In 2021 the New York Times reported that the UK was instrumental in the concealment of worldwide cash and assets. Due to a network of island tax havens and historically light financial regulation, it was reported that the UK has facilitated an ecosystem of finance that lends itself to secrecy through established corporate structures. 

Because of the art market’s historical position as one of the most unregulated markets in the world and its unique reliance on confidentiality, it has been identified as a prime market for integration of corrupt funds within this ecosystem -  placing UK AMPs in the eye of the storm -  with London as the epicentre. 

For many galleries and art market participants, responding to these concerns has been a source of frustration in a long line of recent challenges. In combination with Covid recovery and grappling with the implications of Brexit, it is understandable that many AMPs are searching to gain an understanding of why they have been regulated. In addition, the Russian sanctions have added an extra layer of confusion on what processes and procedures must be in place for art businesses.

By understanding where one fits within a larger picture, a gallery can be informed in the choices they wish to make when adopting their AML systems, meet regulatory requirements and avoid misinformation. 

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What You Need to Know

Currently, Russian sanctions have brought to light the integration of corrupt funds into the economy. In addition news outlets such as the Financial Times have raised flags surrounding the purchase of residential and commercial property from questionable sources. 

However, the acquisition of art is also of great concern. It is possible that sanctioned persons could be viewing the art market as a way to liquidate assets or as a way of putting money in a mobile investment that can be stored offshore easily.

AMP’s therefore have to be diligent in their processes and understand that money made illegally is easily laundered into the economy through three stages; placement, layering and integration. 

For an Art Market Participant they are likely to encounter laundered money at the integration stage. In this stage a money launderer seeks to integrate funds into the economy through acquisition of luxury goods such as real-estate or fine art purchases etc.

These purchases are usually made with money that has already undergone the layering process - where a money launderer has concealed the source of their funds through offshore entities and accounts.

This is why when conducting due diligence on a company or entity you are required to ascertain who the ultimate beneficial owner is. By finding someone at the end of a chain, you have found the source of the funds and then can establish the source as legitimate.

For many, the actuality of encountering illicit funds is quite low, but that does not mean it is outside of the realm of possibility. Sanctions have put increased pressure on their targets who may be looking for easy ways to liquidate and transfer funds.

For any AMP, diligence and cohesive systems is key -  otherwise due diligence can feel like opening Pandora’s box. 

For guidance on Due Diligence you can access our article entitled 'How to make Due Diligence part of your brand and buying experience' here, where we break down what is required under current regulations.

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