Certain types of businesses fall within the regulated sector for EU anti-money laundering, such as banks, wider financial institutions, law firms, accountancy businesses and estate agents. Luckily for the British art market, the British government has not invited auction houses and art/antique dealers to join the club. Auction houses and art/antique dealers in other EU Member States have not been so lucky.
Being in the regulated sector for money laundering carries a compliance burden that should not be under-estimated. Businesses in the regulated sector must comply with national anti-money laundering regulations, by putting in place certain controls to prevent the business from being used for money laundering. They include:
- assessing the risk of the business being used by criminals to launder money;
- checking the identity of clients;
- checking the identity of ‘beneficial owners’ of corporate bodies and partnerships;
- monitoring clients’ business activities and reporting anything suspicious to the national agency responsible for anti-money laundering;
- making sure that the necessary management control systems are in place;
- keeping all documents that relate to financial transactions, the identity of clients, risk assessment and management procedures and processes;
- making sure that members of staff are aware of the regulations and have had the necessary training.
Needless to say, these obligations place a significant compliance burden on businesses within the regulated sector.
This week, new national regulations aimed at implementing the 4th EU Anti-Money Laundering Directive (the “4MLD”) will come into force. In a separate blog, we describe how the UK Regulations implementing the 4MLD will affect the British art trade.
The 4MLD does not require EU Member States to include auction houses and art/antique dealers in the regulated sector. However, as we shall see, the introduction of national regulations implementing the 4MLD will result in auction houses and art/antique dealers being required, in some EU countries and for the first time, to identify clients and verify their identity.
Thankfully for the British art market, the government has opted not to include auction houses and art/antique dealers in the regulated sector, unless the art business qualifies as a High Value Dealer or offers certain products or services falling within the regulated sector, such as loans against art or art-related investment products.
In France and Spain, auction houses and art/antique dealers have been in the regulated sector for some time. This means that they are subject to the compliance obligations set out above.
According to the Code monétaire et financier, auction houses and art/antique dealers (‘les opérateurs de ventes volontaires’ and ‘les personnes se livrant habituellement au commerce d’antiquités et d’œuvres d’art’) fall within the regulated sector. In particular, they are obliged to identify and verify the identity of clients. This obligation was strengthened pursuant to Loi No. 2016-1691 (so called “Sapin 2”) and Ordonnance No. 2016-1635 implementing the 4MLD into French law. Additionally, Ordonnance No. 2016-1635 provides for stricter identification and verification criteria (especially when the transaction involves beneficial owners).
In Spain, auction houses and art/antique dealers (‘las personas que comercien profesionalmente con objetos de arte o antigüedades’) are also in the regulated sector (Ley No. 10/2010 ‘de prevención del blanqueo de capitales y de la financiación del terrorismo’). Like their French counterparts, they are obliged to identify and verify the identity of clients. The regulations implementing the 4MLD are still in draft. The main changes are likely to cover penalties for infringement and the reporting regime, with a view to ensuring the anonymity of reports to the national anti-money laundering agency. In addition, the draft regulations propose to enhance the internal system of risk assessment for regulated businesses, and to establish a public registry of businesses frequently dealing with suspicious entities.
While in Germany the introduction of the 4MLD has resulted in auction houses and art/antique dealers being required to comply with more specific and wider obligations, in Italy for the first time auction houses and art/antique dealers are required to identify clients and verify their identity.
In Germany, on 19 May 2017 the Upper Chamber of Parliament, the Bundesrat, passed a legislative measure implementing the 4MLD, the ‘Gesetz zur Umsetzung der Vierten EU-Geldwäscherichtlinie, zur Ausführung der EU-Geldtransferverordnung und zur Neuorganisation der Zentralstelle für Finanztransaktionsuntersuchungen’. Even before the latest amendments, German anti-money laundering rules had included, inter alia, in its definition of Verpflichtete (persons subject to the anti-money laundering obligations, including the identification and verification of clients’ identity), so-called Güterhändler (dealers of goods) (see para. 2(16)). The regulations implementing the 4MLD now also make special reference to “hochwertige Güter”, i.e. high-value goods, which expressly include precious metals such as gold, silver and platinum, precious stones and gems, jewellery and watches and works of art and antiquities (see para. 1(10)). Going forward, German auction houses and art/antique dealers can be required by the supervising body to nominate an anti-money laundering officer to discharge their duties relating to customer due diligence (see para.7 (3)). Auction houses and art/antique dealers accepting payments in cash above a threshold of 10,000 Euros are required to implement internal risk management measures (i.e. a risk analysis team and an internal security policy).
Prior to the implementation of the 4MLD, the Consolidated Text of Public Safety Laws (so-called “TULPS”) only requested to art/antique dealers and auction houses to satisfy certain formalistic obligations, such as obtaining copy of an ID document for each client and keeping an updated list of clients. For the first time, decree No. 90/2017 (in force from 4th July 2017) implementing 4MLD requires art/antique dealers and auction houses (‘i soggetti che esercitano l’attività di case d’asta o galleria d’arte’) to identify and verify the identity of clients, by assessing the information provided by clients through a reliable and independent third party who is able to ascertain their identity. The reform of the anti-money laundering regime introduces different regimes (from simplified to enhanced) depending on the lower/higher degree of risk of money laundering. The decree requires regulated entities to maintain customer due diligence information for a period of ten years from the date when the business relationship with the client comes to an end. In addition to the traditional reporting obligations, when client information cannot be verified, auction houses and art/antique dealers are expressly required to abstain from concluding any suspicious transaction until the national anti-money laundering agency is adequately notified.
In all four countries, being in the regulated sector carries the obligation to provide regular training to members of staff on their obligations under the anti-money laundering regulations, as well as the obligation to report to the national anti-money laundering agency any knowledge or suspicion of money laundering. There are severe penalties for non-compliance.
Francesca Barra & Till Vere-Hodge
Published 28 June 2017