What do new AML regulations mean for art & antiquities traders?

In our latest Momenta insight, we explore why the recently passed Anti-Money Laundering Act (the “Act”) of 2020 will change the worlds of US art and antiquities trading as we currently know them, forever.

New laws contained within this Act will mean that the sector will have to abide by the new Bank Secrecy Act (BSA), requiring art and antiquities dealers to report suspicious deals and transactions over US$10,000.

This step had been taken to ensure that any prospective buyers are not on the current US sanctions lists.

Some may of course welcome this change, however with an unregulated wider dealing market, this may also result in several challenges for those US businesses charged with working within this new regulatory framework.

Until now, in-depth record keeping of art transactions and high value goods have not been mandatory, and this will represent a significant change to BAU for many organisations in the US who are involved in the buying and selling process.

FinCEN recently stated that the US Treasury Department, Homeland Security, and the FBI will proceed with what they call ‘art study’ and investigation on AML practices in art trades. This study will lay the foundation for the US art market in terms of the new regulatory landscape.

More clarity however still needs to be given in terms of new regulatory requirements and expectations for participants to ensure their compliance systems and processes are running effectively and efficiently.

UK examples and compliance audits

What is expected, and what market participants should be preparing themselves for, are compliance audits. A prime example of this can be seen in the UK, where art market participants and transactions were originally given until January 2021 to register with HMRC as an ‘art market participant’. Although this was subsequently postponed until 10th June 2021 due to the Covid-19 pandemic.

Under the new UK AML regime, the government is entitled to conduct AML compliance audits in much the same way as Inland Revenue is entitled to conduct tax audits[1]. Now, market participants in the UK will need to start preparing for rigorous compliance audits, something many companies in this space will find an alien concept.

What to expect for your compliance audits?

The key to successfully navigating compliance audits is keeping a thorough record of your KYC/AML processes and practices. Regulators will be checking if participants have undertaken necessary KYC and CDD checks, especially from a sanction’s perspective.

Organisations should be asking themselves the following questions when it comes to ensuring they are fully compliant in their KYC, CDD and EDD checks:

  1. Has an anti-money laundering policy, control, and procedure (that has met regulatory requirements) been created and implemented?
  2. Do you have the necessary AML resource? Do you have the right staff to carry out these AML/ KYC checks?
  3. Have you conducted adequate risk assessments of the clients and their businesses (will you need to perform EDD here if high risk?)
  4. Suspicious Activity reporting will be key in addressing any red flags that arise, so ensure that any high-risk transactions are monitored closely.
  5. Avoid getting fined at all costs and remember being AML compliant is no longer optional – it is a legal requirement. Fines and penalties have not yet been determined, but participants have been warned that fines of this nature will be large.

More clarity is still needed

More clarity will be needed from regulators in the US as to what can be deemed as a ‘work of art’. In the UK it has been decided that a ‘work of art’ is the same as the definition used in the Value Added Tax Act {1}.

This will include items such as paintings and drawings and certain sculptures, ceramics, photographs, and enamels on copper. The US markets will need to ensure that they have created transparent definitions of key terms for these types of transactions to be fully regulated.

Yes, technology will help, but people are still needed

There is an array of technology to help the art market, such as search services to assist with CDD. Such tools may relieve certain administrative burdens but cannot be relied upon entirely.

It is no surprise that technology such as AI can help periodic review assessments, as well as conducting review checks based on certain triggers (such as a material change in the client profile gathered by internal and external data).

Legacy IT systems are often not agile enough to respond to changes required either by a shift in regulation or to support specific remedial projects and therefore need a technological solution.

Crucially though, a technology plus people solution is required to either deal with a one-off project or to form a turnkey business support function for part of a firm’s business processing – especially in a market new to regulatory change, such as arts and antiquities.

Why do you need to consider additional contingent support?

Dedicated and specialised additional resource for your business during this process will help you to avoid wasted time and allow you and your clients to not only remain complaint but crucially to also conduct BAU.

Many art dealers will not have had to equip their teams with compliance professionals until now, so it is imperative that they ensure they are bringing in the right skilled talent that will enable them to develop systems and processes that are compliant.

Why Momenta?

Momenta are a global contingent resource solutions firm who has, for over 30 years, been partnering with companies in the financial services, legal, technology, and training and development sectors to cost-effectively provide the right people, with the right skills, at exactly the right time.

Momenta can, and already does for many of our clients, provide the right resource in key areas, allowing you to focus on the strategic oversight of the project at-hand, while we help to implement your vision.

This flexibility allows you to ensure there is always the right balance amongst your team, delivering an effective solution which will produce the desired end results.

We also specialise in scaling resource requirements from the ground-up during the lifetime of a project to meet all key requirements, including cost control, whilst maintaining delivery capacity and capability.

If you require assistance in the form of additional resource, contact us today to see how we can help to ensure your firm is prepared for the new AML regulatory landscape.


Works Cited:
[1] Neville, R. (2021). The art market is “high risk” for money laundering, so ignore new regulations at your peril. [online] www.theartnewspaper.com. Available at: https://www.theartnewspaper.com/comment/art-dealer-vs-solicitor-money-laundering-law-alters-the-relationship [Accessed 12 Apr. 2021].