Recently Russian sanctions have brought back into the spotlight the ways in which corrupt funds have been layered into the British economy. In this 2015 documentary, an undercover reporter posing as a Russian government official uses secret filming to expose ​​how estate agents react to his plan to use millions of pounds of stolen money to purchase high end properties in London. The result; a system of shell companies and offshore trusts facilitated by estate agencies and law firms to hide the ultimate identities of corrupt buyers. 

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Despite the film’s date, it is eerily relevant to today’s art market. Anonymity and discretion are regularly employed as shields by estate agents, assuring their buyers that they can refer law firms that will create a chain of shell companies and offshore trusts to hide involvement in sales. In doing so, ‘discretion’ creates a labyrinth of legal deception which allows illicit funds to enter the UK economy and purchase luxury goods. 

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In 2020, a US publication explored how dealers and auction houses sometimes unknowingly allow corrupt funds to enter the economy by only conducting due diligence on the party or entity directly in front of them, or relying on their gut and intuition. This allows buyers to hide their identities with shell companies, shielding themselves behind nominee directors and multiple corporations. 

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For an art gallery operating under current regulations the concept of shell companies and offshore trusts is key. It is very possible that a gallery may encounter some of these kinds of companies when buyers wish to stay anonymous. So, to clear things up we have created a list of 5 things to keep in mind when dealing with entities and trusts: 

1. You must conduct Due Diligence on the entity buying the work before an invoice is sent and funds are received.
2. When conducting DD on a company or trust you must collect the required information on the entity itself and on all persons with 25% or more control of the company. 
3. If a company is owned by another company you need to keep peeling back the layers until you hit the Ultimate Beneficial Company.
4. How do you know when you hit the Ultimate Beneficial Company? You will know once you find people rather than other companies listed as those with 25% or more control. 
5. Just because an ultimate beneficial owner(s) is/are not sanctioned, does not mean it is not a high risk transaction. It is important to consider the Reputational Risk of those who you are transacting with and who they are linked to.

If you need further support on entities and trusts, or are interested in taking our AML training course click here to get started. Because everyone should feel comfortable to meet their regulatory requirements.

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