The 5th Anti-Money Legislation (AML) Directive is in force in the UK as of 10 January 2020.
In the UK the 5th AML has been implemented as The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 ("MLR19"). The express reference to those working within the art market and the imposition of certain obligations upon them, has been as a result of the recognition that art is a portable, high value asset that can be potentially used as a vehicle for money laundering and terrorist financing. The changes will be felt by those who work within the art market such as dealers and intermediaries who have been targeted by the regulations.
How extensive are the changes to the previous anti-money laundering legislation? How might the regulations change the way art is bought and sold? What will be the effect on relationships between art dealers and their clients? What are the implications for those who do not comply?
There are a number of changes between the previous 4th AML that and the new 5th AML:
- Art market participants and their intermediaries are now caught under the 5th AML Directive.
- The beneficial ownership registers for legal entities, such as companies, will be public.
- Data on beneficial owners of trusts will be accessible to authorities, Financial Intelligence Units, professional sectors subject to AML rules, and persons who can demonstrate a legitimate interest.
- National registers on beneficial ownership information will be interconnected directly to facilitate cooperation and exchange of information between Member States.
- Transactions involving high risk third countries will require enhanced due diligence checks. Member States must set up centralised bank account registers or retrieval systems to identify holders of bank and payment accounts.
A fundamental change for the art market is that "art market participants" will be subject to the UK's anti-money laundering regime. An "art market participant" is defined as a firm or sole practitioner who 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".
Art market participants will now have an ongoing obligation to assess the risks of money laundering and terrorist financing which could arise from their businesses. These obligations will include:
- carrying out client due diligence, including obtaining information of beneficial ownership;
- considering the nature and structure of transactions;
- appointing officers to monitor and make decisions in relation to potential risk situations; and
- ensuring that all staff are aware of and trained in the complying with the regulations.
Prior to implementation, early concerns were voiced as to the commercial impact on the art market. Aside from the issue of increased administrative costs for dealers and galleries, a principle concern has been how the new regulations will broadly impact longstanding commercial relationships, and how due diligence enquiries will delay the completion of specific art transactions. There are further practical issues as to how the correct procedures can be implemented in some scenarios such as art fairs. It will be some months before we can assess the full effect.
For those "art market participants" considering the route of non-compliance with MLR19, the outcome could be on conviction a financial penalties, and/or a custodial sentence alongside reputational damage.
For assistance in navigating these issues, understanding how it will affect your business and putting the necessary infrastructures in place, please contact Amanda Gray and Michelle Stroube.