Privacy has been established as a way of conducting business in the art market over a period of many decades. The very culture of a gallery not knowing the identity of a buyer as an intermediary (or multiple intermediaries) is situated in between parties is commonplace for transactions. As it happens, the expectation of a collector’s identity not being known in association with art ownership has proven to be a key challenge to digital art authentication (typically using blockchain), as associated platforms often seek to provide the entire trail of provenance from the point of digital authentication.
Yet the introduction of anti-money laundering legislation is set to introduce transparency to the art market as never before known. Whether you’re for or against transparency (and we mean within transactions, not with individuals outside of a gallery business), it’s a reality. Mind, this is different from security, and there is not an accessible repository of collectors, which has been feared. Building in the ability to withhold the identity, and important contact and personal details, from junior members of staff is often sought, and is a reality when using smart technology with multi-user functionality.
The UK Regulations enable one layer of ‘reliance’ in which the seller (for example, a gallery or dealer) may rely upon the Customer Due Diligence (CDD) conducted by the intermediary representing the collector (or ‘buyer’). This does not remove the requirement to know the ‘identity’ of the buyer, as this is at the foundation of preventing art acquisitions being used to move money associated with illicit activities. See the diagrams for more information in our digital booklet here. Note the importance of being confident of another Art Market Partcipant’s (AMP) CDD, for if you use reliance on another, you are still personally liable for compliance although conducted by another party.
While the art market rallied against the legislation becoming a reality and has endeavoured to adjust some specifications, anti-money laundering is a moder-day reality and there won’t be exceptions for AMPs as a new obliged entity.
A solution for Art Advisors:
In the absence of ‘reliance’, one option for handling transactions with intermediaries is for art advisors to take an introducer’s fee, with sales taking place directly between the AMP as seller and ultimate beneficial owner (UBO) as buyer. Contracts between advisors and dealers can clarify terms for the relationship between buyer and dealer, as the client will have traditionally been that of the advisor. Thus an agreeable percentage between parties will be arranged and long-term business relationships between advisors and collectors maintained.
It will be of paramount importance to clearly communicate with collectors. You can help them understand that the market has changed and what this means for the handling of transactions, all the while keeping their personal information safe.
By using a platform such as Artaml, collectors can be rest assured that their personal details will remain secure and private (full ID and address details will not be accessible via the application). Nor will the entire history of transactions be publicly accessible. The core of the change is that the transaction will take place between supplier and UBO, to ensure that the dealer sells with the confidence that the individual and funds making the purchase are clean, and thus the work of art is going to a good home.