The UK art market is about to become more transparent.
Starting Friday, art businesses registered in the country, including galleries, auction houses, and free port operators storing high-value items, will have to verify client identities on transactions exceeding €10,000, according to the regulations approved by the UK parliament shortly before Christmas.
The veracity of such deals also will have to be confirmed to ensure they aren’t part of money-laundering schemes.
The UK has been a magnet for dirty money.
Billions of dollars have illicitly moved through 86 financial institutions, 81 law firms, 62 accountants, and more than 2,200 companies in Britain and its overseas territories, according to a recent report by Transparency International UK, the London-based arm of the global anti-corruption group.
“Some galleries may be blissfully unaware that this happened,” said Kenneth Mullen, a London-based partner on the intellectual property and technology team at law firm Withers worldwide.
The regulations “were passed the very last minute”, he said. “It’s given organisations very little time to react.”
The UK is the world’s No 2 art market, accounting for more than a fifth of $67.4bn in global sales in 2018, according to a report last year from Art Basel and UBS.
The new anti-money laundering regulations will also target cryptocurrencies and rental properties, said Mr Mullen.
They stem from more stringent rules mandated by the EU, which requires its members to implement them as national laws by Friday’s deadline.
Germany has passed similar legislation, said Mr Mullen.
Sotheby’s and Christie’s have had compliance processes for years. Now galleries will have to follow suit, which will be more of a burden for small and mid-size companies that need to train staff and set up AML operations, according to Mr Mullen.
Regulated entities will have to register with HM Revenue & Customs and conduct compulsory “client due diligence”, he said.
If acting for a company, trust or partnership or client, participants will need to establish the relevant ownership structure and then identify the “ultimate beneficial owner”.
Individuals will have to be checked against lists of sanctioned individuals or politically exposed persons. Red flags, indicating a high-risk transaction, may include cash payments, gaps in provenance and refusal to identify the buyer or seller.