‘Art market participants’ (AMPs) are obliged to register with HMRC for anti-money laundering (AML) supervision by this Thursday, 10 June. This requirement arises from the implementation of the EU’s stringent Fifth Anti-Money Laundering Directive, which the UK incorporated into national law in January 2020 via amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Regulations).
The Regulations apply mainly to those who by way of business trade in works of art where the value of any given transaction (or series of linked transactions) is €10,000 or more, and to operators of freeports used to store art. Significantly the Government confirmed on 26 May that artists selling their own works are excluded from the scope of the Regulations, but the majority of art dealers, auction houses, and galleries will be caught. Also caught will be interior designers and antiques dealers who deal in paintings or sculptures priced at €10,000 or more.
The key requirement behind the Regulations is that AMPs must identify the source of funds for any given transaction, and then take steps to verify that identity. The Regulations aim to make it more difficult for the UK’s art market to be a conduit for laundered funds and terrorist financing, with the combination of high value and portability making artworks a supposedly attractive and convenient repository for ‘dirty money’.
Failure to register means that AMPs can no longer legally trade in works worth €10,000 or more, and those that do so without registering or carrying out the requisite source of funds checks run the risk of fines and imprisonment, alongside reputational risk. The full commercial and practical impact of AML compliance in the art market is yet to be fully assessed, with AMP concerns centering on the costs and delay compliance entails, along with the practical difficulty in sourcing information to identify customers, such as proof of address, company registration documentation, and trust instruments.
It is however hoped that such AML checks shall become sufficiently standard across numerous jurisdictions (they are already required across the EU, and the US recently brought in similar regulations applicable to the antiquities market) that buyers shall be accustomed to providing the required documentation and have them readily available.