Risk guidance published by HMRC (June 2021) highlights the importance of identifying if funds have come from a high-risk jurisdiction.
Why is this important?
According to the risk guidance:
Such locations are “more likely to be linked to money laundering and terrorist financing.”
In practical terms, this means that it’s important to identity the ‘source of funds’ and associated jurisdiction.
Top tip: ‘Source of funds’ (SoF) is different to ‘source of wealth’ (SoW). Whereas the former (SoF) is the origin of the payment – such as a bank account, the latter (SoW) is how the money was attained – for example, inheritance, investments and salary.
The ArtAML platform automatically checks for high risk jurisdictions – and countries that border high-risk jurisdictions, in association with:
– Residential address (for private individuals and the UBOs of companies)
– Registered address (for companies)
– Source of funds (for all types of customer)
– Reliance partner (the Art Market Participant or regulated business upon whose AML checks you’re relying)
If a high-risk (or bordering) jurisdiction is identified in our platform, a red flag is raised, which triggers conducting Enhanced Due Diligence. You will need to take a risk-based approach based on information related to the transaction, in context of the risks your own business faces of being a target of ML/TF activities.
Not yet using ArtAML for compliance checks? Or need to do a manual high-risk jurisdiction check?
Review the current lists of high risk jurisdictions via the following links.
*The UK updated the list on 4th December 2023. Specifically, this update adds Bulgaria, Cameroon, Croatia, Nigeria, South Africa and Vietnam and remove Albania, Cayman Islands, Jordan and Panama from Schedule 3ZA to reflect changes in FATF lists. Read more: https://www.gov.uk/government/publications/money-laundering-advisory-notice-high-risk-third-countries–2/hm-treasury-advisory-notice-high-risk-third-countries
A note on Russia (think: sales**, purchases and consignments of art):
While the Russian Federation and Belarus have not been added to lists of high-risk jurisdictions, the Financial Action Task Force (FATF) warns: “the FATF continues to call upon all jurisdictions to remain vigilant of threats to the integrity, safety and security of the international financial system arising from the Russian Federation’s aggression in Ukraine. The FATF reiterates that all jurisdictions should be vigilant to possible emerging risks from the circumvention of measures taken in order to protect the international financial system.” Source: gov.uk
**It is illegal to transact in luxury goods if the final destination is Russia / Belarus. Moreover, UK businesses are not to transact if the customer is “connected with Russia”. Read more in our Luxury Goods Ban blog post.
Accordingly, associations with Russia and Belarus are flagged for CDD in ArtAML.
Before you start your search, note that the HMRC risk guidance also states:
“It is not only the country that the customer is based in that may be the risk, it could also be neighbouring countries as money laundering or terrorist financing often involves the movement of funds across borders.”
Blog post last updated 6th December 2023.