Anti-money laundering legislation meets the art market
The art market is often described as the last unregulated market. Even if that is true, it is set to change in the next couple of years, with the market being brought firmly within the ambit of European Union anti-money laundering legislation.
The current situation in England
Anti-money laundering legislation has been coordinated across the EU through a series of directives over many years. In England, these have been implemented through Part 7 of the Proceeds of Crime Act 2002 (POCA) and subordinate legislation, most recently, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the ML Regulations). These fall into two sections for those outside the “regulated sector” and those within the “regulated sector”.
Those outside the regulated sector may commit a money laundering offence if they deal with the benefit of a crime while knowing or suspecting that it is such a benefit (subject to certain defences). Those in the regulated sector (eg, banks and other financial institutions, lawyers and accountants) have additional obligations. In particular, they must:
- be registered with a regulator for antimoney laundering purposes
- put in place “know your client” (KYC) or “customer due diligence” (CDD) measures to ensure that they know the identity of their customer or client and monitor their money laundering risks
- train their staff on money laundering risks
- report to the National Crime Agency (NCA) any knowledge or suspicion of money laundering via a nominated officer (typically called the money laundering reporting officer (MLRO)), and
- ·not “tip off” their customer or client that any report has been made.
Over 18 months to March 2017, the NCA received over 600,000 reports of potential money laundering, demonstrating that this is a significant source of information for law enforcement.
However, the art market has not generally fallen within the regulated sector to date. Although dealers (including auction houses) accepting cash payments of €10,000 or more fall within the regulated sector, most stay outside the regulated sector by refusing to accept cash payments near or at that level.
To find out more about the recently approved Fifth Money Laundering Directive (5MLD), the practical issues it raises and existing guidelines available, download the full article below.