Written by: Griffiths & Armour on: 06 Sep 2022
The more educated the collector, the more ownership they have over the Due Diligence process – a key component to the success of an art acquisition. A successful insurance programme is essential when purchasing fine art and early engagement with an experienced insurance broker is recommended.
To provide clarity on considerations for high net worth individuals before acquiring artwork, Griffiths & Armour Head of Private Clients, Edward Dunphy recently caught up with the team at Arcarta to discuss topics such as provenance, protecting personal information and Anti Money Laundering (AML) responsibilities.
You can view our Frequently Asked Questions below:
What are the changes to Anti Money Laundering Regulations for the Art Market (AML)?
In January 2020 the UK transposed the EU’s 5th Anti-Money Laundering Directive into national law. Similar to the measures used by banks, the 5th Directive asks art market participants to collect, verify and analyze their client’s personal information to ensure transparency and the legitimacy of funds.
This is what is called Customer Due Diligence, and is now required of all Galleries, Dealers, Advisors & Auctioneers on any sale over €10,000.
What does AML regulation mean for the buyer?
For the buyer, this means that for any purchase of art over €10,000 they will be asked to provide (as a minimum) personal information such as a piece of photo ID, and proof of address.
For those seeking to buy artwork through a corporate structure the company will need to provide information for both the company and for those with significant control (25% or more). If buying through a trust this means that information will be requested from both the trust and trustee(s).
This means that transactions that previously did not require the involvement of multiple parties, may extend past the broker of the transaction, involving the ultimate client directly.
This can be frustrating for an art buyer who has established relationships with dealers and advisors, but what is important to remember is that these requirements are in place to not only protect the gallery but also protect the buyer.
As the value of artwork increases, the risk present in the transaction increases as more parties become involved. Customer Due Diligence is a way to ensure that both buyer and seller are legitimate – meaning that there is a lower risk of acquiring work that has passed through the wrong hands.
Is AML different for UK, EU or International clients?
Regardless of nationality, if a client is buying artwork from any UK or EU registered art business they will need to follow the same procedures. However, different countries have different legal requirements and may not require the same processes.
Due to the current conflict in Ukraine, there has been a renewed push for AML legislation in order to ensure the legitimacy of funds entering the art market. Specifically in the US it looks likely AML legislation will pass into law as early as this coming year.
Who is responsible for AML?
In the UK the two governing bodies that are responsible for regulating the art market in regards to AML and Sanctions are HMRC and OFSI. However, in day to day operations the gallery, advisor or dealer is the one responsible for conducting due diligence checks. The customer/or the buyer is therefore only obligated to supply the required information.
Why is AML regulation important?
Broadly speaking AML regulation is about transparency – due diligence is a set of processes that build a picture of you as a client, so that everyone is confident transacting. This transparency is key in keeping the UK economy legitimate. Specifically in the current political climate, regulation is a way to ensure that corrupt Russian funds do not enter the art market, ensuring everyone is doing their part.
How can buyers be certain of the provenance of pieces of art?
When buying a piece of artwork it is always important to look for markers of authenticity such as signatures, certificates of authenticity and a chain of ownership (or provenance). Most galleries will conduct these investigations themselves, and should be sharing this information willingly.
However, if this proof is not being materialized or you have reason to investigate further there are databases to help you look up artwork to ensure its legitimacy and provenance. For example, Interpol has an app which is open for public use where you can scan your artwork to check if it is registered as stolen, or you can use third party databases/services to assist before proceeding with an acquisition.
The art market is a billion pound industry - what security can be given to clients regarding ever growing cyber threats for the financial transaction?
Recently Artsy reported on how cybersecurity infrastructure is a growing need for galleries. Dealing in high value transactions, email and social media hacking can occur when PDFs and personal information are exchanged online. As a collector or buyer it is important to ask galleries how they plan to exchange information securely.
Some things to consider/ ask are:
- Do they have the technical infrastructure to store your information securely?
- Do they have two-factor authentication in place to access files?
- Who has access to your information? In most cases an entire team shouldn’t require access to your information, only responsible persons.
- Are they using a third party service to ensure all data remains confidential and off email? In light of GDPR, you should refuse to provide your information over open email.l
- Are the invoices you receive sent to you through an encrypted and password protected portal and not as an email attachment?
You can also take the sharing of your information into your own hands, sharing information in password protected folders. Or you can opt to share information via platforms like arcarta which integrate banking level security and infrastructure to protect your information, allowing collectors to verify themselves and control who can view their information and when.
What can a buyer do to comply with the new regulations and protect their exposure?
In the recent UBS x Art Basel Art Market Report it was found that of the top 10 concerns of High Net Worth collectors, increased regulation and identification requirements were number one.
As a buyer it is important to educate yourself on what is required of you under regulation. By equipping yourself with all the facts, you ensure that you are an informed participant in art transactions, complying with confidence. You can also utilize platforms such as arcarta to store and send your documents securely to galleries, taking ownership of your information and ensuring its safety.
At the end of the day collectors and buyers are a key component of the AML process. By providing your information, asking the right questions and taking ownership of how you share your data, you ensure the due diligence process is simple and safe; protecting yourself and contributing to a legitimate economy.
We hope that this has provided clarity on considerations when purchasing fine art and thank Arcarta, the first Due Diligence Network for the artworld, for their contributions.
If you have any questions about acquiring artwork or insurance for art collections we would be happy to assist. Please click below to submit your enquiry to Griffiths & Armour Head of Private Clients, Edward Dunphy.
Our established Private Clients team have a proven track record in delivering high levels of risk mitigation and providing bespoke insurance programmes tailored to each individual client’s needs. Our team oversee any insurer visits, personally manage claims and deliver the right insurance for you, with no hidden costs. Our team has a wealth of experience and can advise on the impact of COVID-19 on travel insurance policies and the importance of re-evaluating luxury items.
To find out more about our Private Clients proposition, please click to download our brochure below.