The amendments to UK legislation implementing the 5th Anti-Money Laundering Directive were passed in UK Parliament on 20th December 2019 and took effect on 10th January 2020. At the time of writing, the official guidance[1] is yet to be published and clarity on how to comply is lacking. The guidance is “imminently expected”[2].

How did this situation come to be?
Looking back to late spring 2019, ArtAML was involved in HM Treasury’s consultation with the art industry. As author of the legislation, Treasury was seeking industry input to inform them how  the EU Directive should be transposed into UK law. On the part of ArtAML, this consultation has been complimented by an ongoing conversations with HMRC, who are the Supervisory Body for Art Market Participants (AMPs). AMPs are  a new category of ‘obliged entity’ in regard to AML legislation. Our aim has in these conversations is to help both governmental departments better understand the art market and its needs, from both legislative and implementation perspectives, as well as attain an understanding of how to effectively support of AMPs in this new landscape.

Needless to say, between the UK’s general election (12th December 2019) and Brexit (31st January 2020), it’s been a busy time for the UK civil service. As participants in the industry consultation, we anticipated getting sight of the white paper and guidance around the end of November to beginning of December 2019. However, the pre-election purdah[3] meant that neither the Treasury nor HMRC were able to interface with professionals involved in the consultation or engage in any conversation relating to policy in the five weeks leading to the election.

The result was that many industry representatives (including ArtAML) had no opportunity to provide input on the white paper and guidance, and the UK legislation[4] was passed through UK Parliament on the final day in session before the Christmas break, on 20th December 2019. It may not be coincidence that if an EU member state fails to pass the required national legislation or if national legislation doesn’t adequately comply with the requirements of an EU directive, the European Commission may initiate legal action against a member state in the European Court of Justice the terms of Member States implementing an EU Directive by a set deadline[5]. While the UK was indeed able to tick the box of having passed the legislation in time for implementation on 10th January 2020, it’s not clear that the UK had a wholly resolved understanding of the consequences by the terms of the The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (MLRs).

What’s the challenge for Art Market Participants?
In short, AMPs are being required to comply without guidance. Since 10th January 2020, we’ve spoken with many AMPs (notably gallery directors and team members) who are trying to adhere, or at least show an attempt to make best efforts. For example, they might have completed an AML risk assessment with corresponding AML Risk Policy for the business, added an AML Policy to the website and added AML terms into their Terms & Conditions, while asking for photo ID and proof of address of buyers for qualifying transactions[6].

The good news:
Listen to the last several of HMRC’s webinar[7] from 8th January that provides insight into what AML5D means for Art Market Participants, and you’ll hear AMP Sector Lead, Alan Patrick, acknowledge the lack of implementation period.

Alan stated: “HMRC will take into account a short lead-in time for businesses have been given to implement all the new requirements in assessing any response to non-compliance, and each case will be assessed on its own merit.”

This is reinforced by a point Alan raised during one of ArtAML’s monthly check-ins with HMRC in late 2019, which is that the year 2020 is all about education, for the sector and HMRC alike. We understand that the expectation is for AMPs to be fully up and running with the conducting of necessary checks by 10th January 2021, which is the deadline for AMPs to register with the HMRC[8]. Getting everything in place between now and then is paramount.

What to do now?
As often stated by HMRC, show good intent to comply and take a risk-based approach. The latter is part and parcel of effectively adhering to the MLRs 2019 in the long-term, and the former is key for this implementation period.

A good first step is conducting a risk assessment for the likelihood of money laundering through your business. This informs the AML Policy for your business, which will be instructive for your areas of focus and where you invest resources in regard to putting anti-money laundering procedures in place. Whereas ArtAML will have risk assessments built into our platform in spring 2020, in an abundance of precaution, you could work with your lawyer in the meantime to identify risks.

You can also add an AML notice to your website (often placed as a link in the footer) and incorporate the MLRs into your Terms & Conditions. Whereas some galleries are sending dedicated email campaigns to advise clients of the new anti-money laundering regulations, our opinion is that such a move is unnecessary as you can advise collectors of the change in law on a case-by-case basis. However, if you wish to send out such a notice, there is no harm in doing so.

To go a step further, you could take photo ID and proof of address from clients (including all Ultimate Beneficial Owners of companies who have at least 25% ownership of the business for purchases by companies). Do note however that you need to comply with the General Data Protection Regulation (GDPR) to securely store the personal data of EU citizens.

How can ArtAML support your needs?
Our art market specific solution supports your adherence to this new legislation, with a focus on complying while trading. Our first release is expected in March 2020 and beta users will come onboard in late February. If you would like to take part and get early access to our platform that guides you through the process of conducting due diligence in a GDPR compliant way, get in touch (noting that spaces are limited). See detailed information on the ArtAML solution and how it supports AMPs and buyers alike.
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Footnotes:

[1] Guidance forms a key part of legislation (including amendments) for individuals and businesses that are required to comply. In the case of AML5D, the industry guidance as approved by a minister provides instruction on how to comply with the legislation, for example explaining nuances that might otherwise be unclear.

[2] In ArtAML’s monthly meeting with HMRC (AMP Supervisory Body) on 4th February 2020, the news hot off the press was that the Guidance has been approved and is now awaiting publication, which could be in one week or several weeks.

[3] Purdah: The pre-election period, sometimes known as ‘purdah’, describes the period of time immediately before elections or referendums when specific restrictions on communications activity are in place. The term ‘heightened sensitivity’ is also used. See https://www.local.gov.uk/our-support/pre-election-period

[4] The Money Laundering and Terrorist Financing (Amendment) Regulations 2019. 2019 no. 1511. See http://www.legislation.gov.uk/uksi/2019/1511/contents/made

[5] Definition of ‘Directive (European Union)’ on Wikipedia.org: “A directive is a legal act of the European Union[1] which requires member states to achieve a particular result without dictating the means of achieving that result. It can be distinguished from regulations, which are self-executing and do not require any implementing measures. Directives normally leave member states with a certain amount of leeway as to the exact rules to be adopted.” See https://en.wikipedia.org/wiki/Directive_(European_Union)

[6] Qualifying transactions total 10K+ Euros and include linked transactions that total this amount or more. For the time being, the UK is applying the gov.uk currency converter that is updated on a monthly basis: https://www.gov.uk/government/publications/hmrc-exchange-rates-for-2020-monthly 

[7] See the replay of the HMRC webinar with accompanying Q&A session https://artaml.com/art-market-participants-what-you-need-to-know-replay-of-hmrc-webinar-jan-2020/

[8] Register or renew your money laundering with HMRC: https://www.gov.uk/guidance/register-or-renew-your-money-laundering-supervision-with-hmrc
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The contents of this article do not count as legal advice and are not to be relied upon as such. Legal advice should be sought for your own needs.

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