Anti-money laundering registration for art market participants: What you need to know

Introduction

“Art market participants” conducting business in the UK must register with HMRC for money laundering supervision before 10 June 2021. This is an important requirement under the Money Laundering Regulations 2017¹ (MLRs 2017), and continuing to trade after this date without registration can result in civil penalties, such as a fine, or even criminal prosecution.

It should be noted that although the deadline for registration was extended from 10 January 2021 to 10 June 2021, art market participants have been expected to comply with the other anti-money laundering (AML) obligations imposed upon them by the MLRs 2017 since 10 January 2021, including performing customer due diligence, conducting AML risk assessments, and keeping adequate records.

In this article we set out what you need to know about registering for AML supervision with HMRC, and the key AML obligations imposed upon art market participants by the MLRs 2017.

The legal framework

The UK's AML regime is derived from EU legislation, notably the Fourth Money Laundering Directive², transposed into UK law by the MLRs 2017, and the Fifth Money Laundering Directive³, transposed into UK law by the Money Laundering Regulations 2019 (MLRs 2019)⁴ (which amended the MLRs 2017). EU Member States had until 10 January 2020 to implement the EU legislation into domestic law, and the UK MLRs 2019 came into force on that date.

Key changes introduced by the MLRs 2019 include extended customer due diligence and an increased scope of the categories of person subject to the MLRs 2017. One category of person included in this increased scope is “art market participants”.

The art market has attracted the attention of AML regulators for a number of reasons. The high value of the goods in question attracts criminals seeking to launder money and legitimise criminal funds or finance illegal activities. The art world is also attractive to criminals given its spread throughout multiple international markets and common use of intermediaries and offshore accounts.⁵ This is facilitated by a general culture of secrecy which results in the buyer and seller being often unknown to one another. These factors combine to create what the Basel Institute on Governance, a worldwide not-for-profit centre focused on countering financial crimes, calls “an ideal playing ground for money laundering”.

Who is an “art market participant”?

Persons operating in the art industry will only be subject to the requirements of the MLRs 2017 if they fall within the definition of an “art market participant” in the legislation.

An art market participant is a firm or sole practitioner who trades in, or acts as an intermediary in the sale of purchase of, works of art. The firm or sole practitioner must be performing such activities by way of a business carried out by them in the UK, and the value of the transaction, or a series of linked transactions, must amount to EUR10,000 (roughly GPB8,500 at the time of writing) or more, to fall within the definition.

Alternatively, a firm or sole practitioner who operates a freeport in which works of art are stored is also classed as an “art market participant” for the purposes of the MLRs 2017. As before, the activities must be performed by way of a business and the value of the works of art stored for a person, or a series of linked persons, must amount to EUR10,000 or more for the firm or sole practitioner to fall within the definition of art market participant.

Galleries, art dealers, auction houses and individual artists who sell high valued artwork are likely to fall within these definitions, as are agents and intermediaries.

Registration requirements for art market participants

Firms or sole practitioners meeting the definition of art market participant must register with HMRC for money laundering supervision before 10 June 2021. The original deadline for registration was 10 January 2021 however this was extended by HMRC.

As part of the process of registration, the beneficial owners and senior management of art market participants are subject to approval by HMRC to ensure that they are appropriate people to undertake their responsibilities.

According to HMRC, art market participants falling within the scope of the MLRs 2017 “are strongly advised not to delay submission of registration applications”⁶. From 10 June 2021, trading whilst not registered is a criminal offence and may result in a civil action or criminal prosecution.

Existing AML obligations for art market participants

As noted above, although the deadline for registration with HMRC is 10 June 2021, art market participants have been subject to the other requirements of the MLRs 2017 since 10 January 2020.

These include:

• carrying out a risk assessment of the extent to which they are exposed to money laundering;
• conducting due diligence on customers before a transaction is concluded;
• appointing a nominated officer for AML purposes;
• maintaining a prescribed range of policies, controls and procedures;
• training staff appropriately;
• reporting suspicious transactions to the authorities; and
• keeping appropriate records of customer due diligence and of transactions.

Failure to implement such measures is a criminal offence and may result in a civil action or criminal prosecution. HMRC has powers to sanction art market participants who fail to implement these measures. Such sanctions can be substantial. In 2020, HMRC fined one company GBP23.83 million for failures in carrying out risk assessments, having the correct policies, controls and procedures, staff training, CDD and record keeping. In 2019, HMRC fined another company GBP7.83 million for the same types of failures.

In addition, where an art market participant fails to comply with the MLRs 2017, in particular, applying customer due diligence measures on clients, it risks committing a substantive money laundering offence under the Proceeds of Crime Act 2002.

It is therefore very important for art market participants to ensure their businesses are compliant with the MLRs 2017.

How DLA Piper can help

DLA Piper has dedicated compliance lawyers who have extensive experience in applying for registration for AML supervision, as well as in conducting AML risk assessments, designing and implementing AML policies, controls and procedures, and all other aspects of AML compliance under the MLRs 2017.

Please get in touch with the contacts listed below for more information.