A New Report Suggests that UK Art Businesses Are Begrudgingly Adapting to New Money-Laundering Regulations
Still, the new rules pose certain challenges.
A survey of UK art businesses, which were forced to adapt to new money-laundering rules last year, suggests that many dealers and advisors are coming around to the regulations—but not without some pain.
Tech company Arcarta, which provides dealers with services to help them become compliant with the new rules, surveyed 105 UK businesses, including galleries, art advisors, and auctioneers, about the new regulations, which mandate that dealers must conduct specific checks on clients and report suspicious transactions that may suggest money laundering to the government.
Of the 2,596 customer due-diligence reports created for art buyers through Arcarta, just 104 reports, or four percent, included clients who were “politically exposed” (that is, public figures deemed susceptible to bribery and corruption) or officially “sanctioned.”
While this seems to indicate that money laundering is less prevalent in the art industry than it may be in a field like banking, Arcarta founder Tom Noon says it doesn’t tell the whole story.
“While databases allowing one to search to see if a client is a politically exposed person or sanctioned are not without their distinct advantages, they are of course predicated on detection—dealing with known threats—not on prevention alone,” Noon writes in the report.
The new rules require businesses to take a risk-based approach to transactions based on client identity, their country of origin, and the size of the transaction.
The report found that asking art buyers for personal information—including identity documents and proof of address— remains art business’s biggest concern. A spokesperson from the London-based Bowman Sculpture gallery reported that some longstanding clients took offense at the request, and that getting those details after verbally confirming a sale can “feel a little bit more severe than a smile, a handshake, and a ‘thank you very much.’”
Other businesses reported clients’ concerns over how their information was being stored, given that the less-than-tech-savvy art industry is already a target of cybercriminals and hackers.
There were also difficulties for galleries conducting businesses with intermediaries such as art advisors, who were reluctant to disclose the identities of their clients. Advisory firms, particularly from the US, bristled at the requests, with the report finding that 49.9 percent of clients providing documents were UK citizens, and 24.8 percent were from the US.
While many reported that clients quickly became used to the new laws, compliance remains an administrative hassle. “It’s a time- and-energy consuming process for an already busy, small team,” a spokesperson for the London-based Alon Zakaim Fine Art said.
The burden was greater when transactions included offshore companies, with the report finding that identifying the ultimate beneficial owner when companies, trusts, and other entities are involved generated three times as much administrative work.
The report’s observations are useful to the market outside the UK as well: the EU and Switzerland have adopted similar anti-money laundering rules, and the US is not far behind, having brought antiquities dealers under regulation on January 1, following a stark warning to all art businesses from the US treasury last November.
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