Your AML questions answered

We do the research. You get the answers. Have a browse and if you still have other questions, browse the blog and also feel free to get in touch.

What is money laundering?

Money laundering is defined in section 340 of the Proceeds of Crime Act 2002 (POCA) and covers wide ranging circumstances involving any activity concerning the proceeds of any crime. Money laundering takes many forms, including: 

  • trying to turn money raised through criminal activity into ‘clean’ money (that is, classic money laundering); 
  • possessing or transferring the benefit of crimes such as tax evasion, fraud and theft; 
  • possessing or transferring stolen goods; 
  • being directly involved with any criminal or terrorist property, or entering into arrangements to facilitate the laundering of criminal or terrorist property; and 
  • criminals investing the proceeds of their crimes in the whole range of artworks. 

How is money laundered in the art world?

There are multiple ways to launder money in the industry, for example:
– Works might be purchased with the proceeds of illicit activities and then sold, thereby turning bad money into clean money.
– Art can be used as loan collateral.
– Via ancillery services, such as paying for foundry costs or the storage of art.

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Get more food for thought in our blog post ‘Is art really used for laundering money?

Which legislation governs Anti-Money Laundering (AML) for Art Market Participants in the United Kingdom (UK)?

The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (reference 2019 no. 1511) was passed on 20th December 2019 and went into effect on 10th January 2020. This bill represents the UK transposition (as an EU Member State at the time) of the 5th Directive (EU) 2018/843 of the European Parliament and of the Council (passed on 30th May 2018). This amended previous Money Laundering Directives of the EU and brought traders of works of art into scope. (In the UK legislation, these individuals are known as Art Market Participants.)

Further reading:

The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (reference 2019 no. 1511) – UK

British Art Market Federation BAMF) Guidance & Guidelines – UK

5th Directive (EU) 2018/843 of the European Parliament and of the Council – EU-wide (EUR-Lex is an official website for European Union law)

EU Directives onto which the 5th Directive has been added – EU-wide

DIRECTIVE (EU) 2018/843 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU. Thus it is a European Union directive that will impact upon the UK (with or without Brexit). To go directly to the source, see EUR-Lex (an official website of European Union law). For information on the previous AML legislation on which this new legislation (AML / MLD 5) builds, see this EUR-Lex link.

When will anti-money laundering legislation apply to the UK and European art market?

Anti-money laundering legislation is now effective in increasing numbers of EU Member States.

The UK bill was passed on 20th December 2019 and came into force on 10th January 2020. Whereas Art Market Participants (“AMPs”) are expected to be compliant as of 10th January 2020, the registration deadline is 10th January 2021 and AMPs are expected to be actively demonstrating that they’re working towards compliance, as the implementation lead-in time was short.

As of February 2020, Germany has passed equivalent legislation and France has existing AML legislation in force, with the passing of new legislation in France immiment.

Will Brexit affect anti-money laundering legislation in the UK?

In short, no, as the law is already here.

Brexit demands on the government resulted in delayed guidance that informs Art Market Participants how to comply. Whilst there could be future changes following the UK’s departure from the EU, major changes are not anticipated in the short-term.

May I take payment before AML checks?

Yes.

According to the British Art Market Federation (BAMF) Guidelines for the UK legislation –

Part II: Guidelines

Timing of carrying out CDD measures

54.
In general, CDD must be completed prior to the completion of a transaction and this would normally be the case in relation to the sale of an artwork. This means, for example, where a dealer at an art fair makes a sale to a new customer, a transaction may be agreed ahead of carrying out all required CDD measures, but CDD measures are to be completed before release of the work of art to the customer. Likewise, for auctions, it may not be possible to apply CDD measures to every bidder who registers to bid immediately prior to a sale, but CDD measures must be applied to the successful bidder prior to completion of the transaction, that is, before the work of art is released to the successful bidder.

 

Will AML (aka 'CDD') checks mean asking clients awkward questions?

Yes it can, which is why we’re working hard to provide you ways to handle the situation with aplomb. Keep an eye out for our updates, as we’ll be providing guidance for handling conversations with grace and confidence, and a focus on your transactional success.

As said by the CFO of one Mayfair, London, gallery: “Just ask.” It’s surprising how easy it can, as modern-day art buyers are used to being required to provide documentation for other activities, such as buying a new property, opening a bank account or onboarding with a new law firm.

What transactions require anti-money laundering checks?

Those that are of a value of 10,000 Euros or above. Note that this is transactional and might incorporate the total of related transactions.

In the UK, where the national currency is sterling (GBP or £), the currency converter on the gov.uk website, updated each month, is the official rate. See http://bit.ly/govukexchangerates2020 .

Is GDPR relevant to AML checks?

Yes it is. GDPR specifies how the private data of European Union subjects is processed and stored by businesses. Conducting due diligence as per 5MLD legislation necessitates checking personal data (such as a passport and other sensitive documents) followed by storing evidence of such checks. Therefore, the business that facilitates the check should follow GDPR legislation for processing and storing personal data, to be secure while also available (in the case that the government requests documentation of AML due diligence having been fulfilled for a transaction).

Will spreading payments avoid AML checks?

No. If the amount of a transaction (included related transactions), whether paid at once or over time, is 10,000 Euros or more, an AML check on the buyer/s will be required according to MLD5.

Can art advisors keep buyer details confidential?

No. Although the industry has become accustomed to buyers being unknown by sellers (the dealer supplying the work of art), this legislation signifies a move towards transparency in transactions. The law, as with other industries governed by 5MLD legislation, is clear in requiring the seller to know the identity of the UBO/s (ultimate beneficial owner). It’s also not possible to separate transactions between dealer – advisor and advisor – collector to avoid the need to conduct the dealer – collector AML check.

If the amount of 10,000 Euros is reached because works by multiple artists are being sold, is an AML check required?

Yes. The 10,000 Euros threshold relates to the value of transaction, and not the quantity of items included within the sale (or related transactions).

How long do I need to keep records of an AML check having been conducted?

Our research in 2019, conducted ahead of the anticipated publication of what will be transposed into UK law, is that you’ll be required to maintain for at least five years. However as this is a new law and businesses are required to maintain other financial records for seven years, we suggest that you prepare for seven and clarity will be provided closer to the date that MLD5 becomes legally enforceable.

Have other questions? Ask away.

Drop us a line and we’ll do our upmost to help