Money Laundering In The UK Art Market: Key Risks, AML Rules

The global art market is a multi-billion dollar industry, with the UK being the second largest by sales volume after the US. However, this market comes with inherent risks of money laundering, as it provides a perfect avenue for criminals to convert illicit cash into art and then resell it to launder money. Therefore, the art market has been coming under increased scrutiny and there are now anti-money laundering (AML) regulations in place to tackle the issue. In this article, we will look at some of the key risks involved in money laundering in the UK art market and the AML rules currently in place to combat them.

Related Facts

• The global art market was valued at approximately $68 billion in 2022, with 18% of sales taking place in the UK.
• Art market participants, including buyers, sellers, and intermediaries, have been required to comply with extensive AML rules since 2022.
• The Financial Action Task Force (FATF) recently released a report highlighting money laundering and terrorist financing risks in the art market.

Key Risks

One of the most significant challenges in tackling money laundering in the art market is the expectation of privacy and discretion from customers. Regulatory frameworks do not always require art market participants to undertake due diligence on their customers, making it easier for criminals to launder money through this avenue. While some jurisdictions have assessed the risks involved in their domestic art markets, these risk assessments have reached varied conclusions, making it challenging for market participants to understand the risks involved in their transactions.

Another challenge involves the investigation of money laundering in the art market. Law enforcement agencies often prioritise recovering stolen and looted artwork above investigating the financial aspects of the crime. Furthermore, the specialist knowledge required to value art and identify laundering techniques make it difficult to enforce AML regulations. Sales often occur across borders, leading to issues around tracing and identification. International cooperation is essential to effectively combat money laundering in the art market.

AML Rules

The UK has been ahead of the curve in implementing AML regulations for the art market. Proceedings of Crime Act (POCA) have criminalised offences related to money laundering for art market participants since 2002. Since January 2022, art market participants who trade in, or act as intermediaries in, the sale or purchase of art worth €10,000 ($10,987) or more must take additional steps to prevent money laundering. The six most important obligations on art market participants are:

1. Registration with HM Revenue & Customs (HMRC)

Art market participants were required to register with HMRC before June 10, 2021. Firms that complete large transactions and fall within the scope of the AML rules after this deadline must register as soon as possible, as failure to do so can result in hefty fines.

2. Customer Due Diligence

Art market participants must undertake customer due diligence that allows them to know the true identity of each customer and the person or entity that owns or exercises ultimate control over the customer. This includes verifying customer identities and assessing the purpose and nature of each transaction. Due diligence must be recorded, along with transaction records.

3. Risk Assessment

Art market participants must conduct independent risk assessments and put in place adequate controls to manage those risks effectively. This involves identifying the likelihood and impact of risk in transactions, customers, or geographic locations where the art is being bought or sold.

4. Staff Training

Art market participants must train staff to implement and maintain AML procedures. This includes training on risk assessments, customer due diligence, and reporting suspicious transactions.

5. Record Keeping

Art market participants must keep detailed records of transactions, as well as customer due diligence and risk assessments. Records must be kept for at least five years.

6. Reporting and Whistleblowing

Art market participants must report any suspicions of money laundering to the relevant authorities and put in place comprehensive processes to ensure whistleblowers are protected. Reports must be made promptly to the National Crime Agency (NCA) irrespective of whether it affects their business operations.

Key Takeaway

The UK art market is a lucrative business that attracts money launderers due to its unique characteristics, such as cross-border transactions and high asset values. It is crucial that art market participants comply with AML regulations to avoid hefty fines and reputational damage. The FATF report provides a useful prompt for UK art market participants to reassess their AML compliance and ensure they are adequately mitigating risks.

Conclusion

The global art market had a value of $68 billion in 2022, and 18% of that was sold in the UK. It is a particularly lucrative avenue for money launderers due to its high asset values, cross-border transactions, and lack of due diligence measures in some jurisdictions. However, the UK has implemented extensive AML regulations to tackle this issue, including criminalising money-laundering offences for art market participants since 2002. Art market participants must comply with strict regulations around registration, customer due diligence, staff training, record keeping, and reporting of suspicious transactions. Failure to do so can result in hefty fines and reputational damage. It is essential that art market participants continue to take the necessary steps to mitigate risks and prevent money laundering in this industry.