The UK’s Surprise Money Laundering Rules Blindsided Dealers Last Month. Here’s How They’re Coping With the Changes

Many art dealers in the UK were
blindsided when new regulations designed to crack down on money
laundering were rushed into effect last month. The new rules require dealers to register with
the government, officially verify client identities, and report any
suspicious transactions. Failure to do so, and to keep records of
their due diligence, could result in jail time or a
fine. 

Some in the trade, such as the
International Confederation of Art and Antique Dealer Association,
raised concerns that the
additional checks might deter collectors from buying art in
London. But so far, dealers seem to be making do.

Benedict Tomlinson, director of
the London gallery Robilant & Voena, tells Artnet News that his
clients have been “very
understanding and compliant with the requests for the information
needed.”

The main change, Tomlinson says,
has been “a lot more admin” for the
gallery. Dealers
selling art worth €10,000 or more (£8,500 or $11,000) must now
carry out the same due diligence checks on clients that banks,
accountants, and lawyers do before taking on new business. This
includes carrying out a risk assessment to gauge the likelihood of whether the
transaction could be a result of money laundering or a terrorist
financing scheme. 

As a result, galleries have had
to train staff in the new due diligence standards as well as hire
money laundering compliance officers. While art market businesses have a grace period
of one year to register with the government, they were expected to
already be compliant as of January 10. 

The British Art Market
Federation recently issued some advice to the trade.
The guidelines were approved by the UK government. It applies to
anyone buying, selling, and storing works of art. At the heart
of the advice is the question: “Who are you really dealing
with?” It acknowledges that while confidentiality and discretion
remain key in the art market, the new regulations will
increase transparency between buyers, sellers, and the British
authorities.

Clean Dealing 

Many gallerists were flummoxed
when they returned from their winter holidays to find that the rules had quietly come
into effect. At the London Art Fair earlier this year, The Art
Newspaper reported that several mid-market galleries were
deliberately pricing works below the €10,000 threshold in order to
avoid the hassle of dealing with the new ID
requirements.

Some galleries, including Pilar
Corrias, Maximillian William, and Robilant + Voena have been busy
sending out emails to prepare their clients for the new due
diligence requirements.

Even though galleries must now undertake a risk assessment on the transaction, ensuring
that adequate screening is being done on every sale, “‘knowing
one’s client’ is very much part of the business already,” Tomlinson
says. “With new clients whom we don’t already know we always
undertake measures of screening.”

Maximillian William, founder of
Maximillian William gallery, agrees that it has been “business as
usual” around his gallery. “The only real change I’ve noticed is a
few more email exchanges before and after invoicing in order to
make sure documentation is retrieved,”  William says.“The
primary market is a very intimate place, we know our clients for
the most part. The gallery’s making sure to prepare more in regard
to back of house operations for the extra admin
required.”

Cracking Down on Cyberfraud

As galleries rush to become
compliant with the new rules, some are outsourcing the work to
advisory services. Tom
Noon, co-founder and chief executive of ArcartaPay, a cloud-based app that helps
art world businesses conduct customer due diligence and securely
collect payments, says there has been an uptick in the number of
people using the service since the new rules were
introduced.

Noon says that art businesses
are interested in the platform to help them deal with the burden of
the “completely alien” new laws and processes. “For a business dealing in works of art, there
is little to no competency within the business relative to
compliance and anti-fraud which makes dealing with these issues in
an efficient manner all the more difficult,” Noon says.

One upside of the newly enforced
regulations for galleries is that the new identity verification
steps will make them less vulnerable to cybercrime. While for many,
the shift to conducting sales over the internet has opened up new
business opportunities, it can be hard to know who exactly is on
the other side. Online fraudsters have been increasingly targeting
art businesses and intercepting sales. “Owing
to the size of transactions that are commonplace, art businesses
are routine targets for cybercriminals who will intercept
communications between the business and their clients,” Noon
says.

The new due diligence
regulations should help to thwart fraudsters from taking advantage
of the anonymity. “With so
many galleries routinely ‘Googling’ clients to arrive at a clear
picture of their buyer, enhancing this process and making it more
robust through specialist tools and services is not without its
advantages,” Noon says.

The Hidden Casualty

One of the main concerns facing
galleries is not actually how these rules will affect direct
transactions with clients, but how to deal with third parties such
as agents, consultants, and art advisors whose primary purpose is
to protect the identity of their clients.

The requirements mean that
galleries need to not only know the customer they are directly
dealing with, but also, in the case of an intermediary acting on
behalf of a buyer, they will need to obtain information about the
eventual  owner.

The art market has long fostered
a culture of confidentiality, and there are many reasons a buyer or
consignor might want to keep their identity quiet that do not have
to do with dirty money. These could be issues personal security, or privacy concerning
sensitive circumstances such as
death, divorce, or debt. Without the layer of protection for their
identity, this could mean that collectors rely less on art advisors
to conduct business for them.

But Nazy Vassegh, founder and
director of Business of Art Ltd, is staying optimistic. “I have
been operating the ‘know your client’ practice since I set up my
advisory in 2009. It’s something that my clients are used to and
comfortable with,” Vassegh tells Artnet News. “I have deep
relationships within the art world and anonymity is extremely
important.” She points out that the due diligence processes are
already common practice in auction houses.

The post The UK’s Surprise Money Laundering Rules Blindsided
Dealers Last Month. Here’s How They’re Coping With the Changes
appeared first on artnet News.