On June 19th, 2018, the 5th EU Anti-Money Laundering Directive (AMLD 5) was published in the official journal of the European Union. The AMLD5 modifies the fourth Anti-Money Laundering Directive (AMLD4) released only in 2015. The EU Commission proposed the revised AMLD in July 2016 as part of its Action Plan against terrorism announced in February 2016, after the attacks in Paris and Brussels, and as a reaction to the Panama Papers published in April 2016. A final compromise text was reached in December 2017. The AMLD 5 entered into force on July 9th, 2018. Member states are obliged to transpose the modified regulations into national law by latest January 20th, 2020.
The art market has come under increased examination as a vehicle by which criminal and terrorist activities may be funded through the sale and purchase of artworks. Transactions with artworks are often high value, cross-jurisdictional, and involve multiple parties, many of whom are unknown to each other. The buyer or seller may use an offshore entity to hold artworks, adding another layer of complexity. These features, which are the fundamental nature of art transactions, are a key reason why the art world is considered by many to be conducive to money laundering.
The 5th Anti-Money Laundering Directive – what does this mean for the art trade? The recent changes to EU legislation are relevant to anyone working with EU clients, but could also become legislation in the US in the future. This will also become effective in Monaco when the directive is enacted there.
Under Money Laundering Regulations, regulated industries such as banks and solicitors have strict duties to have systems and controls in place to detect and deter money laundering. Regulated sectors are required to conduct ongoing risk-based due diligence on their clients. This includes verification of the client's identity, assessment of any irregularities in the client's instructions, and understanding fully the source of the client's money. Where a company is the client, this includes determining who the ultimate beneficial owner of the company is. There are also obligations in relation to record keeping and staff training for AML.
Once the 5th Directive is implemented in January 2020, the position for all art professionals will change significantly throughout Europe. The most important change is that anyone trading or acting as an intermediary in an art transaction, where the value of the transaction is greater than €10,000 (irrespective of method of payment), will be subject to the same strict duties of risk-based assessment. The directive is set to increase the burden on art professionals to assess AML risks arising from a transaction.
This means that dealers and intermediaries will be compelled to establish the identity of their client (including beneficial ownership where the client is a company), obtain documentation supporting the identification, and consider whether any factors relating to a transaction could potentially promote risks of money laundering. If the dealer is receiving instructions from a person who purports to act on behalf of a client, then the identity of the agent and evidence of their authority to act must also be verified. It may be possible to conduct these checks through the parties' legal advisors.
Art professionals will need to act carefully once the legislation is in place and ought to start planning ahead and seeking advice to understand their obligations.
On the subject of transparency and compliance it is worth noting the additional reinforcement of the art market related conflicts is seen in the opening of the first court devoted exclusively to resolving art law disputes in The Hague.
The tribunal plans to mediate cases involving everything from authenticity and restitution disputes to intellectual property and copyright claims, and cases that revolve around ownership and contract disagreements. By appointing industry experts to provide evidence and opinions on the cases it mediates, CAfA ( Court of Arbitration of Art ) hopes to help set standards and legal precedents that hold weight throughout the global art market.
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