The UK’s Surprise Money Laundering Rules Blindsided Dealers Last Month. Here’s How They’re Coping With the Changes

Galleries are finding ways to manage the administrative burden.

Photo by globalmoments/ullstein bild via Getty Images.

Many art dealers in the UK were blindsided when new regulations designed to crack down on money laundering were rushed into effect last month. The new rules require dealers to register with the government, officially verify client identities, and report any suspicious transactions. Failure to do so, and to keep records of their due diligence, could result in jail time or a fine. 

Some in the trade, such as the International Confederation of Art and Antique Dealer Association, raised concerns that the additional checks might deter collectors from buying art in London. But so far, dealers seem to be making do.

Benedict Tomlinson, director of the London gallery Robilant & Voena, tells Artnet News that his clients have been “very understanding and compliant with the requests for the information needed.”

The main change, Tomlinson says, has been “a lot more admin” for the gallery. Dealers selling art worth €10,000 or more (£8,500 or $11,000) must now carry out the same due diligence checks on clients that banks, accountants, and lawyers do before taking on new business. This includes carrying out a risk assessment to gauge the likelihood of whether the transaction could be a result of money laundering or a terrorist financing scheme. 

As a result, galleries have had to train staff in the new due diligence standards as well as hire money laundering compliance officers. While art market businesses have a grace period of one year to register with the government, they were expected to already be compliant as of January 10. 

The British Art Market Federation recently issued some advice to the trade. The guidelines were approved by the UK government. It applies to anyone buying, selling, and storing works of art. At the heart of the advice is the question: “Who are you really dealing with?” It acknowledges that while confidentiality and discretion remain key in the art market, the new regulations will increase transparency between buyers, sellers, and the British authorities.

Clean Dealing 

Many gallerists were flummoxed when they returned from their winter holidays to find that the rules had quietly come into effect. At the London Art Fair earlier this year, The Art Newspaper reported that several mid-market galleries were deliberately pricing works below the €10,000 threshold in order to avoid the hassle of dealing with the new ID requirements.

Some galleries, including Pilar Corrias, Maximillian William, and Robilant + Voena have been busy sending out emails to prepare their clients for the new due diligence requirements.

Even though galleries must now undertake a risk assessment on the transaction, ensuring that adequate screening is being done on every sale, “‘knowing one’s client’ is very much part of the business already,” Tomlinson says. “With new clients whom we don’t already know we always undertake measures of screening.”

Maximillian William, founder of Maximillian William gallery, agrees that it has been “business as usual” around his gallery. “The only real change I’ve noticed is a few more email exchanges before and after invoicing in order to make sure documentation is retrieved,”  William says.“The primary market is a very intimate place, we know our clients for the most part. The gallery’s making sure to prepare more in regard to back of house operations for the extra admin required.”

Cracking Down on Cyberfraud

As galleries rush to become compliant with the new rules, some are outsourcing the work to advisory services. Tom Noon, co-founder and chief executive of ArcartaPay, a cloud-based app that helps art world businesses conduct customer due diligence and securely collect payments, says there has been an uptick in the number of people using the service since the new rules were introduced.

Noon says that art businesses are interested in the platform to help them deal with the burden of the “completely alien” new laws and processes. “For a business dealing in works of art, there is little to no competency within the business relative to compliance and anti-fraud which makes dealing with these issues in an efficient manner all the more difficult,” Noon says.

One upside of the newly enforced regulations for galleries is that the new identity verification steps will make them less vulnerable to cybercrime. While for many, the shift to conducting sales over the internet has opened up new business opportunities, it can be hard to know who exactly is on the other side. Online fraudsters have been increasingly targeting art businesses and intercepting sales. Owing to the size of transactions that are commonplace, art businesses are routine targets for cybercriminals who will intercept communications between the business and their clients,” Noon says.

The new due diligence regulations should help to thwart fraudsters from taking advantage of the anonymity. “With so many galleries routinely ‘Googling’ clients to arrive at a clear picture of their buyer, enhancing this process and making it more robust through specialist tools and services is not without its advantages,” Noon says.

The Hidden Casualty

One of the main concerns facing galleries is not actually how these rules will affect direct transactions with clients, but how to deal with third parties such as agents, consultants, and art advisors whose primary purpose is to protect the identity of their clients.

The requirements mean that galleries need to not only know the customer they are directly dealing with, but also, in the case of an intermediary acting on behalf of a buyer, they will need to obtain information about the eventual  owner.

The art market has long fostered a culture of confidentiality, and there are many reasons a buyer or consignor might want to keep their identity quiet that do not have to do with dirty money. These could be issues personal security, or privacy concerning sensitive circumstances such as death, divorce, or debt. Without the layer of protection for their identity, this could mean that collectors rely less on art advisors to conduct business for them.

But Nazy Vassegh, founder and director of Business of Art Ltd, is staying optimistic. “I have been operating the ‘know your client’ practice since I set up my advisory in 2009. It’s something that my clients are used to and comfortable with,” Vassegh tells Artnet News. “I have deep relationships within the art world and anonymity is extremely important.” She points out that the due diligence processes are already common practice in auction houses.

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