New Money Laundering Directive – plans for the UK

Posted on: June 17, 2019 by

Readers may recall our post a few months ago focused on the problem of money laundering in the art trade, and in particular, the adoption by the European Parliament of the Fifth Anti-Money Laundering Directive (5MLD), to be implemented by Member States by 10th January 2020. In anticipation of the implementation in the UK, the Government, through HM Treasury, issued a consultation paper to which the IAL responded, in conjunction with our colleague, Professor Janet Ulph from the University of Leicester. Responses from those involved in the art sector were sought by the Government because the new legislation imposes obligations directly on the art trade specifically, for the first time. Art traders and ‘intermediaries’ engaged in transactions or series of linked transactions worth €10,000 or more, irrespective of the payment method, will be brought within the remit of the regulations. This will mean new obligations to conduct client due diligence involving checking the identity of those with whom traders deal, conducting risk assessments and monitoring business relationships on an ongoing basis.

Views were sought on a range of issues of concern to the art market: Who should be covered by the term ‘intermediaries’? Should transactions through free ports be in scope? How should works of art be defined for the purposes of the UK regulations? What is the role of auction houses within the anti-money laundering regime?

As indicated in our response, which you can read in full here, we consider that the application of the regulations to the art trade is both necessary and a positive step for the art trade over the long term. The UK art market is currently second only to the US in its share of the global market. Maintaining this position requires the UK to demonstrate a strong commitment to the protection of the trade against illicit activity, in order to create a confident environment in which legitimate trade can flourish.

It is to be hoped that the new compliance obligations will not come as too great a shock to many traders. Those who qualify as ‘High Value Dealers’ under the existing regulations (because they deal in cash for transactions worth €10,000 or more in a single deal, or a series of linked transactions) will already have been carrying out the required diligence checks for some time. The larger auction houses also routinely conduct such checks before accepting consignments or allowing bids.

As is the case in respect of all European Directives awaiting implementation, there is a degree of uncertainty owing to the ongoing Brexit negotiations. Nonetheless, the consultation paper indicates a strong commitment to the principles espoused by 5MLD, and a willingness to go further than the minimum protection required in some areas. This gives a strong message that, however the Brexit situation is resolved, the UK will position itself at the forefront of the global players in terms of protective regulation which, one hopes, can only be a positive thing for the UK art market over the long term.