Information and guidance for Art Market Participants
about the AML law and regulations and proper practices relating to Money Laundering.

Plus information about PENALTIES for non-compliance.
​Remember -"ignorance is no defence" in the law!
This page covers:
  • What is Money Laundering?
    • Definition
    • Three stages of Money Laundering
    • Where it takes place - in the Art Market
  • Money Laundering - Law, Regulations and Guidance (UK)
    • why you "need to know" the law
    • penalties for non-compliance
  • Money Laundering and Art Market Participants
    • how are art market participants defined
    • what are the requirements for registration
    • what practices need to be in place
Why is money laundering relevant to ALL art market participants (art galleries / dealers / artists)?
  • The Art Market is a key target for those aiming to launder money i.e. convert bad money into good. 
  • Money Laundering is NOT just about mega bucks deals and high-end art.  It can involve transactions of a lot less.
  • Money Laundering occurs in different places:
    • in legitimate businesses
    • in auctions, art galleries and studios
    • on online platforms (e.g. eBay) and in private deals (eg NFTs)
  • Money Laundering Law and Regulations apply
    • to ALL art market participants
    • involved in one-off or multiple transactions of £10k or more with one individual and/or organisation
  • Failure to comply fully with all relevant law and regulations relating to money laundering can lead to financial PENALTIES - or worse.

What is Money Laundering?

Definition of Money Laundering
​

The concealment of the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses.
Oxford Dictionary definition
Money laundering ("washing dirty money to make it clean") is used by criminals and others to
  • finance terrorism in various forms and
  • conceal other unlawful activity e.g. tax evasion; criminality etc.
​
GLOSSARY - in relation to the Art Market
  • AML - anti money laundering
  • AMP - art market participant
  • CDD – customer due diligence
  • ​ML – money laundering
  • SAMLA – Sanctions and Anti-Money Laundering Act 2018
REFERENCE:

The Three Stages of Money Laundering

The challenge for artists , art organisations and art market participants is to understand
  • how the various 'routine' ways that money laundering occurs outside the art market
  • are applied and used within art market transactions that they might be involved in.

To be aware and alert, you need to understand how it happens - hence the brief explanation below. 

​I'll be updating this page on a regular basis to indicate how money laundering processes
  • occur within the art market and
  • involve art market participants.
​ARTIST ALERT: For example, the well known email scam is undoubtedly related to money laundering as well as theft. (e.g. "the husband notices his wife has been admiring your art and wants to buy his wife something for her birthday/Christmas/whatever" 

See the dedicated page on this website 
​How to spot art scams, fake art and fraud which identifies characteristics you need to be aware of 
In the internet and electronic banking age, laundering money can be done online through legitimate websites like eBay. There are common scams on eBay that suggest laundering money
How Common Money Laundering Techniques Work on eBay
The Three Stages of Money Laundering - after the collection of the "dirty money" are:
  1. Placement
  2. Layering
  3. Integration
Stage 1: PLACEMENT
​
​These are the various ways money laundering occurs. Artists and art organisations need to be aware so that they are not taken advantage of.
  • Cash businesses – adding cash gained from crime to the legitimate takings. This works best in business with little or no variable costs, such as car parks, strip clubs, tanning studios, car washes, and casinos.
  • False invoicing – putting through dummy invoices to match cash lodged, making it look like payment in settlement of the false invoice
  • Smurfing – lodging small amounts of money below the AML reporting threshold to bank accounts or credit cards, then using these to pay expenses etc.
  • Trusts and offshore companies – useful for hiding the identity of the real beneficial owners.
  • Foreign bank accounts – physically taking small amounts of cash abroad, below the customs declaration threshold, lodging in foreign bank accounts, then sending back to the country of origin.
  • Aborted transactions – money launderer lodges funds with a lawyer or accountant to hold in their client account to settle a proposed transaction. The transaction is then aborted - and funds are repaid to the launderer from an unimpeachable source
Stage 2: LAYERING
​​
  • Layering uses processes involved in placing money - and then extracting it - over and over again,
  • Amounts are varied each time which makes tracing transactions as hard as possible.

