As a result of anti-money laundering (AML) laws, the British art industry is experiencing increasing pressure. Beginning 10 January 2021 and ending 31 March 2023, the UK’s tax authorities, HMRC, penalized a minimum of 31 individuals or entities involved in the art market.
The fifteen months, starting on January 1, 2022, account for 30 of the 31 fines that have been announced, which equates to a minimum of two fines every month. (Since HMRC statistics do not always reflect enforcement, the actual amounts for any given period can be more than what was initially reported.) Penalties were primarily imposed because of non-compliance with AML supervisory body registration requirements or information submission deadlines. Fines for those involved in the art market averaged more than £5,000, with the maximum single penalty reaching close to £13,000.
Adding insult to injury, there are rising worries over the market knowledge, the stringency of HMRC’s inspections of the art trade, and the fallout from the UK’s Economic Crime and Corporate Transparency Act, which grants the authorities extensive new powers to probe cases of fraud and corruption.
The opinion held by smaller UK galleries regarding HMRC’s anti-money laundering actions is that they are not proportionate.Concerns about changes in law, and more especially the administrative cost of complying with AML regulations, were voiced by almost 78% of respondents to a recent study carried out by the organisation.
An investigation into an alleged breach can be far more disruptive than the usual half-day HMRC routine audits (called “interventions”) of selected registered businesses, during which officers mainly test staff on AML regulations and the risk-based approach.
“The whole process was seriously stressful,” remarks one gallerist who was the target of an AML intervention by HMRC. After spending the better part of a day in a room with two policemen (from 10:00 am to 6:30 pm) exchanging information, we went back and forth for weeks. I’m a small company owner, so I won’t pretend that I didn’t have anything to learn. I prefer to do things the right way, and this law is still relatively new. I tried my hardest.
According to an HMRC representative, “Officers ask questions in interventions to ensure we have a comprehensive view of the businesses we supervise,” which includes information on the “nature and risk” of the companies.
Still, the numbers point to a diligent effort by the UK art sector to adhere to AML rules. The number of art firms that have registered with HMRC has surpassed 1,000, and the handful of companies that have received fines up until March 2023 are just a tiny portion of all those that were found to be in violation. At least 282 registered enterprises outside of the art market were fined in 2021 by the agency.
The sector’s awareness of its AML duties is also growing. According to Nicole Thiriez, a business development associate at Arcarta, an online due diligence platform, a surge of UK-based galleries began working with them in 2020. This was likely because these galleries were active members of trade groups like SLAD, which kept them informed about regulatory changes. But in the last year, we’ve seen more and more smaller, independent galleries and art advisors seeking out companies like ours for advice and assistance after needing to be made aware of their needs.
But Thiriez does point out that art advice firms are among those that have not yet figured out “how and when” due diligence fits into their operations; for example, many in the industry wrongly assume that anti-money-laundering rules only apply to art dealers and not service providers. As a result of additional weak points in the industry, several compliance experts believe HMRC will step up its enforcement operations.
“The art market can expect that the nature and amounts of the fines will likely track those being imposed on the property market, which has been regulated much longer than the art market,” asserts Rena Neville, head of the art sector of FSC Compliance. Recent penalties levied against realty brokers for insufficient record-keeping, poor consumer due diligence, and non-registration are the examples she uses. Attention must be maintained regardless of the specifics.
Image Courtesy : Howard Lake
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