Artful dodges?

I have written before about the potential for money laundering presented by the art world.  Of course, I know this in theory only: I have never once been the customer of an art auction house.  (I spent some childhood years in Newmarket and often attended bloodstock auctions, where my mother would make me literally sit on my hands in case I accidentally bought us a gelding, and this terror of misbehaving at an auction has stayed with me.)  Under UK (and EU and related) AML legislation, art auction houses and other dealers in art are brought into the AML family by dint of being high value dealers – i.e. they trade in goods for significant amounts of cash – and this remains the same in the Fourth Money Laundering Directive and is unaffected by recent proposed changes to that Directive.

However, I think it is fair to say that the art sector has married into the AML family rather reluctantly, and has, thus far, tended to see all this AML endeavour as rather distant from them, perhaps even rather grubby in its insistence on asking impertinent questions about customer identity and source of funds.  But with several recent high profile cases of wealthy individuals using their art collections to disguise their money, the art world has come under more public scrutiny.  And in response, last week the Responsible Art Market (RAM) initiative published its first “Guidelines on Combatting Money Laundering and Terrorist Financing”.  (According to its own website, RAM was formed in Geneva in 2015 and “aims to raise awareness amongst Art Businesses of risks faced by the art industry in Switzerland and abroad and to provide practical guidance and a platform for the sharing of best practices to address those risks”.)

I’m not going to quibble about the structure or detailed content of those guidelines – I think they are a useful first go at uniting what is obviously quite a disparate sector – and although they are not as I would have written them, anyone who writes such things for a living would say the same.  But there are two points at which I take more serious issue with what the art sector is being advised, as I fear that it is not a correct interpretation of the legislation, at least in the jurisdictions whose law I know.

The first is that the guidance advises the reporting of “grounded suspicions” of money laundering or terrorist financing.  I am not sure what a “grounded suspicion” is, but section 330 of the UK Proceeds of Crime Act 2002 makes it an offence to fail to report “knowledge or suspicion” of money laundering, or to fail to report if there are “reasonable grounds” on which you could have had such knowledge or suspicion.  A “grounded suspicion” sounds entirely different to me, suggesting almost that you need evidence or proof before reporting.

And the second is found in the section of the guidelines that talks about assessing source of funds: “The preference for all transactions should be for the Art Business only to accept payments from reputable banks in jurisdictions subject to AML regulation and supervision.  In this way Art Businesses can rely on the fact that the financial institutions handling the funds (which are subject to a high degree of AML regulation) will have carried out the necessary checks and verification and be satisfied that the source of funds is clean.”  This is suggesting a degree of reliance that all other parts of the regulated sector have learned does not exist, and offers unwise comfort to the art sector.  As we all know, you can hope that the others in the chain have done their due diligence, but if you end up with a criminal on your books, he’s your customer and you will pay the price.

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