AML CHALLENGES
• Art values fluctuate and this value
volatility can make art less attractive
as a means of placement or layering for
money launderers.
Challenges faced by art businesses
Globalized and complex, the art market is
constantly evolving. Art is increasingly
being sold online and collected for invest-
ment, as well as for its aesthetic, cultural or
historical value.
Online sales and non-face to face transac-
tions, present increased ris k and are boost-
ing demand for online identification tools.
The advent of modern technology and the
ease with which documents can be forged,
requires art businesses to be ever more
vigilant.
In addition, the legal and regulatory frame-
work within which art businesses are
required to operate, is becoming increas-
ingly complex and fragmented.
When it comes to AML and counter-terror-
ist financing (CTF) measures, certain coun-
tries have imposed regulations on art
dealers in an effort to continue protecting
the market from abuse. However, there is
little international harmonization. For
example, in France, auction houses and art/
antique dealers fall within the regulated
sector whilst in the U.K. they only become
regulated entities if they accept cash pay-
ments at or above 10,000 euros for a single
or series of linked transactions. In Switzer-
land, the cash limit is higher, CHF$100,000
and above.
For art businesses who transact interna-
tionally, this patchwork of fragmented leg-
islation presents significant challenges. Art
businesses need to understand and comply
with AML/CTF laws in a number of jurisdic-
tions (e.g., the situation in the U.K. and
France is different to that in Switzerland,
the U.S., Asia and so on).
The response of the larger auction houses
and industry players has been to invest in
dedicated compliance teams to tackle these
issues and manage the risk. However, this
solution is not available to smaller art
26
businesses, galleries and dealers who lack
the financial and human resources to invest
in such infrastructure. say that regulation was not necessarily the
solution. In his words, “Self-regulation prob-
ably might be the right way to go for now.”
Regulation versus self-regulation Can self-regulation in the
art market make a difference?
The role and place of regulation and
self-regulation in the art market has been a
topic of hot debate.
Regulation
The European Commission, in its recent
SNRA, advocates extending existing AML
regulation to auction houses, art and
antiques dealers and specific traders in
high-value goods. In addition, it recom-
mends a number of more practical mea-
sures including:
• Extending national risk assessments to
include cultural artifacts and antiques;
• Carrying out sufficient unannounced
spot checks on high-value dealers,
especially gold and diamonds,
to identify possible loopholes in
compliance with customer due
diligence requirements; and
• Promoting awareness raising
campaigns among art dealers,
encouraging them to apply AML/CTF
measures.
In the same report, the Commission
acknowledges that regulation alone does
not necessarily result in better outcomes.
For example, when discussing the identifi-
cation of beneficial ownership information
it questions whether the mechanical appli-
cation of rules by certain obliged entities
leads to the identification of the real benefi-
cial owner.
Self-regulation
All this begs the question, whether further
regulation is really required and whether
a better approach would be to comple-
ment the existing legal framework
with industry driven, self-regula-
tory codes of conduct.
Interestingly, U.S. economist Nou-
riel Roubini, who at the World
Economic Forum warned that art
was being used as a form of
money laundering, went on to
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For a market as complex, diverse and con-
stantly evolving as the art market, self-reg-
ulatory approaches are widely recognized as
having several advantages over state-
imposed regulation. These include:
• Flexibility and speed – Industry
guidelines can be developed and
updated more quickly than state-
imposed legislation, which takes time to
be approved and adopted. For example,
the proposed new EU regulation on the
import of cultural goods, if adopted,
will take two years to be transposed
into national legislation. However, self-
regulatory measures can be updated
more quickly to respond to evolving
threats resulting in greater operating
efficiencies for art businesses and in
turn minimizing compliance costs.
• Better adapted – Greater technical and
industry expertise can be achieved
through industry developed guidelines,
which strike that critical balance
between achieving the desired goal
whilst not stifling the market so much
that it cannot operate.