Q&As On The 5AMLD For AMPS
Q&As on the European Union 5th Anti Money Laundering Directive and AMPs (Art Market Participants)
Please note this blog is aimed at a UK audience and is correct at time of publishing.
Does the European Union 5th Money Laundering Directive apply post Brexit for the UK?
An EU directive is a legislative act that aims to create a united aim for all EU members to attain, each country then develops its own laws to fulfil the directive. Even though the UK has left the EU, 5AMLD still applies in the UK as it has been implemented as UK law.
The UK used Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (amongst others) to meet 5AMLD.
What do all the acronyms associated with it mean?
5AMLD: 5th Anti Money Laundering Directive.
AMP: Art Market Participant, as defined by HMRC:
An art market participant under the Money Laundering Regulations 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 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 or more
A freeport is a warehouse or storage facility within an area chosen by the Treasury as a special area for customs purpose. This is in line with section 100A(1) of the Customs and Excise Management Act 1979.
KYC: Know Your Customer (or client). KYC, which is the basic tenet of all anti-money laundering legislation and regulations all over the world, is the need for customer identification. In essence this means that at the beginning of any financial relationship the accepting business must satisfy itself that the new customer/client/business partner is who he/she says he/she is, and that there are no grounds for suspecting any involvement in money laundering and/or criminal activities. Usually this system of control involves taking identification in some prescribed form. Typically documents such as national identity cards, passports and driving licences are recommended to be taken and the details contained on them recorded.
Read more on our archived White Paper: PROXIMAL CONSULTING WHITE PAPER 22: WHY YOU MUST KNOW YOUR CUSTOMER
EDD: Enhanced Due Diligence. Enhanced due diligence is an essential part of a risk based approach and is applicable to higher risk customers such as PEPs, individuals operating in higher risk jurisdictions or when basic KYC checks have flagged further risks. Enhanced due diligence requires additional checks to identify the source of wealth and funds and to ensure that the wealth of the individual(s) involved has not originated from criminal activities.
Read our Fact Sheet: Enhanced Due Diligence
CFT: Combatting the Financing of Terrorism. Terrorist financing is the processing of funds from any source (including legitimate ones) to finance terrorist activities or those who encourage, plan or engage in terrorism. Conversely, money laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of criminal activities. If successful, the money can lose its criminal identity and appear legitimate.
Read our Fact Sheet: Terrorist Financing
Beneficial owner: In legal terms, a beneficial owner is an individual who enjoys the benefits of owning an asset and has overall control, when in actual fact the legal title of that asset is in another name. There are significant differences in terms of beneficial ownership compared to legal ownership, but in many cases the owners are the same person; however there are situations where they may wish to remain anonymous.
Read more here: Beneficial Owners
PEPs: Politically Exposed Person. There is no universally accepted definition of a PEP, however, the Wolfsberg Group and the Financial Action Task Force (FATF) define a PEP as a natural person of public functions (domestic or international) including, but not limited to, Heads of State, senior judicial officials, and members of Royal families.
The main risk posed by PEPs is the possibility that they may misuse or abuse their influence and prominent public positions for personal gain. PEPs are therefore perceived to present a higher risk for potential involvement in predicate offences such as bribery and corruption. As a result, financial institutions are exposed to the risk of inadvertently laundering the proceeds of crime, as well as to legal, reputational or corruption risks. However, it is important to note that simply because an individual is classified as a PEP, it does not automatically mean that they are involved with criminal activities or the abuse of power.
When should due diligence be completed?
5AMLD specifies that due diligence should be conducted on transactions involving Art pieces that are €10,000 or more. We would recommend that due diligence is conducted at the beginning of the relationship, rather than when a transaction/art sale occurs over the specified threshold. Furthermore due diligence should be ongoing, rather than a fixed procedure at the start of the business relationship.
Bear in mind that criminals are acutely aware of thresholds and often tailor their transactions so they are under the specified AML reporting/KYC threshold.
Enhanced Due Diligence should be performed when:
Basic KYC checks highlight red flags, such as PEPs
High risk transactions occur
High risk third counties are involved
Specific regulations specify it should be performed
Who will "police" this process?
HMRC will enforce all regulation and supervision, however other regulatory frameworks concerning money laundering will also be in place, such as the Proceeds Of Crime Act 2002, which requires all suspicious transactions by any business to be reported.
When is the deadline to comply, I am hearing references to various dates?
AMPs had until January 10th 2021 to register with HMRC but due to the Coronavirus pandemic this has been extended until 10th June 2021.
Bear in mind that whilst this is the deadline for registering with the HMRC if you are an AMP, the actual 5AMLD requirements came into force in January 2020.
What happens if I don’t comply, or are still finalising a due diligence programme?
As above, you still have a few months to register with HMRC, but the nuts and bolts of your 5AMLD compliance framework should already be in place.
Taking a pragmatic view (with the current pandemic in mind), one would imagine the HMRC are not going to be knocking on the door of every business on Friday 11th June 2021 to check every last piece of compliance paperwork. However should you become, either intentionally or unintentionally, involved in money laundering or organised crime you could get fined, suffer loss of reputation and risk a custodial sentence.
Furthermore, a small business or freelance consultant can't be expected to have the same compliance resources and budgets as a multi-national auction house chain. However ignorance is not a credible defence and the HMRC have far reaching powers should you not fully comply with AML regulations and laws.
With this in mind, Proximal Consulting appreciates that the world of AML regulations and due diligence might be bewildering to businesses, consultants and specialists in the art sector: therefore we are able to provide concise, confidential advice and services to assist your compliance goals.
Proximal Consulting are also able to compliment your existing KYC checks with our enhanced due diligence reports when needed, offering full global coverage.
See our range of services aimed at the art market here.
How do I sign up with the HMRC and how much does it cost?
You can sign up here: Register or renew your money laundering supervision with HMRC
Details on fees are here: Money Laundering Regulations registration fees
What is an Art work?
An art work is defined under: s21(6) of the Value Added Tax Act 1994. The Institute of Art & Law article ‘UK Guidance on Anti-Money Laundering released for the art market’ may help.
Is Art used for Money Laundering?
Yes, although admittedly there haven't been many high profile cases reported of it being used in this way… so far.
The art market has largely escaped AML regulation and legislation that has gripped other sectors over the last 25 years, particularly those that involve high value goods/services and high net worth individuals. As other industries and sectors further bolster their specific AML and financial crime regulations, criminals will look to target any loopholes or vulnerable industries. The Art industry is particularly exposed as it already features secretive (often for legitimate reasons) high value transactions which are the perfect foundations for money laundering.
5AMLD brings a specific targeted legislative framework to help protect the art industry from organised criminals.
Further reading on artworks and money laundering can be found here:
Has the Art Market Become an Unwitting Partner in Crime?
What happens if I still have concerns after initial KYC Checks?
Should your initial checks highlight red flags, you still have concerns, or 5AMLD (or associated regulations) necessitate you to, Proximal Consulting can provide EDD reports. We have been producing EDD reports for over 20 years and can work with you, tailoring our reports to your specific concerns and requirements.
Read more about our specific range of Art Market Services and our EDD reports in general.