Customer due diligence and reliance: Important clarity from HMRC to support your compliance

September 16, 2021
by ArtAML Team

In June 2021, HMRC published risk guidance for the UK art market. Amongst other points, they outlined what is – and importantly isn’t, intended by relying on other Art Market Participants (AMPs) in transactions.

Attaining this understanding is vital to maintain compliance, although be warned that you might have colleagues that have not yet come across this clarification – please spread the word in support of their business.

The risk guidance states (separate paragraphs created by ArtAML for ease of reading):

“As part of your CDD measures you can rely on CDD carried out by an appropriately supervised entity in certain circumstances.

We have noted some misinterpretation of the use of reliance in the art industry.

Reliance is covered under Regulation 39 of the MLRs. There are set criteria that must be adhered to:

          the business on whose CDD you are relying must be carrying on business in the UK and is subject to the requirements of the MLRs; or

          carrying on business overseas and subject to equivalent legislation in another country;

you must immediately obtain from the third party being relied on all the information needed to satisfy the requirements of the regulations around CDD in relation to the customer or the beneficial owner or anyone acting on behalf of the customer.

You will need to know the identity of the customer or beneficial owner, what level of CDD was conducted, and have an agreement in place with the third party that all CDD documents will be provided immediately on request.

On request from you, the third party must immediately supply copies of any identification and verification checks done and any other relevant documentation on the identity of the customer or beneficial owner or anyone acting on behalf of the customer.”

Note this key take-away from the guidance:

“You will need to know the identity of the customer or beneficial owner”

While we have discovered that many modern-day art businesses insist upon knowing the identity of the customer (i.e., the end buyer), it is still commonplace to not know the identity of the customer. Whereas many art dealers, advisor and galleries see such secrecy being vital to successful transactions, our experience with ArtAML is that this is no longer the case.

Our CEO Susan J Mumford adds:

“As an art world veteran that dealt in both primary and secondary market works for over a decade, it’s refreshing to see many industry players having embraced transparency. This indicates that colleagues in transactions are increasingly trusting of one another’s professionalism. This shift is akin to the early days of auction sale results online.

While many dealers think it’s difficult to request such information – that is, the name/s of the customer/s,  we can attest that there are many who don’t see this as a problem and therefore it isn’t one.”

See the full risk guidance:
https://www.gov.uk/government/publications/money-laundering-understanding-risks-and-taking-action-for-art-market-participants/understanding-money-laundering-risks-and-taking-action-for-art-market-participants

Further reading: 
Reliance isn’t enabling business as usual, so what’s the point?

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