What is the Anti Money Laundering Directive 5?
The EU 'Anti Money Laundering Directive 5' (AMLD5) came into force on 10 January 2020. In the UK, the government department in charge of implementing this is HMRC. This legislation has been adopted into UK law and will not be impacted by the UK leaving the European Union. On this page, we are describing the situation in the UK only. Every country in the EU has different regulations and authorities. Galleries, dealers and artists in other EU countries should seek guidance from local trade associations.
Under AMLD5, for the first time, HMRC has classified Art Market Participants (AMPs) as a specific sector which will need to comply with the regulations. In AMLD5, artworks are now a category of 'High Value Goods' (HVGs) that carry a potential risk of money laundering.
As a first step, this means that anyone in the EU selling art above a certain transaction threshold will need to take active steps to prevent money laundering and to keep records of their actions. Recording all the procedures that you have undertaken with each client and sale (and careful documentation about the acquisition of works) to assess and minimise risk of criminal intent or behaviour is crucial. Not only is this a regulatory obligation, this could provide your defence should you or any of your clients or suppliers face any investigation by the authorities.
It is the sellers' responsibility to be registered - in the case of the UK, you should register with HMRC by 10 June 2021 but there are equivalent bodies in other EU nations. Even before you register, you should carry out Customer Due Diligence (CDD) on clients making a purchase (or a series of linked purchases) that exceed €10,000 (inclusive of taxes) even if EUR is not the currency you are selling in. This applies to any person or organisation meeting the definition of an Art Market Participant - which can mean any dealer, commercial gallery, auction house, artist or other organisation selling artworks, even if intermittently (including foreign companies trading in the UK) that makes sales above the transaction value limit. If your company is based in the UK or EU, the €10,000 threshold also applies to all overseas transactions.
Customer Due Diligence (CDD) may take different forms. At its simplest, this will require taking copies of identity documents and proof of residential address and storing these safely. If the client makes repeat purchases, you will need to check that their circumstances have not changed at least once a year and perform a fresh identity check if the identity documents expire within one year. You will need to learn to verify that the papers are genuine (see below) and check that the purchaser is not a Politically Exposed Person (PEP) or from a high-risk country (see below) or a country with sanctions against it. If they are, the person conducting the sale may need to consult with colleagues before accepting any funds in order to arrange Enhanced Due Diligence. In the case of a purchase on behalf of an organisation, you may need to identify all the beneficial owners.
Ensuring you are in compliance with the regulations requires you to make your own risk-based assessments. You will need to provide a baseline risk assessment, establish policies and training for all staff to follow. You will need to appoint a Nominated Officer and a Compliance Officer (though this may be the same person in smaller businesses). You may need to identify the source of wealth used to make the purchase and the ultimate beneficial owner, if purchaser is an intermediary. The person or organisation you are dealing with whose details go onto the invoice will need to match the bank account being used to make the purchase. Some transactions may require you to make further checks and potentially refer the details to the National Crime Agency without telling the client that this is what you are doing.
For larger art businesses, the people and processes will already be in place to protect the firm from criminal and fraudulent behaviour. For artists and smaller businesses who don't make so many sales over €10,000, there will be a greater burden and a steeper learning curve. Although there may be some bureaucratic hassle and new obstacles in the sales process with new clients, this presents an opportunity to reduce crime from our sector and allow people to purchase art with more confidence.
In this first year or the regulations being in force, HMRC are looking for a demonstration of good intentions to comply with the regulations and will look with more tolerance on those taking active steps and recording their actions. Registering, learning more about the new regulatory framework, appointing a Nominated Officer, beginning to ask questions and perform CDD checks are all things that any business can do.
Please find the resources below, supplied by HMRC.
Artlogic is involved in ongoing direct meetings with HMRC to ensure that there is a two-way understanding about how the regulations will affect our industry. We will publish updated advice on this page as more information becomes available - please check back regularly.
We have made some modifications to the contact screens in the Artlogic database so that users can indicate whether or not risk assessments have been done on each customer and if it is still valid.
For our website customers, there is a setting to disable transactions above a certain value. If the transaction (or a series of linked transactions) are above the threshold, you can still lawfully do your due diligence before you release the work.
Please find information about these features on our Help Website.
Artlogic will not be developing in-house software for peforming risk assessments or providing identity checks for its Database or Website systems. Artlogic's Contacts database is too much of an open forum to store the identity documents themselves, or risk assessment scores. HMRC has advised that documents associated with Suspicious Activity Reports have to be stored securely separately to other customer files in systems that only Nominated Officers, their deputies or Compliance Officers can access. Clients will, therefore, need to use external systems for storage of AML risk assessments and related documentation. A google search for 'AMLD5' or 'KYC' (Know Your Customer) may help guide you to firms who can help with verifying the identity of your clients. UK clients could also get in touch with RiskScreen (kyc360.com) or ArtAML (artaml.com) who are developing a detailed Art Market Participant solution and will be launching that in summer 2020. As galleries work towards meeting their full obligations, a single Nominated Officer could use a laptop or Desktop with 1Password installed and create files of type Identity Documents for each client to record their checks, including image files.
Official guidance for Art Market Participants was published in early February. You can download the guidance from this page: https://www.gov.uk/government/publications/art-market-participants-guidance-on-anti-money-laundering-supervision
HMRC webinar from 8 January 2020
https://register.gotowebinar.com/recording/747271573359591398 which provides an excellent overview of the regulatory framework, the HMRC's role and your obligations. It does not tell you how to implement all the steps but it does tell you what each business is required to do.
Registration and fees - https://www.gov.uk/guidance/register-or-renew-your-money-laundering-supervision-with-hmrc
UK HMRC Anti Money Laundering Supervision homepage - https://www.gov.uk/topic/business-tax/money-laundering-regulations
Home Office guide to checking identity documents - https://www.gov.uk/government/publications/recognising-fraudulent-identity-documents
For a list of higher-risk countries, known as “jurisdictions of concern” -http://www.fatf-gafi.org/countries/#high-risk
List of countries with “Financial Sanctions” imposed by the UK - https://www.gov.uk/government/publications/financial-sanctions-consolidated-list-of-targets
HM Treasury offers a free email alert service when Financial Sanctions list is updated. You can sign up from the same page shown above.
For making Suspicious Activity Reports (SARs), visit the National Crime Agency (NCA), - https://www.ukciu.gov.uk/saronline.aspx
More information, help and guidance on making SARs - https://www.nationalcrimeagency.gov.uk/what-we-do/crime-threats/money-laundering-and-terrorist-financing/suspicious-activity-reports
Guidance issued on making better quality SARs ('Suspicious Activity Reports') is at https://www.nationalcrimeagency.gov.uk/who-we-are/publications/42-guidance-on-submitting-better-quality-sars
To report a business who you think should be registered, but isn’t:
Phone 0800 595 000 (open 24hrs a day, 7 days a week)
Send a secure report via the HMRC website at https://www.gov.uk/government/organisations/hm-revenue-customs/contact/customs-excise-and-vat-fraud-reporting
Post: HM Revenue & Customs, Freepost NAT22785, CARDIFF, CF14 5GX
Finally, just a reminder about the notes that will help you when using Artlogic services - available on our Help Website.