UK Dealers Are Scrambling to Make Sense of ‘Burdensome’ New Anti-Money Laundering Regulations Quietly Passed Over the Holidays

Art dealers around the UK
returning from their holiday breaks this week are in for a rude
awakening. A new set of regulations designed to combat money
laundering snuck through parliament just before Christmas, and are
taking effect today.

The new rules involve a slew of
onerous administrative requirements, enhanced due diligence checks
on clients, as well as the reporting of any suspicious transactions
to the government. Amid the scrum, fears are mounting that the new
requirements could disproportionately affect small businesses
and make the London art market less attractive.

“There is going to be quite a
significant change in the way that business is done in a number of
organizations that is contrary to a lot of the current market
practices,” Kenneth Mullen,
a partner at the Withers law firm, tells Artnet News.

In essence, the new rules
require anyone participating in an art-market transaction worth
€10,000 or more (£8,500 or $11,000) to carry out the same due
diligence checks on clients that banks, accountants, and lawyers do
before taking on new business.

Regulated participants—which
include not just gallery owners but also their senior managers and
newly appointed money laundering compliance officers, who will be
charged with reporting suspicious activity—will be given a grace
period of one year to register with HM Revenue and
Customs.

An Unexpected Shift

The timing of the new regulations came as a
surprise to many in the industry. “The directive was always due to
be implemented by the 10th of January but there was an expectation
that, because there was a consultation launched by the treasury
last April, there would at least be either a response or guidance
published in light of that,” Mullen says.

It is unclear why the
regulations slipped through without an official response to
the industry
consultation, which
asked art market participants to weigh in on the directive and saw
several objections to the proposed rules. (One possibility is that
all hands were on deck for the general election and the management
of Brexit.)

The regulations are part of a
wider international move to combat money laundering that may soon
become the norm. The directive is an EU-wide piece of legislation,
and in the US another bill is
making its way through Capitol Hill that will introduce anti-money
laundering legislation there, too.

The new rules, officially called
“The Money Laundering and Terrorist Finance Amendments Regulations
2019,” are implementing the EU’s Fifth Money Laundering Directive
in the UK. They will make the UK art market one of the sectors that
is officially regulated for anti-money laundering and
counter-terrorist financing compliance.

While they are taken from an EU
directive, the regulations will remain in force regardless of
Britain’s exit from the union, not least because the UK is one of
the founding members of the Financial Action Task Force, the
intergovernmental group behind the anti-money laundering push. “It
would have looked a bit odd if the UK didn’t also take on board
rules which it was a protagonist of,” Mullen says.

A Culture Change for the Industry

The new regulations could force
significant changes to the way galleries, as well as intermediaries
and agents, do business. 

Dealers are used to being able
to protect their clients’ identities for a number of reasons that
don’t always have to do with dodgy financial dealings. When
consigning work to an auction house, for example, a dealer might
not want to give away the identity of a client to a specialist who
could then compete for their business. And a seller might want to
keep their identity secret for reasons of personal security or
privacy concerning sales triggered by sensitive circumstances such as death, divorce,
or debt.

A number of market players have been
speaking out against the regulations, including the
International Confederation of Art
and Antique Dealer Associations. “We have
been very clear with the policy makers in the EU and UK that the
directive is disproportionate and will be very difficult and
burdensome for both collectors and dealers,” Erika Bochereau, the
secretary general of the
confederation, tells Artnet
News. “The €10,000 threshold is very low and we are very skeptical
that it will actually catch criminals, but we fear that it will
deter some people from purchasing artworks.”

But the rules aren’t new to
everyone in the business. “This legislation broadly reflects practices
which have been in place for some time at major auction houses,”
Martin Wilson, the chief legal counsel at Phillips auction house,
tells Artnet News. “I am confident that, just as banks have done,
the art industry will find a balance between the legitimate need
for discretion and confidentiality and the level of transparency
necessary to ensure that the art market cannot be used for illicit
purposes.”

Others say they don’t mind complying with the rules, especially
since many legitimate
customers are already
accustomed to producing identity documentation when they do
business in other industries. “The requirements seem to correspond with the
sort of information now regularly requested from us by our bank,
solicitor, accountants, and other advisors,” antiques dealer
Martin P. Levy, the director of H.
Blairman & Sons, tells Artnet News. “It is a matter of putting systems in place and
then following through; we are already taking advice on how
precisely to proceed.”

(Antiques dealers may be spared from the regulations,
however, as the definition of
art used in the law doesn’t include antiques and collector’s items;
it instead covers “artist created pictures, collages and similar
decorative plaques; paintings and drawings; original engravings,
prints and lithographs; original sculptures; tapestries and wall
textiles from original designs; individual signed ceramics; enamels
on copper; and photographs taken or printed by the
artist.”)

The biggest question on people’s
minds is whether these new rules will make London less attractive
to people storing works there or otherwise doing business in the
UK. London accounts for 21 percent of the global art
market and is home to some of the world’s leading experts. But as
the UK faces another imminent Brexit deadline on January 31, other
factors that impact the market will soon be in
play. 

The post UK Dealers Are Scrambling to Make Sense of
‘Burdensome’ New Anti-Money Laundering Regulations Quietly Passed
Over the Holidays appeared first on artnet News.