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Anti-Money Laundering for the art and finance market

How to mitigate money-laundering risks in the art and finance industry?

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What is the fifth AML directive?

 

The Anti-Money Laundering (AML) Directive sets out a European legal framework to understand and mitigate the risks related to money laundering and terrorist financing (ML/TF). Since January 2020, the fifth Anti-Money Laundering Directive (AMLD51) has been in force across all EU Member States.

As the ultimate aim of the European authorities is a more regulated and transparent global economy, industries they consider as having a higher ML/TF risk are covered by this regulation.

The complex nature of international art-related transactions, its many intermediaries, and the high value of artworks significantly increase the art industry’s ML/TF risk. Therefore, the industry’s actors fall under the scope of the AMLD5.

1 AMLD5, Directive (EU) 2018/843

Who qualifies as an art intermediary under AMLD5?

According to AMLD5, art intermediaries are:

  • Persons trading or acting as intermediaries in the trade of works of art, including trade carried out by art galleries and auction houses, where the value of the transaction or a series of linked transactions amounts to €10,000 or more.
  • Persons storing, trading or acting as intermediaries in the trade of works of art carried out by freeports, where the value of the transaction or a series of linked transactions amounts to €10,000 or more.

Therefore, art galleries, auction houses, art-secured lenders, freeports, and, potentially, carriers must comply with AMLD5.

What does this mean for art industry actors?

The art industry must comply with the extensive AML framework to prevent ML/TF risks, and set appropriate safeguards that prevent these risks from materializing.

AMLD5 sets out the following obligations for entities in the art world:

 

AML/CTF e-learning demo for art professionals

To support art professionals’ awareness of the key requirements they need to comply with, we designed interactive and practical anti-money laundering and counter-terrorism financing (AML/CTF) e-learning courses. Take a look at our AML/CTF e-learning demo for art professionals.

Our solution

 

Art market players are at the dawn of facing new obligations over their Know Your Customer (KYC) duties, compelling them to think and act differently. 

Implementing and maintaining these KYC operations internally leads to ineficiencies and high cost of ownership, which is often underestimated. Externalizing KYC activities improves output quality, increases risk management, and accelerates counterparty onboarding.

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Main key findings from the Deloitte Luxembourg Art & Finance report

 

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Select insights from the Deloitte Art & Finance report

For further information, discover our selection of articles and case studies written by experts of the art and finance ecosystem.

Visit our Forensic & Financial crime webpage.

DKYC/AML for the art and finance industry

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How Deloitte Netherlands interacts with the art community to comply with the fifth AML directive

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Know your patron: The implications of the 5AMLD for museums in the EU and beyond

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Money Laundering in Arts, a Swiss Perspective

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Promoting responsible practices: Lessons learnt from the Responsible Art Market Initiative

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The fifth anti-money laundering directive: A European evolution, not revolution, for art market professionals in France

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The role of free zones in the compliance chain

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Transposition of the fifth antimoney laundering directive into UK law: Legislative and practical challenges

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Ultimate beneficial owners and why you need to know about them

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Adopting a risk-based approach means making sure that enough time and energy is invested in areas where ML/TF risk is highest.
First, you must identify and assess the severity of your business’ potential risk indicators. You can assess this risk by considering various factors, including:

  • The type of buyer/seller (e.g., an individual collector, a specialized company, another art professional, an offshore trust, etc.)
  • The way art professionals enter into contact with the buyer/seller (e.g., face-to-face, at an art fair, through a web platform or an intermediary, etc.)
  • The type of artwork and transactions at stake (e.g., are the goods consistent with the profile of the buyer/seller, is the origin of the artwork well-known and documented, is the initiated transaction a sale, a loan, or a donation, etc.)
  • The countries involved (e.g., is the buyer/seller domiciled in a country with equivalent AML and counter terrorist financing [CTF] regulations, is the artwork from a country that is subject to trade sanctions, etc.)

Art professionals must identify and verify their customers’ identities.
A few universal rules apply when performing customer due diligence:

  • Timeliness: it must be performed as soon as the business relationship starts.
  • Risk-based: it must be tailored to the customer’s risk level.
  • Up-to-date: it must be regularly performed on an ongoing basis to collect accurate information and documentation on the customer.

When an art professional has a business relationship with a customer, the customer’s information must be kept up-to-date. The customer’s circumstances are likely to change throughout the relationship; therefore, the risk exposure of the customer may change. Such changes may affect the overall customer risk profile and, as a consequence, the checks to be performed.

Effective AML risk management relies on the design and implementation of adequate internal AML processes. An adequate internal organization includes the following key elements:

  • Developing internal AML policies, controls and procedures.
  • Appointing a person in charge of AML-related matters (compliance officer).
  • Training staff to assess AML risks and ensure a good level of awareness.
  • Keeping track of the risks identified and the actions taken to mitigate them.

Art professionals who fall within the scope of the AMLD5 must cooperate fully with the authorities by:

  • Filing, without delay, suspicious activity/transaction reports if ML/TF is suspected.
  • Responding to requests for information from the competent authorities.

Our thinking

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AML/CTF e-learning demo

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Get in touch

Vincent Gouverneur

Partner | EMEA Investment Management Leader & Global FSI Operate Leader
+352 45145 2451

Adriano Picinati di Torcello

Director | Global Art & Finance Coordinator
+352 45145 2531

Maxime Heckel

Partner | Forensic & Financial Crime
+352 45145 2837