On its last working day before Christmas Parliament unexpectedly passed legislation implementing the EU’s Fifth Anti-Money Laundering Directive (5AMLD). The legislation comes into force on 10 January 2020 and will have serious consequences for the art market.
‘Art market participants’ are now obliged to identify the individual behind transactions of over €10,000 and conduct due diligence on that individual before receiving funds. Failure to do so is a criminal offence. The legislation will apply to any individual or business which buys or sells art, be it dealers, artists, auction houses, galleries or museums.
The new legislation implementing 5AMLD amends the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Crucially it brings ‘art market participants’ into the ‘regulated sector’ such that they are now required to carry out the same customer due diligence as, for example, bankers and lawyers. ‘Art market participants’ (Participants) include businesses or individuals who trade in art or act as an intermediary or agent in the sale or purchase of art. This will even include artists who sell to clients directly (i.e. not through a gallery).
When engaged in transactions of over €10,000 Participants must now seek certain information from customers and carry out checks using that information to verify the identity of the individual behind the transaction and ensure that there is a minimal risk of dealing with funds connected to organised crime or terrorism.
We offer training and appropriate documentation to ensure compliance with the Fifth Anti-Money Laundering Directive (5AMLD).
- Businesses need to appoint an ‘MLRO’ (money laundering reporting officer) promptly.
- Participants must register with HMRC by 10 January 2021.
- Participants must conduct ‘client due diligence’ when engaged in transactions of over €10,000.
- If acting for an individual, checks will need to be run against the following documents: ID (e.g. passport or driving licence) and proof of address (e.g. utility bill).
- If acting for a company, trust or partnership, Participants must identify the individual behind the entity who is the ‘ultimate beneficial owner’ (UBO) – i.e. the individual who benefits from the transaction. If the UBO is another entity, reasonable efforts must be made to establish the ownership structure of that entity. Checks must then be run against that individual/entity and the purpose for the transaction and source of funds should be established.
- If a customer is acting as an agent or intermediary on behalf of another individual or entity the Participant must establish that the agent has authority to act.
- The name of individual clients and UBOs must be checked against lists of those subject to sanctions and those who are ‘politically exposed persons’ (i.e. those in a position which entails a greater risk of exposure to corruption and bribery).
- If the due diligence process raises any red flags, Participants must undertake ‘enhanced’ due diligence searches.
- Participants are required to employ a ‘risk based approach’ when deciding to act based on the information gained from due diligence procedures.
- If there are suspicions the MLRO must make a report to the National Crime Agency before the transaction proceeds, and must not inform the client.
- Due diligence information must be kept secure for 5 years from the date the transaction concludes.
How we can help
- Providing training on compliance to individuals and businesses, including sales staff and senior management.
- Drafting appropriate warranties and indemnities into contracts, invoices and consignment agreements;
- Drafting anti-money laundering policy for businesses;
- Guiding businesses through the process of registering as an ‘obliged entity’ with HMRC and notifying the appropriate authorities of the identity of the MLRO; and
- Implementing appropriate data protection policies.