From 14 May 2025, UK Art Market Participants (AMPs) and High Value Dealers (HVDs) will be caught under the financial sanctions mandatory reporting regime as "relevant firms" following the introduction of the Sanctions (EU Exit) (Miscellaneous Amendments) (No.2) Regulations 2024 (the Regulations).
Coming hot on the heels of: (i) the Office of Financial Sanctions Implementation's (OFSI) 2023 Guidance for the art trade regarding the identification and mitigation of sanctions risks; and (ii) the National Crime Agency's amber alert of earlier this year on the potential misuse of art storage facilities by sanctioned individuals, the Regulations:
- expand on the due diligence processes already required of AMPs and HVDs under current anti-money laundering legislation; and
- make it an offence not to inform the OFSI, as soon as practicable, where an AMP or HVD in the course of carrying on its business knows or has reasonable cause to suspect a person is a designated person or has committed a breach of UK financial sanctions.
Who are Art Market Participants and High Value Dealers?
An AMP is a firm or sole practitioner who, by way of business:
- trades in, or acts as an intermediary in the sale or purchase of, works of art and the value of the transaction, or a series of linked transactions, amounts to €10,000 or more; or
- stores works of art for a person, or a series of linked persons, amounts to €10,000 or more. "Storage" includes transporting items on behalf of a "designated person" (i.e. an individual or entity subject to UK financial sanctions, as listed on the UK sanctions list) to a third-party storage facility.
This definition exempts the sale or storage of artworks created by or attributable to a member of the AMP's firm or the AMP, which exempts artists selling or storing their own works.
An HVD is a firm or sole trader that by way of business trades in goods (including potentially classic cars, fine wine or watches), where the firm or sole trader makes or receives, in respect of any transaction, a payment or payments in cash of at least €10,000 in total, whether the transaction is executed in a single transaction or in several transactions which appear to be linked.
The Regulations apply to all AMPs and HVDs in the UK, including those UK ones that operate abroad.
The reporting obligations already apply to those in the business of making, supplying, selling (including selling by auction) or exchanging articles made from gold, silver, platinum, palladium, precious stones, or pearls.
What are the requirements under the Regulations?
Reporting obligations
Relevant firms are obligated to report to the OFSI, the part of HM Treasury responsible for the implementation of financial sanctions, if they know or have reasonable cause to suspect that:
- a person is a designated person; or
- has breached UK sanctions regulations.
It must be noted that the obligation only applies to knowledge or cause for suspicion arising in the course of carrying on a business, i.e., as part of the activities that define AMPs and HVDs. For example, a sale of an artwork between private individuals does not trigger the obligation.
The report must include:
- the information or other matters on which the knowledge or suspicion is based, and
- any information held by the relevant firm about the person or designated person by which they can be identified.
If a relevant firm knows or has reasonable cause to suspect that their client is a designated person, the report must also include the nature and amount or quantity of any funds or economic resources held by the firm for that client. Notably, "funds or economic resources" include antiques, precious metal or stones, vehicles, and works of art.
OFSI has the power to require relevant firms to produce specified documents and further information in relation to designated persons and the firm's compliance with the Regulations.
Additional reporting obligations in relation to Russia
Further reporting obligations apply to relevant firms in relation to "prohibited persons" under the Russia (Sanctions) (EU Exit) Regulations 2019 (S.I. 2019/855) (the Russia Regulations), namely to report to the OFSI:
- if they know or have reasonable cause to suspect, that they hold funds or economic resources for a prohibited person; and
- the information or other matter on which the knowledge or cause for suspicion is based came to them in the course of carrying on their business.
"Prohibited persons" under the Russia Regulations are:
- the Central Bank of the Russian Federation;
- the National Wealth Fund of the Russian Federation;
- the Ministry of Finance of the Russian Federation;
- a person owned, controlled, or acting on behalf of the above.
Due diligence processes
Complying with the Regulations will require the implementation of enhanced due diligence processes by relevant firms, going beyond those established in response to the anti-money laundering regulations contained in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the AMLRs). These include conducting checks not only on customers (as currently required under the AMLRs) but also on partners, contractors, third parties or financial institutions and their ownership and control structures.
Placing the onus on the relevant firms to ensure that they have sufficient measures in place, OFSI recommends:
- taking a risk-based and proportionate approach to due diligence and considering common evasion practices, such as movement of assets by family members of a designated person or regular payments from an unclear source;
- having a strong understanding of the sanctions regulations in place and seeking independent legal advice where necessary;
- carrying out a variety of checks on clients, partners, contractors, third parties, or financial institutions, including a routine review of the UK Sanctions List and the OFSI Consolidated List and checks of the ownership and control structures of any businesses with which the firm deals, repeated throughout the business relationship;
- providing appropriate training and resources to the firm's staff;
- communication sanctions compliance expectations to counterparties, partners, subsidiaries, and affiliates in line with local regulations;
- developing and implementing operational compliance policies, procedures, standards of conduct, and safeguards, as well as implementing compliance programmes with strict consequences for engaging in sanctionable conduct (up to and including termination of employment / business relationship);
- establishing a confidential reporting mechanism; and
- procuring qualified third-party audits of the compliance programme.
These processes, as well as the reporting infrastructure, should be set up by relevant firms before 14 May 2025.
Consequences of breach
Breach of financial sanctions is a serious offence and may incur:
- a fine of £1 million or 50% of the total value of each breach, whichever is higher, on a strict civil liability basis (meaning that OFSI does not have to prove that the relevant firm had knowledge or reasonable cause to suspect that it was in breach of financial sanctions); and/or
- up to 6 months in custody on summary conviction; and/or
- up to 7 years in custody on conviction on indictment, if OFSI refers the case to law enforcement.
Where OFSI decides against imposing a financial penalty, it has the power to "name and shame" non-complying firms, which carries adverse reputational consequences.
In assessing the breach, OFSI will consider:
- whether the breach was self-disclosed fully and promptly;
- the level of cooperation with any inquiries; and
- action being taken to improve future compliance.
Compliance with the Regulations is yet another burden placed on art market practitioners, who already have limited resources to expend, given the growing costs of running a business arising out of the current AMLR requirements, the Autumn Budget and more generally. However, if streamlined and drawn from the experience of AMLR compliance, due diligence and any reporting can be made efficient and the strain on resources can be minimised.
Mishcon de Reya has experts in Art Law and Sanctions who are best placed to advise you on systems and controls that ought to be in place, as well as the incoming compliance obligations.