The UK art market is under increasing pressure from anti-money laundering (AML) legislation. HMRC, the UK’s tax authority, has fined at least 31 participants in the art market from 10 January 2021, when it began monitoring the art trade, to 31 March 2023, the latest period for which data is available.
Of the 31 fines published, 30 are in the 15 months starting January 1, 2022, a rate of at least two fines per month. (HMRC data is sometimes behind enforcement, meaning the actual figures for any given period may be higher than initially reported.) Penalties were mainly triggered by failing to register with an AML watchdog or provide information within scheduled deadlines. The average fine for participants in the art market exceeded £5,000, while the highest single penalty amounted to around £13,000.
The fines add to concerns about the intensity of HMRC’s controls on the art trade, its understanding of the market and the fallout from the UK’s Economic Crime and Corporate Transparency Act, which gave authorities broad powers to investigate fraud and corruption.
Problems of proportionality
“The UK’s smaller galleries are consistent in their view that HMRC’s approach to anti-money laundering interventions lacks proportionality,” says Paul Hewitt, chief executive of the Society of London Art Dealers (SLAD). . Around 78% of respondents in a recent survey carried out by the organization expressed concern about changes in legislation, specifically about the administrative burden of complying with AML rules.
“Galleries with lower risk profiles feel that they are treated no differently to larger and potentially riskier businesses, and the expectation that rigorous due diligence is required, even for clients that dealers have known well for many years , it’s a real burden and hinders productivity.” Hewitt adds.
Routine HMRC audits (called ‘interventions’) of certain registered companies are typically thought to last only around half a day, with officers mainly testing staff on AML regulations and the risk-based approach, but an investigation into a suspected violation can be demonstrated significantly. more disturbing
A gallerist subject to an AML intervention by HMRC says: “The whole process was very stressful. I was in a room with two officers from 10am to 6.30pm one day, followed by weeks of back and forth providing information. I’m not saying I didn’t I had nothing to learn, I like to do things the right way, and it’s still pretty new legislation, but I’m a small business. I was doing my best.”
An HMRC spokesman says, in part, that “officers ask questions in interventions to ensure we have a comprehensive view of the businesses we monitor”, including their “nature and risk”.
The Journal of Art He also spoke to a number of art professionals whose bank accounts had been closed at very short notice after the banks themselves – not HMRC – concluded that additional due diligence checks were necessary. While financial institutions must ensure that all AML risks are considered, the impact on art businesses can be significant, from short-term cash flow disruption to long-term reputational damage.
Several banks were contacted by The Journal of Art for information on any internal strategy or guidance specific to AML in the arts sector. A spokesperson for Lloyds Bank told us: “Our group provides banking services to around one million businesses. We comply with regulatory and legislative obligations regarding the information we ask customers when opening and maintaining a bank account.
Fluid situation
However, the data suggests that the UK art trade is working hard to comply with AML regulations. More than 1,000 art firms have now registered with HMRC, and the few dozen known to have been fined until March 2023 comprise only a small fraction of all firms found in breach. In 2021, the department assessed fines to at least 282 companies registered outside the art market.
Awareness of AML responsibilities in the sector is also spreading. Nicole Thiriez, a business development associate at Arcarta, an online due diligence platform, says: “When the regulations came into force in 2020, we saw a wave of UK-based galleries starting to work with us and we believe that this was due to the fact that they were part of trade associations such as SLAD, (Association of Antiquaries, etc.), which kept galleries up to date with their requirements.In the last year, however, we have noticed that independent galleries and art advisors more small businesses that were not informed of their requirements turned to companies like us for guidance and support.”
Thiriez, however, highlights art advisory as one type of business that is still struggling to understand “how and when” due diligence fits into its operations, with many believing that AML regulations apply to art sellers but not to service providers. Other compliance professionals anticipate that HMRC’s enforcement efforts will increase in response to other weaknesses in the trade.
Rena Neville, head of art at FSC Compliance, says: “The art market can expect the nature and amounts of fines to follow those imposed in the real estate market, which has been regulated much longer than the of the art.” She cites recent fines levied against real estate agents not only for failure to register, but also for poor customer diligence and inadequate record keeping. No matter the details, vigilance will remain very important.
