He explained that he has all the right staff in place, ie a gallery manager, various officers and other staff, all of whom have been appropriately trained up.
The first point that was particularly troubling him was that although he understood that he could rely on anti-money laundering checks that had been carried out by a previous intermediary down the line, he believed that he could not depend totally on such information.
Could be costly
Given that so many art deals have a number of intermediaries, this is an area worth exploring in some detail. All the more so because getting it wrong could cost you dear.
There is a Government website listing “Businesses that have not complied with the regulations…” The fines are mostly a few thousand pounds or so for “breach… for failing to apply for registration at the required time”.
There are quite a few Art Market Participants (AMPs) listed, the biggest fine for an AMP on this basis appearing to be £12,500 so far.
One stand-out fine, in a rather different category, was against Xpress Money Services Ltd MSB, for “Breach for failure to carry out risk assessments, having the correct policies, controls and procedures and conducting due diligence”.
Fine: £1,489,611.
The best place to go if you want to see the detail in black and white is Guidance on Anti-Money Laundering for UK Art Market Participants available at gov.uk/government/publications/art-market-participants-guidance-on-anti-money-laundering-supervision.
These have been updated more than once since their inception and the latest revision was in 2023.
Although this is a very long document - over 100 pages - many in the trade may find that it is the easiest method of gaining some detailed familiarity with the relevant regulations.
Regarding some fundamentals in relation to the concerns of the client, paragraph No 53 states as follows:
CDD [Customer Due Diligence] measures should enable AMPs to form a reasonable belief that they know the true identity of each customer, and where relevant their beneficial owner (that is the person or entity who owns or exercises ultimate control over the customer, or on whose behalf a transaction is being undertaken). The MLRs [Money Laundering Regulations] require an AMP to identify the customer, verify the identity and assess the purpose and intended nature of the business relationship or occasional transaction.
Then, a little further down is the following:
61. To avoid duplication of effort, the MLRs specifically permit AMPs to rely on CDD measures conducted by other AMPs, or by other firms in the regulated sector, who are subject to the requirements of the MLRs or equivalent. However, it is important to be aware that the relying AMP conducting the sale retains responsibility, and is liable for any failure to comply with the CDD obligations set out under the MLRs, as this responsibility cannot be delegated. The relying AMP should therefore assess whether it has confidence that the entity being relied on will have carried out CDD measures appropriately, and should obtain written assurances to this effect (see paragraph 5.206).
The first sentence of paragraph 61, enabling AMPs to rely on CDD measures carried out by other AMPs, will bring a sigh of relief. Unfortunately the final two sentences will then bring forth a bigger groan than the sigh of relief: you can’t just dump checking on the previous intermediary “as this responsibility cannot be delegated” and, unfortunately “the relying AMP should therefore assess whether it has confidence that the entity being relied on will have carried out CDD measures appropriately, and should obtain written assurances to this effect …”.
Ultimately, it may be easier to carry out the necessary checks yourself, depending on your relationship with and knowledge of the previous dealer down the line.
Keeping records
The second major concern of the client focused on the records that HMRC actually wants to review.
On this, should you be so inclined, you can view HMRC videos specifically designed for the purpose.
These have such titles as ‘… recorded webinar for art market participants - what you need to know from HMRC’ and ‘how to complete risk assessments’ and ‘how to complete policies, controls and procedures’.
There are sub-headings for each, and where appropriate there is always a sub-section on ‘record keeping’.
Each video has slides, presented by a different HMRC employee, with different accents, to make sure you stay awake.
You will, however, need a lot of time and patience: each of the videos is one hour and there are a number of them. There are headings in the slides but the detail of the information provided is oral. Go into a quiet room with your favourite tipple, take a deep breath and press ‘audio’.
By the time you finish them all (should you manage it) you will have learned plenty and you can repeat the exciting /difficult parts, as you may wish.
And before I forget, they can be found at gov.uk/guidance/help-and-support-for-anti-money-laundering.
Good luck…
Milton Silverman is senior commercial dispute resolution partner at Streathers Solicitors LLP, London.
