In the UK and throughout Europe, a new anti-money laundering directive aims to curb terrorism and criminal enterprise. Obviously, that’s an initiative to support but it does also mean changes for the UK and EU art markets in myriad ways.
No need to be alarmed – these new rules are meant to protect artists, dealers, agents, and auction houses from unwittingly getting involved in criminal behavior. Still, there are some actions you’ll need to take to make sure you’re following these new guidelines.
After all, the punishment for ignoring the new terms can be pretty extensive.
So, here we’re explaining what this new anti-money laundering law is all about and how it will affect global art buyers and sellers throughout Europe and beyond.
The EU’s Anti-Money Laundering Law Explained
The EU’s Fifth Anti-Money Laundering Directive (5AMLD) was adopted in July 2018 as a response to the terrorist attacks that took place in Paris in 2015 and in Brussels in 2016, along with the Panama Papers Scandal and the Yves Bouvier Affair.
It seems that the government wanted to take action by tightening up money laundering within European borders in hopes to prevent future acts of terrorism that might be funded by these crimes.
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Just before Christmas 2019, the UK made some amendments to the 5AMLD which came into effect on January 10th, 2020. These amendments have a significant impact on the art market with one senior auction house lawyer predicting that the changes will be the biggest ever for the UK art market.
Unfortunately, art sales are hubs for money laundering since artwork often comes with extremely high values, is often portable, and it’s customary that buyers and sellers can complete transactions in total secrecy. So, it makes sense that criminals have turned to art to launder money. The recent growth of digital artwork (NFT) is another concern for money laundering.
Essentially, the 5AMLD requires individuals looking to buy or sell art for €10,000 or more to provide proof of identification and proof of address. Companies looking to buy or sell art for €10,000 or more must provide evidence of incorporation, details of the board of directors, and the ultimate beneficial owners.
Furthermore, it is still unclear whether Her Majesty’s Revenue and Customs (HMRC), the governing body who is supervising the new law, will be offering a grace period for relevant parties involved. Still, auction houses, dealers, agents, and others involved in high-value art transactions would be smart to take action as soon as possible.
What This Means for Global Art Buyers and Sellers
So, what does this mean for art buyers and sellers? Does it only affect those within the UK and EU? Is there a way around these regulations?
If you’re an artist, art agent, collector, gallery owner, or part of an auction house within the UK or the EU, these changes will most definitely affect your business and it’ll be imperative to learn as much about the new directive as possible.
You might need to hire new legal representation or create new systems of checks and balances to make sure you have the manpower to properly cross-check the personal details of your clients.
Furthermore, as a buyer, you’ll have to give up some personal information so that the person or company from which you’re purchasing art can adhere to the directive. Additionally, if you’re not located in Europe, these anti-money laundering laws can still affect you if you do business with someone in the UK or EU.
So, the 5AMLD is truly a global shift in the way the art market will function. Does this mean the end of secret art brokers? Maybe.
Again, providing proof of ID and proof of address is only required for art being bought and sold at more than €10,000. But what happens if you don’t? Failure to do so could mean a hefty fine, up to two years in prison, or both.
So, it comes down to client due diligence which is ultimately the biggest concern right now in the European art market. For example, if an art agent is seeking a piece from a regulated dealer, the dealer would then need to do an ID and address check on the agent. But, as an agent, it’s obvious that they will be buying the art for someone else. So, who is then responsible for doing the due diligence? The agent or the dealer?
At this point, it’s unclear the responsibilities of intermediaries who neither pay or receive funds as a result of a transaction.
Overall, the new anti-money laundering regulations are meant to protect reputable art sources from being caught up in a money-laundering scheme without their knowledge, in addition to its overarching purpose of preventing terrorism as much as possible.
Many sellers already conduct client due diligence when engaging in a transaction for records of provenance and title, so these new regulations should simply be an extension of best practices. So, only time will tell how this new directive plays out in real-time.