do CDD on the seller.
However, if you are simply buying an artwork and no service is provided to you, then you don’t need to do CDD on the seller (although the POCA and Sanctions rules still apply).
If you are an AMP transacting a sale and you know your buyer is acting for somebody else, then you need to look into that ‘someone else’. However, if you have no reason to think that your buyer is not buying for themselves, then you don’t need to look further.
Rakhi Talwar: You can ask the question of whether they are buying for themselves and paying from their own bank account.
Q: What are the chief challenges presented by the new AML regulations?
Tom: The biggest issue from auctioneers’ perspective is that they handle volume transactions across a range of goods.
So, do you have a one-size-fits-all approach or one where you can effectively differentiate between works of arts within the regulations and those outside them?
Freya Simms: The great challenge for dealers at art fairs is also their greatest asset: a place to meet new clients in a concentrated time. We’re helping dealers on how to do CDD and yet not interrupt or spoil a sale, as well as how to deal with selling through agents.
Rakhi: Dealers have a huge amount to do, from making strategic decisions such as who is best placed to manage compliance and Know Your Customer (KYC) aspects within the business, to choosing a screening supplier to flag high-risk customers.
They have to manage the safe storage of KYC data and may need to update their T&Cs and privacy notices to reflect KYC requirements.
With all that needs to be done in an area that is new to them, it’s good that HMRC has allowed a ‘soft’ transition.
Q: If I have suspicions and don’t transact, do I have to report this?
Rakhi: Yes, you do have a reporting obligation if you have a reasonable suspicion of money laundering, whether you decide to transact or not.
Tom: If you’re uncomfortable with something, even though you may be on the periphery of a transaction, you should consider a report. The Terrorism Act (2000) is also broader than the AML regulations and stipulates that if you suspect you’ve seen something connected with terrorism, you must report (whether or not you are involved in any way).
Q: Can I withdraw a suspicious activity report (SAR) once it’s filed?
Rakhi: Yes, you can withdraw an SAR where you have requested a defence against money laundering by contacting the National Crime Agency (NCA).
But try not to file an SAR in a knee-jerk way or to protect yourself. A SAR should be based on reasonable grounds for suspicion that the funds being received or the property involved in the transaction may be tainted.
There should be a definite transaction in prospect when you file, otherwise the NCA won’t have anything to give you ‘consent’ on.
If you aren’t sure about what you are doing, get professional advice the first time you file an SAR.
Q: How do you manage the client if you have to file an SAR ?
Tom: In practice, you may have to provide some reason for not getting on with a transaction.
However, in doing so, you must not disclose anything that could expose you to an accusation of ‘tipping off’ – which is a criminal offence around doing or saying something likely to prejudice an investigation after an SAR has been made.
These are rare, but bear in mind you won’t be told by the NCA if there is an ongoing investigation about a person.
Freya: If you’ve never reported suspicions or you only occasionally hit a €10,000 transaction or transactions once a year, you’re not alone. Talk to your peers and your trade associations to get clarity and support.
Q: How should I alert customers at fairs about CDD?
Freya: All the fair organisers are talking in practical terms about helping exhibitors do their CDD in a timely way that doesn’t interrupt a sale.
One of the dealer’s responsibilities is to educate their customers. Some have started writing to their VIP lists, if they have one.
Dealers who don’t have a VIP list have written really good emails, using them as a marketing push with information such as, ‘we’re now in scope of AML regulations, so expect to bring your ID to the fair… also, I’m going to be at TEFAF Maastricht and this is my top lot’.
Those who belong to trade associations will get information on screening providers and potentially a special rate from those suppliers.
Q: A piece of advice to help me comply with AML?
1. ACT NOW TO DO RISK ASSESSMENTS
Rakhi: Don’t cut corners. HMRC has given us time to get ready, with the registration period ending on January 9, 2021. So, this is a critical period when you need to do risk assessments and write policies for your business.
Don’t just copy and paste a policy: do something that serves your business. Invest time now and get it right.In particular, the level of CDD required on different customers will depend on their risk profile (see table, below).
Tom: The risk assessment is your opportunity to mould these regulations into a more practical vehicle for your business. It’s in your interests to do that risk assessment properly, as to a large extent this will underpin how HMRC will judge your application of the regulations in due course.
Freya: Do your preparation, including reading the Guidance. Start writing policies, do your risk assessment, document it and put it into place.
You’ll learn along the way.
Who’s who: the panellists included
What is the Responsible Art Market Initiative (RAM)?
RAM is a not-for-profit cross-industry initiative formed in Geneva in 2015, aimed at raising awareness of risks faced by the art market and providing guidance on dealing with them. Its members span galleries, dealers, auction houses, advisers and service providers. RAM’s London Committee was formed in 2019.
You can find further details and a copy of the presentations from the 6 February seminar on the RAM website:
The British Art Market Federation (BAMF)’s Guidance on anti-money laundering for art market participants has received HM Treasury approval on how AMPs should comply with the regulations.
You can download the 111-page document here.
■ Evaluate critically the potential money laundering and terrorist financing risk represented by your business and customers, consider:
■ Risk profile of your business
● Existing, policies, controls & procedures?
● Size & nature of your business – mainly UK based clients or international?
● Selling channels – mainly face to face or online?
● Type & value of Works of Art you transact?
● How often you carry out regulated transactions?
● Do you get third party payment requests?
■ Risk profile of your customers
● Politically Exposed Persons?
● Customers from high-risk jurisdictions with weak money-laundering controls?
■ No one size fits all. Each business is different.
■ In writing – you may be asked to produce it on an HMRC audit
■ Update regularly – at least annually or more frequently if there are changes in your business or external risk factors
Copyright The Responsible Art Market Initiative, London Committee, 2020
What the new AML regulations mean
In essence, the new AML rules require that when auctioneers, dealers and art intermediaries conduct transactions of artworks (as defined s.21 of the VAT Act 1994) worth €10,000 or more, they become regulated, and are deemed Art Market Participants, or AMPs for short.
AMPs are required to:
■ register with HMRC for AML supervision (see above – Risk Assessment)
■ carry out risk assessments
■ implement AML policies and procedures
■ carry out Customer Due Diligence on both buyer and seller, before that transaction can be completed.