UK art dealers told to toughen up in fight against money laundering

The UK’s National Crime Agency (NCA) has issued UK art galleries with an “amber alert” following concerns that potentially hundreds of millions of pounds are being laundered through art sales.

The law enforcement agency had already warned art dealers to file more “suspicious activity reports” where they have concerns over the buyer, seller or source or destination of the funds being used to purchase art. However, the NCA fears that galleries have not been stringent enough in their checks. The official “amber alert” has been sent out to ramp up the fight against criminal activity in the art market. The alert says the money laundering risk applies to sales of paintings, photographs, sculptures, tapestries and other works of art.

Graeme Biggar, director general of the NCA’s national economic crime centre, told the Evening Standard that the UK’s £9.11 billion art market is highly vulnerable to exploitation. “It is a market used to operating with anonymity, where they use third parties, and where the source of the funds is often not clear”, Biggar explained. He added “It’s also high value which is perfect for criminals and typically very small so you can move an enormous amount of value from one country to another quite easily and without suspicion”.

Biggar warned that the NCA expects art dealers to be conducting more thorough due diligence. He also said he was sure HMRC would be scrutinising dealers more closely to ensure art sales aren’t being used to avoid inheritance or capital gains tax.

Since January 2020, the UK art market has been subject to new anti-money laundering regulations, which give effect to the EU Anti-Money Laundering Directive known as 5AMLD. The regulations introduced new requirements to conduct identity checks and other due diligence. However, there are concerns that some art businesses have misunderstood a key part of the regulations and are using a loophole to avoid them.

The new regulations allow for businesses to rely on due diligence checks carried out by someone else. But co-founders of the anti-money laundering and due diligence tool ArtAML, Susan J. Mumford and Chris King, say some businesses are misusing this “reliance” option to avoid disclosing the identity of their clients. Concerned to prevent other dealers poaching their clients, these businesses risk fines or even imprisonment by flouting the new regulations.

Even though the UK has left the EU, it will continue to enforce 5AMLD. By June 2021, “Art Market Participants” (AMPs) will have to register with HMRC to continue carrying on their business, which is defined as a firm or sole practitioner who is either “trading in, or acting as an intermediary or trades in the sale or purchase of works of art where the value of the transaction (or a series of linked transactions) is €10,000 or more”. This would include auction houses, professional art dealers, art financiers and advisers.

But it’s not all doom and gloom. After all, many auction houses are accustomed to undertaking due diligence checks and gathering information on their clients. It is the smaller firms that may take a hit from the cost of anti-money laundering and customer due diligence checks. The added pressure is unwelcome especially when global sales of art and antiquities declined to US$50.1 billion (£36.14 billion) in 2020, down 22% from 2019 figures. 

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