A fortnight before the deadline for Art Market Participants ("AMPs") to register with HMRC under the recently introduced anti-money laundering regulations, HMRC has confirmed that artists fall outside the scope of AMPs. However, certain ambiguities remain.
AMP definition and the requirement to register
Under The Fifth Anti-Money Laundering Directive ("5AMLD"), which was implemented and came into force in the UK on 10 January 2020 via The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 ("MLR19"), AMPs are required to register with HMRC by 10 June 2021, following a five-month extension from the original deadline of 10 January 2021.
An Art Market Participant is defined as a firm or sole practitioner who either:
- 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 or more; or
- is the operator of a freeport and stores works of art in that freeport where the value for a person (or a series of linked persons) is €10,000 or more.
Since 10 January 2020, AMPs have also been required to comply with new due diligence and record-keeping requirements, irrespective of registered status. For more information on the requirements faced by AMPs, see our previous article here.
The position for artists
Until recently, it has been unclear whether artists who sell their own works are considered AMPs by HMRC. As a precaution, many artists registered with HMRC ahead of the deadline (paying a £300 registration fee) and invested in compliance arrangements in order to meet their obligations under MLR19.
On 26 May, HMRC confirmed that "artists – persons who create original art – do not fall under the scope of the Anti Money Laundering Regulations."
This news came as a welcome relief to many artists who may otherwise have struggled with potentially expensive and complex due diligence requirements, while facing the threat of criminal penalties for non-compliance. However, for others, the position is still not entirely clear.
Artists selling works by other artists
HMRC has recently clarified that artists who sell other artists' work, as opposed to creating and selling their own work (either privately or by way of business), will remain in scope. This appears consistent with the spirit behind the introduction of 5AMLD. The inclusion of AMPs within the Regulations recognises that art is a portable asset that can be used to obfuscate funds, fund criminal activities and finance terrorism. Ensuring that artists who sell other artists' works remain AMPs prevents a loophole that could otherwise have been used to avoid compliance obligations.
HMRC has now confirmed that the term "original art" follows the same definition as "works of art" under section 21(6) VAT Act 1994. The definition includes various categories of works "executed by hand" and stipulates requirements that works are either the "only one produced", or otherwise "limited in edition."
However, the position as to digital works remains unclear. The art world has seen the market for NFTs explode within the first months of 2021, with the highest value NFT to date selling for $69 million at Christie's in March. To many, the appeal of buying art in NFT form may lie partly in the potential anonymity offered by transacting via a blockchain. Although each user's wallet address and transaction details are recorded on the blockchain, users can remain anonymous provided there is no link between the user's wallet address and their identity (e.g. the user's IP or email address). Even where a user's identity becomes traceable, transactions on the blockchain lack transparency. 5AMLD seeks to promote transparency within high-value transactions in order to combat the risk of money-laundering. Yet NFTs are not currently caught under the section 21(6) definition, regardless of whether they are released as single pieces or as multiple limited “editions” attaching to a particular underlying, original artwork or collectible. HMRC may yet revise its view in response to the growing popularity and sale values of NFTs.
It also remains unclear whether those who deal in NFTs qualify as cryptoasset exchange providers ("CEPs"). Like AMPs, CEPs are subject to the Regulations and have been required to register with the Financial Conduct Authority ("FCA") since 10 January 2020. The FCA defines "cryptoassets" as “cryptographically secured digital representation of value or contractual rights that uses a form of distributed technology and can be transferred, stored or traded electronically”. While NFTs have not been specifically referred to as cryptoassets by regulators, NFTs may fall within the FCA definition. For now, we await clarification from UK regulators in this regard.
Artists who have already registered as AMPs can obtain a refund of their registration fee by contacting HMRC at MLRCIT@HMRC.GOV.UK.
For assistance in navigating these issues, please contact a member of our Art Law team.