The National Crime Agency (NCA) has issued an amber alert to art storage facilities, in order to promote best practice and encourage preventative steps to avoid the potential misuse of their services by sanctioned individuals.
The NCA's definition of art storage facilities is broad in scope, and includes purpose-built storage facilities, auction houses, galleries, museums and shipping warehouses. The inclusion of galleries and museums is of note, creating further pressures in the art sector. With regards the more commonly understood meaning of art storage —the international facilities are popular amongst owners - they provide a safe and in some cases tax-free space for them to store art, antiques and other collectibles . Storage of artworks is nothing new. Art moves globally, for both exhibition and sale purposes, and art often needs to be housed either on a long or short term basis. Given the recent trends in collecting and investment in art, the significance of art storage of facilities has increased as greater numbers of artworks are requiring appropriate storage, especially as values can be significant.
By issuing an amber alert the NCA intends to highlight best practice regarding due diligence checks and reporting obligations, to minimise potential sanctions evasion and money laundering risks faced by such art storage facilities. These include circumstances either where individuals that are subject to UK-Russia sanctions seek to circumvent the financial or other related restrictions imposed on them, or where criminal organisations use these facilities as safe storage for assets.
The NCA is providing guidance for art storage facilities to ensure that they have appropriate due diligence systems in place to prevent their services from being used by designated persons who are attempting to evade sanctions, or other bad actors who wish to launder the proceeds of crime. This follows previous guidance contained in a 2021 alert to coincide with the introduction of the 5th Anti Money Laundering Directive. This alert included advice for Art Market Participants brought within the scope of enhanced money laundering compliance obligations. Whether a particular art storage facility falls under these obligations will depend on its specific circumstances.
One of the red flags that the NCA is recommending that art storage facilities pay close attention to is any change in a client's circumstances vis-à-vis sanctions. A client may not present any issues when they are initially onboarded. However, sanctions lists are frequently updated, and art storage facilities should ensure that they monitor these lists for changes.
The NCA also recommends that art storage facilities should be alert to attempts to transfer the ownership of artwork or a stored item to a family member, close contact, business associate or other intermediary in suspicious circumstances. Where a client wishes to make such a transfer, art storage facilities should take steps to ascertain:
- The reasons for the requested transfer of ownership.
- Whether the client seeking to transfer ownership has recently become subject to financial or other sanctions or believes they are about to become subject to such sanctions.
- Whether the Office of Financial Sanctions Implementation (OFSI) has given the relevant permissions for the transfer to proceed where a designated person is involved.
Art storage facilities are also encouraged by the NCA to look out for any attempts to sell artwork or cultural property quickly or to move it to another jurisdiction. Such attempts should prompt them to ask questions such as the reasons behind the quick sale and/or relocation, confirmation that the provenance of the item has been verified by a trusted source and whether there has been an attempt to sell the item at an artificially low or inflated price.
To follow best practice, art storage facilities should carry out appropriate due diligence checks when onboarding clients and throughout the length of the client relationship. These checks should be thorough and consistent. Some art storage facilities may also have specific reporting obligations under the Proceeds of Crime Act 2002 if they form part of the "regulated sector." The regulated sector includes firms or sole practitioners that:
- trade in goods (which includes dealing as an auctioneer) where a transaction value is at least 10,000 euro in total,
- trade in, or act as an intermediary in, the sale or purchase of works of art, or
- operate a freeport that stores works of art.
If a firm falls within the regulated sector they have specific reporting obligations under the Proceeds of Crime Act 2002 if they know or suspect (or have reasonable grounds for knowing or suspecting) that another person is engaged in money laundering. Failure to do so can be a criminal offence.
The alert provides examples of art storage facilities enabling the concealment of assets for both sanctioned individuals and illicit traders in cultural property. These represent unusual activities for art storage facilities. Nonetheless, breaching of sanctions, or the intentional participation in activities to circumvent prohibitions, is an extremely serious matter that could lead to civil penalties or criminal prosecution. Given the risks in place, art storage facilities would therefore do well to follow the guidance included in this alert from the NCA and take any remedial action in relation to their due diligence policies and procedures to ensure they have appropriate systems in controls in place, and know what their legal obligations are. It is however of note that the expectation of knowledge and policing regarding dealings is high and subject to the size of the art storage facility could be onerous.
Mishcon de Reya has experts in Art Law and sanctions legislation who are best placed to advise you on systems and controls that ought to be in place, as well as the compliance obligations governing a particular art storage facility or arrangement.