Annette Fong Head of Compliance Solutions
AML Art Series – Timing / Ready or Not - Registration
The Art of Lateness and HMRC Registration
White Rabbit from Alice in Wonderland –
"Oh, my fur and whiskers! I’m late, I’m late, I’m late! Oh, dear, oh dear, oh dear! I’m here, I should be there. I’m late, I’m late, I’m late! The queen, she’ll have my head for sure!"
"Court is now in session!"
"Her Majesty, the Queen of Hearts, presiding!"
"I'm late! I'm late! I'm dreadfully, awfully late! The queen will roast me for dinner! If I'm late for the trial, it'll be off with MY head next!"
HM Revenue & Customs (“HMRC”) Guidance
On 7 February 2020, HM Treasury published guidance to help prevent money laundering and terrorist financing for Art Market Participants (“AMPs”). The guidance as produced by the HMRC and the British Art Market Federation, is based on law and regulations as of 10 January 2020 when the Fifth Money Laundering Directive (“5MLD”) came into effect. The guidelines are designed to help AMPs meet their obligations for money laundering supervision including registration, customer due diligence, record keeping and reporting suspicious activity.
AMPs includes firms or sole practitioners who:
- trades in, acts as an intermediary or deals in the sale or purchase of art work; or
- operates a Freeport
AMPs who are involved with a transaction of €10,000 or more, or a series of linked transactions of €10,000 or more will be caught under the 5MLD.
With the 5MLD in place for over three months, it is not too late for AMPs to implement and operationalise the anti-money laundering (“AML”) requirements. AMPs certainly don’t want to be in the same situation as the White Rabbit from Alice in Wonderland and wondering if HMRC will give them a roasting or have its head for being late in complying with the regulations.
Requirement to Register with HMRC
AMPs are required to register their business for AML purposes with the HMRC as of 10 January 2020 and they must do this before 10 January 2021. Although AMPs may consider this leeway as a grace period, AMPs are strongly advised not to delay submission of registration and to apply as soon as possible to HMRC for registration .
As part of the registration process, the beneficial owners and senior management of the AMPs are subject to HMRC approval to ensure that they are appropriate to undertake their responsibilities.
Aside from the year-long timeframe in which AMPs must register, AMPs are required and expected as of 10 January 2020 to carry out due diligence on all customers to whom they sell works of art at €10,000 or more (or where there are a series of linked transactions of €10,000 or more). Furthermore,
AMPs must comply with the other obligations imposed under the Money Laundering Regulations 2019 (“MLR 2019”) which include:
- Carrying out a business risk assessment of the extent to which you are exposed to money laundering;
- Appoint a nominated officer;
- Implement policies, controls and procedures;
- Train staff appropriately;
- Report any suspicious transactions; and
- Keep appropriate records of customer due diligence (“CDD”) conducted
Therefore it is advisable AMPs should be keeping a clear record of all CDD conducted on customers and transactions falling under the regulations as they may be asked to produce evidence in the event of an audit.
Consequences of non-registration
HMRC must monitor the businesses for which it is responsible for and make sure they comply with the regulations. This includes maintaining a register of all businesses it supervises (Supervised Business Register) for AML purposes. As such, the register provides a record for HMRC to be on the look out for businesses who should be registered but are not. In turn, like many other regulated businesses (e.g. estate agents, accountancy service providers), AMPs are legally required to register with the HMRC. HMRC have a range of sanctions they can apply for non-registration, from an advice letter, warning letters, suspending a registration until measures are put in place and then civil penalties.
Upon registering with the HMRC, businesses will be required to pay a fee and this fee will be due every year on the date of registration. In the past, HMRC have penalised regulated business who have failed to register and they will continue be vigilant when new businesses are brought under scope. Although AMPs have a one year grace period from the time MLR 2019 came into effect, businesses who fail to register will be sent a pre-penalty letter which advises the business of HMRC’s intention to issue a penalty based on the minimum fixed fee and any unpaid fees. It should be noted that HMRC has the power to enter premises to businesses that should be registered but have failed to do so. This includes conducting unannounced compliance visits.
If a business fails to register, it is likely that they do not have the necessary processes and procedures in place to combat money laundering. Therefore, not only does failing to register put businesses at risk of a range of sanctions, it may also indicate to HMRC that the business has not implemented the required procedures which places the business under further scrutiny. As time passes, the HMRC is less likely to be forgiving of businesses who have ignored the requirements of the regulations. Basically, if AMPs do not have the necessary AML procedures in place, they may become embroiled in an AML investigation which could seriously undermine their reputation.
HMRC has a duty to publish details of businesses that do not comply with the money laundering regulations. The list details compliance and registration penalties, prohibitions on management, and minor penalties.
For the tax year 2019-20, five businesses incurred penalties for breaches of money-laundering regulations. For the previous tax year 2018-19, there were 15 businesses reported with breaches.
Compliance issues included the following:
- failures in carrying out a risk assessment;
- failures in having the correct policies, controls and procedures;
- lack of staff training;
- lack of customer due diligence;
- failures in verification of identity;
- failures to provide requested information or documents;
- record-keeping failures  .
AML and Coronavirus
The COVID-19 pandemic continues to disrupt business activity and as social distancing becomes the norm, businesses must consider how this impacts their ability to comply with the money laundering regulations.
With people working exclusively from home and client relationships entirely online, business’s AML procedures will be affected. In particular, whether the total absence of face to face contact with a client and inability to have personal sight of a client’s identification documents means, in practice, more clients will attract enhanced CDD. In such circumstances, client screening and certified e-identification solutions can be used; adverse media searches undertaken; and video-conferencing facilities deployed so that prospective clients, insofar as possible, are still ‘met’.
Whilst it may be difficult to implement all AML requirements in the interim, businesses should at least kick off the process by registering with the HMRC. Business should also start thinking about how to shape compliance with the AML regulations in their business during this quiet period so that they are fully prepared to mobilise the next steps when things start to pick up again.
We offer an end to end service to help businesses with AML compliance from HMRC registration to policy drafting, procedure implementation, and business risk assessments. In conjunction with our services, we also offer technology solution to assist with process efficiency and cost effectiveness. Please contact Annette Fong or Julie Dao for more information.
This article was co-authored by Paralegal, Regulatory Solutions, Julie Dao.