Among the amendments to the EU Exit Sanctions Regulations 2024 made in November is a stipulation that art-market participants and high-value dealers are now obligated to report to the treasury if they know or have reasonable cause to suspect a person who has committed breaches under the U.K. regulations “as soon as practicable.” The new regulations will take effect on May 1, 2025.

The new regulations will allow the authorities to have an oversight of what is going on in the art market in addition to prohibiting transactions, noted Martin Wilson, chairman of industry body British Art Market Federation. “If an art market participant encounters a sanctioned person in a business context, the authorities want an obligation to be in place to file a report with them reporting the encounter,” he explained in an email.

The legislation applies to most auction houses and galleries, which fall under the designation of a “high-value dealer”—a business or individual who trades goods and, as part of their work, makes or receives cash payments of at least €10,000 ($10,523). This amount can come from a single transaction or multiple related transactions. The reporting obligations already applied to dealers specializing in precious metal and gems.

It also applies to “art market participants” who are involved in buying, selling, or storing artworks totaling over €10,000  for an individual client. Artworks created by the art market participant or a member of their firm are exempted, i.e. artists, are exempted.

The U.K. sanctions regulations apply across the entire country as well as to the actions of U.K. individuals and businesses, even if those actions are performed outside of the U.K. Failure to comply can result in hefty penalty of up to £1 million, or 50 percent of the total value of the breach, whichever is higher, and up to seven years of imprisonment.

Auctioneer Adrien Meyer sells David Hockney’s California at Christie’s 20th/21st Century sale in London. Photo: Courtesy of Christie’s.

It is the first time that financial sanctions regulations have been drafted to include the art trade specifically. The legislation brought before parliament last month highlighted that in 2023, U.K. art sales reached $11.05 billion, accounting for 17 percent of the global total of $65 billion, making the U.K. the world’s third-largest art market. With major auction houses like Christie’s, Sotheby’s, and Phillips based in London, the U.K. also holds a 12 percent share of the global auction market.

Given the high volume of the fine-art trade in the U.K, authorities cautioned that high-value goods, including artworks, could be used to evade financial sanctions. This includes asset transfers, regular payments from unclear sources, and risks like intermediaries, shell companies concealing designated individuals, and the sale of cultural objects to fund terrorist activities.

U.K. authorities have been strengthening measures against sanctions evasions in the art industry and the new regulations are in-line with the amber alert issued by the National Crime Agency earlier this year targeting artwork storage facilities to warn them of potential criminal sanctions evasions as more individuals and entities have been added the sanctions list, such as Russian oligarchs. The alert revealed that the U.K. police seized 23 paintings belonging to Nazem Ahmad, who was accused of financing Hezbollah.

While the new regulations will add another layer of administration, the additional sanctions reporting obligation is not expected to cause a major burden for industry practitioners, compared to other measures such as import procedures, which are in need of reform, Wilson noted.

Frieze London. Courtesy Frieze London

As a result of the administratively confusing temporary admission scheme, introduced after Brexit to defer VAT an import duties on artworks brought into the U.K. for up to two years, fine-art and antiquities imports fell by 16 percent year-on-year in 2023, according to a recent report in The Art Newspaper.  The country’s global art market share also fell to seven percent. In 2010, the U.K. had a share of 30 percent of global imports, according to figures from the United Nations published in the Art Basel/UBS Survey of Global Collecting 2024.

The U.K. also recorded a 16 percent drop in its share of global art exports last year and a 60 percent drop in total since 2019.

Meanwhile, Hong Kong has replaced the U.K. as the second-largest art market, after the U.S. The Chinese city saw a nine percent increase in imports last year and its global share of exports by value also increased from two percent in 2010 to 18 percent in 2023.

Hong Kong and the U.S. do not charge import duties on artworks in most cases.

“We are in active discussions with government about how to reduce bureaucracy and red tape, in particular in relation to the movement of art across borders,” Wilson noted.

He added that while sanctions and anti-money laundering compliance is important, in order to be competitive, the U.K. must aim to have the same low level of administrative burden as in its major competitors. “In terms of the fall in imports that we have seen,” Wilson said, “the government needs to make the necessary changes fairly quickly if we are to reverse that trend.”