Regulation of the Art, Luxury and high value of goods market
Regulation of the Art, Luxury and high value of goods market
In recent history, there has been a very clear, consistent, and progressive move – on a global level – towards increased general transparency in relation to issues such as: anti-money laundering (AML), anti-bribery & corruption (ABC), general tax compliance, fraud prevention, data protection, property/company ownership and more.
Kirk Kashefi, barrister at Orion Chambers looks at regulatory challenges in the art, luxury and high-value goods market.
The consistently tightening and generally expected culture of compliance framework, increasingly affect all businesses in a manner that is nearly completely sector agnostic.
Businesses now have to consider, assess, and implement a number of risk-based silos in order to manage risks associated with anything from general data protection to countering money laundering, bribery and corruption, tax evasion and terrorist financing. The art, luxury and high-value goods markets are in no way immune in this respect, generating an overall trend of increasing levels of compliance and delegated- and/or self-regulation. With the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), which came into force on 26th June 2017, the enhanced compliance requirements that had been present in other regulated sectors finally reached the art, luxury and high value goods market. We have seen an increased emphasis on due diligence and AML requirements in the market with these applying across the board and not only to transactions occurring at the very top end of the market.
The luxury/high value goods market and the art sector in particular is vulnerable to abuse by those seeking to launder the proceeds of illegal activities and/or to finance such activities, due to certain specific characteristics that this market exhibits, which may include: high-value goods; an international market place and a diverse network of participants; a general level of opacity that is prevalent in the sector (not helped by an overall culture of discretion) and so particularly at the top end of the market; common use of intermediaries and cohorts of parties, and common use of foreign/offshore structures and accounts.
"Client due diligence is one of the central pillars and indeed the first line of defence when seeking to prevent money laundering in any business as it ensures that a company’s commercial dealings are with bona fide individuals and organisations"
MLR 2017:
Some key requirements under MLR 2017:
• A business in the regulated sector (Business) identifies its clients/customers, and verifies that identity on the basis of documents, data or information obtained from reliable sources.
• Where there is a beneficial owner who is not the client/customer then the Business must identify that person and verify the identity, and where the beneficial owner is a trust or similar, then the Business must understand the nature of the control structure of that trust.
• Appropriate systems of internal control must be in place to prevent activities relating to money laundering and terrorist financing.
• There must be appropriate and adequate management controls in place to identify the possibility that criminals may be attempting to launder money or fund terrorism, so as to enable appropriate action (e.g. to prevent or to report) to be taken.
• A relevant person needs to consider both the client/customer, and geographical risk factors in deciding whether simplified client due diligence (SCDD) is appropriate.
• A Business is also obliged to monitor its business relationships on an ongoing basis, which means that the Business must scrutinise transactions throughout the course of the relationship to ensure that the transactions are consistent with its knowledge and understanding of the client/ customer, and indeed to keep the information that it holds in relation to the client/customer up-to-date.
AML AND CLIENT DUE DILIGENCE
Client due diligence (CDD) (also referred to as “know your client” (KYC)) is one of the central pillars and indeed the first line of defence when seeking to prevent money laundering in any business as it ensures that a company’s commercial dealings are with bona fide individuals and organisations. Adequate and effective CDD procedures and policies also assist – within the business’s overall internal risk assessment, systems, and compliance framework – in the important identification of suspicious behaviour.
Therefore, if and when a new business relationship (including a one-off transaction) is formed, specific care must be taken to ensure that the proposed client/customer is identifiable by making appropriate checks on their credentials, along with confirmation of source of funds. The CDD process gains additional weight and is especially important when the parties concerned are not physically present for identification and in situations where someone may be acting for absent third parties.
The general approach in MLR 2017 (as well as other relevant frameworks such as the UKBA and GDPR) is a risk-based one, where a business must assess the risks that it may be used for money laundering or terrorist financing and put in place appropriate measures to manage and lessen those risks.
