This outlined the pitfalls of a single painting being lent out ‘on appro’ down the line from dealer A ultimately to dealer D who finds a buyer. It describes the problems of due diligence responsibilities as applicable to dealers A, B and C who may not know the identity of dealer D’s client.
What would be the situation if dealer A lent the picture ‘on appro’ to dealer B, simply selling it to him, at a later date and with all due diligence, when the latter indicates a desire to purchase? Ditto down the line B to C and C to D. Dealer A’s responsibility is then surely limited to due diligence in relation to B.
If this is not the case then does it mean every time one lends an item on appro, one has responsibility for a potentially unlimited number of future unknown transactions by unknown identities?
Items circling the trade for considerable periods before finding a home is not an unknown phenomenon.
Am I allowed to be confused?
Jolyon Warwick James, Woollahra, NSW, Australia
Disclosing names is a 'tremendous obstacle'
I am writing to add a note of caution to Milton Silverman’s article on one of the thorniest aspects of the UK’s anti money laundering regime. His article clarifies important points on due diligence and reliance, which are particularly relevant, as he says, when there are many links in the chain of a transaction.
As Mr Silverman points out, it may well be ok to rely on other regulated ‘art market participants’ to do the due diligence but one nevertheless remains legally responsible for any errors.
Although these observations are indeed welcome, there are additional critical points. The most important of which is the obligation to disclose the identity of the client to one’s fellow AMP. Section 5.202 of the BAMF Treasury Guidance specifically states:
The AMP relying on the confirmation of a third party needs to know:
• the identity of the customer or beneficial owner whose identity is being verified;
• the level of [customer due diligence] that has been carried out; and
• confirmation of the third party’s understanding of his obligation to make available, on request, copies of the verification data, documents or other information.
[Emphasis added]
Thus, however much reliance is helpful, the understandable reluctance of art dealers and advisers to disclose the names of their clients remains a tremendous obstacle.
Moreover, since neither the trade in the US nor Asia is regulated, the reliance points do not apply to international transactions involving dealers there.
Not to be eternally pessimistic, but the US is undertaking a study this year to decide whether to regulate its domestic trade and all indications are it will join the ranks of the regulated in the near future.
Rena Neville
Corinth Consulting
Milton Silverman replies: The first letter raises an interesting point. The answer is that one can only ever deal with known transactions – not the unknown.
Regarding the second letter, the requirement for participants to know the identity and beneficial owner was covered in column three of the original article.
Section 5.203 of the BAMF guidance emphasises dealers’ due diligence obligations: “The third party has no obligation to provide such confirmation to the AMP, and may choose not to do so. In such circumstances, or if the AMP decides that it does not wish to rely upon the third party, then it must carry out its own CDD measures on the customer.”
