ANTI-MONEY LAUNDERING MEASURES AND 'ART MARKET PARTICIPANTS': TWO YEARS ON.
| Author | Jomeen, Adam |
This article is an edited version of a piece first published on the art law blog of Art Law Studio Ltd. (1) Like the original piece, it provides a general overview of the anti-money laundering regulations and their practical implementation rather than a comprehensive analysis. It considers the impact of the regulations on the art trade and describes the principal obligations to which art market participants operating in the UK are now bound. Readers are directed to the UK Government-approved British Art Market Federation Guidance (2) for a detailed explanation of the current regime. Additional guidance on a number of specific risk areas was published by HMRC in June 2021, which is also referenced where relevant in this article. (3)
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INTRODUCTION
'Art Market Participants' were brought within the UK's regulated sector for anti-money laundering (AML) purposes in January 2020. Two years on, this article examines the UK's robust AML regime and what the new requirements mean in practice for the art market.
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PRIMARY UK MONEY LAUNDERING OFFENCES
The UK has one of the world's most stringent AML regimes. (4) The principal money laundering offences are contained in the Proceeds of Crime Act 2002 (5) (POCA) and can be committed by any person. They are:
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Concealing, disguising, converting or transferring criminal property, or removing criminal property from the UK;6
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Entering into, or becoming concerned in an arrangement which the person knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person;7 and
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Acquiring, using or possessing criminal property.8
Each of the principal money laundering offences requires a knowledge or suspicion of money laundering.
'Criminal Property'
The Proceeds of Crime Act came into force on 24 February 2003. (9) Its wide definitions of "criminal conduct" and "criminal property" (10) capture the benefits of a broad range of criminal offences committed anywhere in the world since that date where the accused knows or suspects that the relevant property constitutes or represents such a benefit.
To fall within the scope of POCA, overseas conduct must be a criminal offence under the criminal law of the relevant country at the relevant time (the so-called 'Spanish bullfighter' exception); and under UK law punishable by more than twelve months in prison, introducing an element of de minimis. (11) Relevant criminal conduct would include tax evasion, drug trafficking, corruption, modern slavery, theft and forgery. POCA has no limitation periods or minimum values--meaning the benefit of most crimes, however small, committed anywhere in the world can qualify as 'criminal property' under UK law today. This could include art acquired with the proceeds of crime in whole or in part, directly or indirectly. Where a person knows or suspects that property may be 'criminal' and they deal with it in any way, they risk committing a principal money laundering offence under POCA which carries a maximum penalty of fourteen years in prison.
'Knowledge or Suspicion' (12)
'Suspicion' is not defined in legislation. The Court of Appeal has defined suspicion of money laundering as a possibility, which is more than fanciful, that the other person was or had been engaged in, or benefited from criminal conduct and that the suspicion formed was of a settled nature. (13) There does not need to be anything amounting to evidence of the suspected money laundering. A Defence Against Money Laundering (DAML) can be requested from the UK's National Crime Agency (NCA) where a reporter suspects that property they intend to deal with is in some way tainted, and that by dealing with it they risk committing one of the principal money laundering offences under POCA. A person does not commit one of those offences if they have received 'appropriate consent' (also known as a 'DAML') from the NCA. The NCA is empowered to provide these criminal defences in law. (14)
Failure to Disclose Potential Money Laundering
Those operating in a 'regulated sector' (including banks, accountants, solicitors, estate agents, and now, as further discussed below, 'art market participants') are obliged under sections 330 to 332 of POCA to report any knowledge or suspicion that another person is engaged in money laundering, and failure to do so is a criminal offence. (15) A disclosure under section 330 is required when a person knows or suspects, or has reasonable grounds for knowing or suspecting, that another is involved in money laundering, when such knowledge or suspicion came to him in the course of a business in the regulated sector. (16) This would, extend, for example, to a dealer's suspicion that an artwork is forged or stolen and applies regardless of whether they proceed with the transaction. Such disclosures are made by submitting a Suspicious Activity Report (17) (SAR) to the NCA and following a pre-determined timeline.
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THE ART MARKET JOINS THE REGULATED SECTOR
The European Union (EU) issued five Directives between 1991 and 2018 requiring those at the gateway to the financial system to build anti-money laundering measures (and, since 2005, additional measures to combat terrorist financing) into their day-to-day business activities. Whilst the UK's 'regulated sector' has included banks, accountants, tax advisors and law firms doing certain types of work for some time, the art market remained largely outside this regulatory net (18) until January 2020 when the UK's implementation of the EU's 5th Money Laundering Directive (MLD5) came into force.
In line with MLD5, 'Art Market Participants' were brought into the UK's regulated sector from 10 January 2020. To achieve this, the UK passed the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (19) to amend the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. The UK's amended Regulations are referred to as the 'AML Regulations' for the remainder of this article.
Who is an 'Art Market Participant'?
Under the AML Regulations, an 'Art Market Participant' ('AMP') is a firm or sole practitioner who: (20)
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by way of business trades in, or acts as an intermediary in the sale or purchase of, works of art and the value of the transaction, or a series of linked transactions, amounts to 10,000 euros or more; or
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is the operator of a freeport when it, or any other firm or sole practitioner, by way of business stores works of art in the freeport and the value of the works of art so stored for a person, or a series of linked persons, amounts to 10,000 euros or more.
The broad definition covers many operating in the commercial art market including dealers, gallerists, auction houses, agents and intermediaries.21 Artists could also arguably have fallen within its scope, but HMRC clarified in May 202122 that artists selling their own work for the first time are not AMPs. The Government subsequently confirmed that it had not been its intention to include artists who sell their own works of art over the 10,000 [euro] threshold, but, in recognition of the fact that the AML Regulations as drafted left room for uncertainty on this point, it sought views on the matter in a recent consultation on amendments to the Regulations. (23) Artists must nevertheless remain vigilant since they remain subject to the principal money laundering offences under POCA (as described above). The 10,000 [euro] threshold (approx. 8,400 [pounds sterling]/USD10,500 at the publication date) is low considering this relates to the final invoiced price for the work of art including taxes, commission and ancillary costs.
What is a 'Linked Transaction'?
A 'linked transaction' is not defined in the legislation but the Additional ML Risks Guidance 2021 (24) give the following practical examples:
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