Frequently Asked Questions

Many art market participants often ask us questions about the basics of the 5th EU Money Laundering Directive as it is applied in the UK. Periodically, we are happy to share some of the questions and to provide high level answers.

Application of 5MLD Obligations in the UK

Does 5MLD apply to me? 5MLD applies in the UK to “art market participants”. We break into a four-part question the test for determining whether one is an art market participant. The question is:

Since January 2020, have you been involved in:

1. The sale or purchase of a work of art, for
2. A total purchase price of €10,000 or more
3. In a single transaction, or a series of linked transactions,
4. Involving storing, trading or acting as an intermediary?

Works of Art The regulations apply the definition of “works of art” found in §21 of the VAT Act.

Most of what I sell does not qualify as a “work of art” and/or is under € 10,000 value threshold, do I still need to comply with the UK 5MLD obligations?
Yes. Even if only one percent of your transactions satisfy the four-part question above, this still triggers an obligation to comply with all the obligations of the UK 5MLD. However, it may not be necessary to apply the Know Your Client and other due diligence and screening obligations to all your transactions. The 5MLD obligations may be limited to those transactions that qualify. Of course, the Proceeds of Crime Act obligations attach to every transaction.

How do I comply with my UK Obligations? The obligations are a multi-step process and include all the below actions:
• Conduct a Risk Assessment
• Create and implement Policies, Controls and Procedures covering the risks discovered
• Develop and implement a record retention and retrieval policy
• Appoint, train and support an appropriate MLRO
• Train staff and
• Register with HMRC

I am the only employee, do I still need to appoint a Money Laundering Reporting Officer? Yes, even a one- or two-person operation needs to appoint an MLRO located in the UK.

I paid and registered with HMRC; do I need to do anything else? Yes, there is more to do. Registration is just one of the many obligations. The other activities include the following.
• Conduct a Risk Assessment
• Create and implement Policies, Controls and Procedures covering the risks discovered
• Develop and implement a record retention and retrieval policy
• Appoint, train and support an appropriate MLRO and
• Train staff

Ideally one fulfils the above obligations before registering with HMRC, but it is better to do them after, than not at all
In anticipation of an HMRC audit, it is also important to maintain written evidence of compliance with each step.

Effective Date
Is the effective date of the UK 5MLD obligations June 2021 or January 2020? The 5MLD UK obligations went into effect on 10th of January 2020, it was only the requirement to register with HMRC that was delayed until June 2021.

Clients
Do the 5MLD UK AML obligations apply only to new clients or also to existing clients? The UK AML obligations apply to all new clients as of 10 January 2020.

What about clients I have had for a long time, well before 10th of January 2020? The obligations apply to clients you had prior to 10th of January 2020 if/ when the relevant circumstances of a client changes. In addition, art market participants are expected to conduct periodic audits of the risk levels of their clients, at which time existing clients may be subject to the KYC CDD review.

Service Providers
Which service provider should I use for conducting automated screenings of clients? There are a wide range of tech tools available to assist with AML obligations, but we would need to better understand the individual business before making a suggestion.

I have a paid service provider to vet new clients on the UN, EU and USA sanctions lists, do I need to do anything else? Excellent start, but yes, you have more to do to comply with the rest of the UK 5MLD obligations of an art market participant. In addition to the search service, there is the human element of being aware of possible red flags and reporting them promptly to the Money Laundering Reporting Officer.

I use the Art Loss Register for lots sold for more than £10,000, is that enough? Excellent practice, but yes, you have more to do to comply with the rest of the UK 5MLD obligations of an art market participant. See the answers above under Application of 5MLD in the UK

Customer Due Diligence
What is Customer Due Diligence?
Customer Due Diligence (CDD) is an essential element of an AML Compliance program. Put simply, CDD is the process of identifying and verifying a client’s identity. Typically, this is done by obtaining copies of valid, government-issued documents, recent proof of address and by conducting an automated and non-automated screening of the client. The CDD will vary depending on a variety of factors, such as whether the client is an individual or entity, the source of funds, the client’s business and the jurisdiction, etc. There are three levels of CDD. Determining which level should be applied also depends on a variety of factor using a risk-based approach.

What is the difference between the three levels of CDD: Simplified, Standard and Enhanced Due Diligence?
Simplified Due Diligence is likely to be rare in the art market and may apply if one’s client is a regulated entity, such as a bank, law firm or government entity.

Standard Due Diligence is likely to be the most common level of CDD applied. This level requires you to identify the client as well as to verify their identity. In addition, automated and non-automated screenings of the client should be done to enable you to understand the nature of the business relationship and uncover any Red Flags.

Enhanced Due Diligence, EDD, is a more thorough form of CDD, typically conducted in response to a red flag or to doubts or suspicion about the legitimacy of the client, the object or the transaction. It is the responsibility of the Money Laundering Reporting Officer to decide if there is a need for EDD and if so, what additional steps should be taken.