Summary

Individuals, trusts and companies buying or selling art via UK galleries and auction houses will now be subject to the same customer due diligence checks as those opening bank accounts in the UK.

What has changed?

The Money Laundering and Terrorist Financing (Amendments) Regulations 2019 (the “Regulations”), which implement to a large extent the European Union’s 5th Money Laundering Directive, came into force on 10 January 2020.

The Regulations bring “art market participants” doing business in the UK within the regulated sector for anti-money laundering compliance purposes when they participate in (single or linked) transactions worth over €10,000.

Who and what is caught by the new rules?

An art market participant is a firm or sole practitioner who, by way of business, trades in, or acts as an intermediary in the sale or purchase of, works of art; or is the operator of a freeport when it, or any other firm or sole practitioner, by way of business, stores works of art in the Freeport. Unfortunately, it is not clear from the Regulations whether dealers who do not send or receive sale proceeds are within this definition, and no guidance has been provided on the point. At present it is safest to assume that the Regulations apply.

As you would expect ‘works of art’ is drawn widely and includes pictures; collages; decorative plaques; paintings; drawings; photographs taken or printed by the artist; engravings; original prints; lithographs; sculptures; tapestries and wall textiles; ceramics and enamels on copper.  Interestingly, collectibles and antiques appear to be carved out.

What does it mean for art buyers and collectors?

If an individual wishes to buy or sell a work of art through an auction house or a gallery they will now be subject to additional compliance, as the gallery or auction house will be required to identify them in the same way as a bank or law firm etc. As a result, the individual will need to provide the following:

• a photographic identity document detailing the individual’s full name and date of birth; and
• recent proof of address (e.g. a utility bill or bank statement that is less than three months old).

These documents must either be originals or copies certified by a solicitor.

If the buyer or seller is a trust or company, the art market participant will need to establish the ownership structure and the identity of the ultimate beneficial owner. The art market participant will also need to understand the connection between the trust/company and the ultimate beneficial owner, as well as the purpose of the transaction.

In addition, it might be necessary to provide details of the source of wealth of the individual or ultimate beneficial owner.

The fact the buyer or seller dealt with the gallery or auction house before the Regulations came into force does not mean that they are exempt from these new due diligence requirements.

Ultimately, these rules could impact the ability of the buyer or seller to carry out the transaction, if they are unable to provide adequate due diligence to the art market participant.  As a result, more sales may need to be conducted outside of Europe, particular where the individual or ultimate beneficial owner is a politically exposed person or a resident of a high risk country (as determined by the EU).