(Bloomberg) -- The U.K. art market is about to become more transparent.
Starting Friday, art businesses registered in the country, including galleries, auction houses and freeport operators storing high-value items, will have to verify client identities on transactions exceeding 10,000 euros ($11,000), according to the regulations approved by Parliament shortly before Christmas. The veracity of such deals also will have to be confirmed to ensure they aren't part of money-laundering schemes.
The U.K. has been a magnet for dirty money. Billions of dollars have illicitly moved through 86 financial institutions, 81 law firms, 62 accountants, and more than 2,200 companies in Britain and its overseas territories, according to a recent report by Transparency International UK, the London-based arm of the global anti-corruption group.
“Some galleries may be blissfully unaware that this happened,” said Kenneth Mullen, a London-based partner on the intellectual property and technology team at law firm Withersworldwide. The regulations “were passed the very last minute,” he said. “It's given organizations very little time to react.”
The U.K. is the world's No. 2 art market, accounting for more than a fifth of $67.4 billion in global sales in 2018, according to a report last year from Art Basel and UBS Group AG.
Stringent Rules
The new anti-money laundering regulations also will target cryptocurrencies and rental properties, Mullen said. They stem from more stringent rules mandated by the European Union, which requires its members to implement them as national laws by Friday's deadline. Germany has passed similar legislation, Mullen said.
Sotheby's and Christie's have had compliance processes for years. Now galleries will have to follow suit, which will be more of a burden for small and mid-size companies that need to train staff and set up AML operations, Mullen said.
Regulated entities will have to register with HM Revenue & Customs and conduct compulsory “client due diligence,” Mullen said. If acting for a company, trust or partnership or client, participants will need to establish the relevant ownership structure and then identify the “ultimate beneficial owner.”
Individuals will have to be checked against lists of sanctioned individuals or politically exposed persons, Mullen said.
Red flags, indicating a high-risk transaction, may include cash payments, gaps in provenance and refusal to identify the buyer or seller.
To contact the reporter on this story: Katya Kazakina in New York at kkazakina@bloomberg.net
To contact the editors responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, Peter Eichenbaum, Steven Crabill
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