STAGE 3: Integration

​The final stage is getting the money out so it can be used without attracting attention from law enforcement or the tax authorities.

In this regard, criminals are often content to pay payroll and other taxes to make the “washing” more legitimate and are often happy with a 50% “shrinkage” in the wash.
  • Fake employees - a way of getting the money back out. Usually paid in cash and collected
  • Loans - to directors or shareholders, which will never be repaid
  • Dividends - paid to shareholders of companies controlled by criminals

What is a "work of art" for Money Laundering purposes?
​

In the UK,  "Works of Art" has the same meaning as in section 21 of the Value Added Tax Act 1994 and includes:
  • Painting, drawings, collages and decorative plaques executed by hand;
  • Limited edition prints;
  • Original sculpture or statuary and limited edition sculpture casts;
  • Handmade limited edition tapestries and hangings;
  • Signed ceramics executed by an individual;
  • Signed limited edition enamels on copper (not comprised in an article of jewellery); and
  • Signed limited edition photographs.

Elsewhere the same principle can probably be assumed
​i.e. a 'rule of thumb' would suggest that a work of art in relation to money laundering is probably classified in the same way as for tax purposes. But check!

What is an Art Market Participant?
​

In the UK:
An Art Market Participant is:
​
a firm or sole practitioner who

(i) by way of business trades in, or acts as an intermediary in the sale or purchase of, works of art and the value of the transaction, or a series of linked transactions, amounts to 10,000 euros or more;

or (ii) is the operator of a freeport when it, or any other firm or sole practitioner, by way of business stores works of art in the freeport and the value of the works of art so stored for a person, or a series of linked persons, amounts to 10,000 euros or more.’

page 8 of BAMF: Guidance on Anti Money Laundering (Feb 2023)
An Art Market Participant is NOT:
​
  • Framers, shippers, or a person just providing contact information, provided they do not actively participate in purchase/sale transactions.
  • Introducers, unless they receive a financial value which directly relates to their active participation as an intermediary in the sale/purchase of awork of art.
  • Artists selling their own work, whether as an individual/sole practitioner or through a business they own.
  • Artists’ estates selling the work of a deceased artist.
  • A person or entity who rents out art if the rental agreement provides for ownership of the artwork to pass to the renter at the end of a specified period.

THE ART MARKET - where Money Laundering happens
​

Billions of dollars of art changes hands every year with little or no public scrutiny. Buyers typically have no idea where the work they are purchasing is coming from. Sellers are similarly in the dark about where a work is going. And none of the purchasing requires the filing of paperwork that would allow regulators to easily track art sales or profits, a distinct difference from the way the government can review the transfer of other substantial assets, like stocks or real estate.
​As Money Launderers Buy Dalís, U.S. Looks at Lifting the Veil on Art Sales | New York Times
A number of other industry sectors, such as banking, have long been the subject of an anti-money laundering regulatory framework.

​The reason for now extending that framework to the art market is a concern that the art market could be used by criminals to launder the proceeds of crime such as drug trafficking, modern slavery, tax evasion, corruption or theft.
Within the global art market, money laundering typically occurs:
IN
  • auction houses
  • art galleries
  • dealerships
DURING
  • art auctions
  • art exhibitions
  • private sales
COMMENTARY: 

MONEY LAUNDERING - Law, Regulations and Guidance

Why you need to know about the law
​

Governments around the world have recently become more aware of the scope and volume of money laundering within the art market - and it's HUGE!

As a result they and have moved to
  • introduce new controls e.g. regulatory systems and due diligence obligations
  • require defined regulatory records of all high value transactions - which means these become less private and more transparent to the regulators.

Below, I'm highlighting what's happening in the UK and USA  but new arrangements will eventually roll out internationally.

