If you are a high value dealer your business might be caught by the latest anti-money laundering reforms, write Petra Warrington and Louise Garrett
High Value Dealers (HVDs) in the UK, which include dealers (and auctioneers) in fine art, antiques, jewellery and other collectibles whose cash transactions exceed a certain threshold, may feel they are already subject to sufficient anti-money laundering measures. Indeed, proposals for more stringent compliance requirements initially sparked fears that the UK's thriving art market would be threatened if HVDs were to relocate to other countries as a result. The question is, to what extent the recent Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (new AML Regulations) will radicalise the compliance obligations of HVDs?
The new AML Regulations lower the threshold for eligible transactions in cash from €15,000 to €10,000. This applies to payments that are made or received in cash, whether as a one-off transaction or as part of a series of transactions that appear to be linked. In order to receive or spend the Sterling equivalent of €10,000 in cash, a dealer must register with HMRC as an HVD. However, the vast majority of art and antiques dealers do not deal in cash transactions of a high value; and as such, this amendment may only affect a limited number of art market professionals.
HVDs now have more onerous compliance obligations under the new AML Regulations. They will need to conduct customer due diligence on a case-by-case basis, depending on the level of money laundering risk presented, and will also need to have enhanced procedures in place to establish whether a customer (or the beneficial owner of a customer) is a politically exposed person, which is now more widely defined. HVDs are also subject to greater documentation and record keeping requirements. Although these measures may appear cumbersome at face value, if implemented properly they may prevent HVDs from falling into money laundering traps, and consequently help to safeguard the reputation of the art market in the UK.
Whether or not they fall within the scope of the new AML Regulations, all art and antiques businesses remain subject to the Proceeds of Crime Act 2002 (POCA), which sets out criminal sanctions for offences involving money laundering. POCA has recently been bolstered by the UK Criminal Finances Act, which came into force in April 2017.
The risk of being involved – unwittingly or not – in a money laundering scheme is significant for all sectors, including the art and antiques industry. While the enhanced requirements of the new AML Regulations will not apply to the vast majority of art and antiques dealers, because they do not deal in cash transactions of a high value, the recent legislative focus in this area signals the importance of vigilance in identifying and dealing appropriately with any suspected money laundering risks.
Dealers who are defined as HVDs need to do more than just be wary of buyers who offer to pay in large amounts of cash or appear to have complicated financial situations, particularly those that point off-shore. They need to actively train staff on implementing these reforms in a robust and effective manner, and be mindful that HMRC can visit businesses without any prior warning to assess anti money-laundering compliance.
Petra Warrington and Louise Garrett