Also you need to be aware that as regulatory action is catching up with the money laundering via art galleries and auctions (i.e. Art Market Participants), the money laundering is shifting. Typically it's now very much associated with NFTs and Instagram - and they're dealing in smaller sums to avoid attracting attention. In the meantime, artists on Instagram are becoming inundated with requests to use the artwork for an NFT.
The Financial Action Task Force (FATF), (also known by its French name, Groupe d'action financière) is an intergovernmental organisation
  • founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.
  • In 2001, its mandate was expanded to include terrorism financing.

​On their website they highly those countries where more care is required due to their deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing.
​
These are the Jurisdictions under Increased Monitoring - October 2021

Law, Regulations and Guidance (UK) - Generic
​

Overall, there is a major crack down on money laundering across the economy. This section provides an overview of relevant GENERIC legislation, regulations and guidelines in the UK

The Money Laundering Regulations specify that businesses must have a process in place to identify and report suspicious activity.
MLR3C2400 - Legislation: Proceeds of Crime Act
You’ll be protected from penalties and prosecution if you can show you have followed HMRC’s Money Laundering Regulations guidance. HMRC can take various measures from warning letters to criminal prosecution if your business does not comply with the regulations.
Money laundering supervision appeals and penalties (July 2020)
UNITED KINGDOM - GENERIC
​
See the Reference box listing for relevant legislation
REFERENCE: Generic UK Legislation & Regulations

​The generic UK anti-money laundering regime requirements are set out in the 
​REFERENCE: UK Government Guidance (General)

Law, Regulations and Guidance (UK) - Art Market Specific

UNITED KINGDOM - ART MARKET SPECIFIC 

The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 came into force in the UK on 10th January 2020.

Money laundering supervision for art market participants (HMRC February 2020 / Updated October 2022) provides detailed guidance about what art market participants (AMP) MUST DO
  • what the AMP must do to protect against the risks of money laundering and terrorist financing
  • how the AMP must report suspicious activity

Auction houses, art galleries and dealerships MUST (i.e. not optional) conduct stricter due diligence on transactions above a threshold of €10,000 (about £8,500) with respect to one transaction or series of linked transactions by
  • buyers who purchase works of art from them
  • sellers who sell them works of art​​​​​
REFERENCE: Art Market Specific UK Regulations & Guidance

ART MARKET PARTICIPANTS (AMPs)
​

At the heart of the new Regulations is a requirement that art market participants must identify the physical person who they are dealing with in any transaction or, when dealing with a corporate body or a trust, the person or persons who control that entity. In other words, “Who are you really dealing with?” This is known as customer due diligence (CDD).
Under the Money Laundering Regulations an art market participant now needs to register.

An 'art market participant' means a firm or sole practitioner who is either:
  • by way of business trading in, or acting as an intermediary or trades in the sale or purchase of works of art where the value of the transaction (or a series of linked transactions) is 10,000 euros or more
  • the operator of a freeport when it stores works of art in the freeport where the value for a person (or a series of linked persons) is 10,000 euros or more
Typically art market participants are
  • auction houses,
  • art galleries and dealerships
Artists are now excluded as Art Market Participants if they sell their own artwork (see quote) 
​
It's entirely unclear what status art societies which hold exhibitions and sell art have
Art Market Participants

14 High value dealers, casinos, auction platforms and art market participants

(1) (d) In these Regulations--
“art market participant” means a firm or sole practitioner who--

(i) by way of business trades in, or acts as an intermediary in the sale or purchase of, works of art and the value of the transaction, or a series of linked transactions, amounts to 10,000 euros or more; or
(ii) is the operator of a freeport when it, or any other firm or sole practitioner, by way of business stores works of art in the freeport and the value of the works of art so stored for a person, or a series of linked persons, amounts to 10,000 euros or more;
​
(da) A firm or sole practitioner will not be an art market participant under regulation (d)(i) in respect of a transaction in which they sell or act as an intermediary in the sale of a work of art created by that sole practitioner, or by a member of that firm.

​Amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022 - Consultation | HM Treasury (July 2021)
AMP REGISTRATION

​HMRC is the supervisory authority for Art Market Participants.  
  • You MUST register if you qualify as a defined AMP and pay the necessary annual fee
  • You can continue to trade while your registration application is processed.

CUSTOMER DUE DILIGENCE

AMPS are now required to check the identification of:
  • individuals
  • companies​
​that they deal with
AMP SYSTEMS & REPORTING REQUIREMENTS

The guidance helps art market participants meet their mandatory obligations for money laundering supervision, including
  • customer due diligence,
  • record keeping and
  • reporting suspicious activity.
These are set out in 
COMMENTARY ON ART MARKET ISSUES : 
  • The compliance obligations required of AMPs can seem disproportionate to small organisations or individuals. I suspect this is one of the reasons artists - trading on their own account - were removed from the definition of AMPs.
  • A number of commentators have raised the question of whether organisations are complying with the regulations.
  • ​My personal view is that while compliance may be patchy when new regulations requiring new systems and complete (i.e. not optional) compliance are introduced - especially during a pandemic - organisations can assume based on UK respond to changes in other regulations that enforcement by government and regulators generally follows - with penalties - which can be sizeable.
  • Overall if defined as an Art Market Participant - it's a very good idea to get on top of what's required and what needs to be done sooner rather than later.
Due diligence by ​auction houses, art galleries and dealerships

Law, Regulations and Guidance (USA)

In the USA we have seen:
  • the identification of multiple risks associated with the way in which 'high end' transaction (i.e. more than $100,000) are conducted in the art market - such as it is clear there is non-compliance with existing legislation relating too government sanctions and money laundering initiatives
  • a move from auction sales to private sales
  • ​the proliferation of cryptocurrency
  • an increase in NFTs at the same time that initiatives are taking place to exert more controls on the art market
UNITED STATES OF AMERICA

Issues identified by a Senate SubCommittee (which focused on a a case study documenting how certain Russian oligarchs appear to have used transactions involving high-value art to evade sanctions imposed on them by the United States re the invasion of the Ukraine) included:
  • the art industry is largely unregulated
  • the art industry has been enjoying a boom
  • investors have taken notice
  • secrecy is pervasive in the art industry
  • auction houses have voluntary AML policies
  • tracing the ownership of anonymous shell companies, including those involved in high-value art transactions, is difficult.
REFERENCE: Government Guidance and Publications
COMMENTARY
​

Money Laundering & the Art Market, Art Galleries /Dealers and Artists

Art dealers can face fines and jail time if they don't report suspected money laundering transactions to authorities
Art dealers can face fines and jail time if they don’t report suspected money laundering transactions to authorities, according to guidance prepared by the British Art Market Federation in conjunction with the U.K. government. Bloomberg Tax
The UK government introduced a new Anti-Money Laundering legislation on 10th January 2020 which requires auction houses, art galleries and dealerships to conduct stricter due diligence on buyers who purchase from them works of art above a threshold of €10,000 (about £8,500).
​
  • Beware of money laundering - the latter is increasingly problematic and now rates as a "must know about" topic for all those who sell art as the UK enacted NEW legislation last month relating to money laundering - related to the EU's new fifth Anti-Money Laundering Directive.

There's a few references below relating to the new legislation on money laundering.
GUIDANCE:
TRAINING
PENALTIES
COMMENTARY

Art Market: AML & Due Diligence Platforms
​

The challenge of understanding the new regulations and making sure everything you need to gets done has led to the development of new platforms which seek to aid those who must register and comply with all the legislation and provide training.

It's too early to say whether they're any good - but I'm recording them here as in principle, they provide a one-stop shop for all your AML needs
​
REFERENCE (Descriptions are the company claims)
  • artaml - ArtAML is a full-circle AML solution, which unites art market know-how and user friendly technology to help simplify AML compliance
  • Arcarta: Art market Due Diligence platform - ​Arcarta is how art businesses comply and succeed with challenging regulations through an elegant, easy to use platform.