This Q&A article provides answers to important questions to help support your compliance. Important: if you’re not using compliance correctly, then you could be breaking the law (for example, intermediaries in the USA can’t be used, for now at least – see below).
Artnet News covered this topic in early March 2021: UK Art Dealers Are Misusing the Law to Avoid New Money-Laundering Regulations. Compliance Experts Say It Will Backfire
Q: What is reliance?
A: This is when an AMP relies upon another AMP’s customer due diligence (‘CDD’).
Paragraph 5.192 of the BAMF Guidance states:
“The ML Regulations expressly permit an AMP to rely on another person to apply any or all of the required CDD measures…”
However, there are caveats.
Q: Can reliance be used to hide the identity of the buyer?
A: No.
Paragraph 5.202 of the BAMF Guidance says:
In practice, the AMP relying on the confirmation of a third party needs to know:
> the identity [name] of the customer or beneficial owner whose identity is being verified;
> the level of CDD that has been carried out*; and
> confirmation of the third party’s understanding of his obligation to make available, upon request, copies of the verification data.
* Note that Simplified Due Diligence (SDD) may not be used for reliance. BAMF Guidance 5.198 reads: “It is not permissible to rely on the basis of simplified due diligence having been carried out, or any other exceptional form of verification.” Accordingly in ArtAML™, if you’re issuing an AML Certificate of Completion to another AMP who will rely on your due diligence, ID upload that includes verification is required in support of your compliance obligations.
Q: Can you use reliance from a UK interior designer or art advisor? What about the dealer in New York with whom you collaborate?
A: Maybe, maybe and no. Let’s look at BAMF Guidance.
Paragraph 5.194 says you can only reply upon:
(1) a person who carries on business in the UK who is subject to the requirements of the ML Regulations; or
(2) a person who carries on business in another EEA State who is subject to, and supervised for compliance with, the requirements of 4MLD; or
(3) a person who carries on business in a third country who is subject to, and supervised for compliance with, CDD and record keeping requirements equivalent to those laid down in 4MLD.
Is the art advisor regulated as an AMP? If they are, then you can. (As of 10th June 2021, they’ll be required to have registered as an AMP. You can verify this via https://www.gov.uk/guidance/money-laundering-regulations-supervised-business-register – noting a 45-day lag between registration and approval / listing.)
Is the interior designer regulated as an AMP? In the period prior to the June deadline, it’s worth speaking with them to see if they intend to register as an AMP. While interior designers could meet the definition, it’s doubtful that many who trade in or act as an intermediary for the sale or purchase of art in which the value amounts to €10,000 will be aware of a possible requirement to comply.
The dealer in New York? No. They are not (yet) subject to any equivalent requirements.
Q: Surely reliance reduces risk, as it’s the other AMP doing the CDD?
A: No. Arguably, it increases your risk. Regardless of who carries out the checks, you are ultimately responsible for them and cannot opt out of responsibility. This makes you liable for any failure to comply with the legislation. So doing checks yourself – or at least verifying the other AMP’s checks in full – seems to lessen the risk.
From Paragraph 52 of the Guidance:
However, it is important to be aware that the relying AMP conducting the sale retains responsibility, and is liable for any failure to comply with the CDD obligations set out under the ML Regulations, as this responsibility cannot be delegated. The relying AMP should therefore assess whether it has confidence that the intermediary or agent will have carried out CDD measures appropriately, and should obtain written assurances to this effect.
Q: This is terrible. What’s to stop another dealer in the chain poaching a client once they know the name?
A: Technically, some good news. Section 41 of the Regulations covers data protection, and says:
41.—(1) Any personal data obtained by relevant persons for the purposes of these Regulations may only be processed for the purposes of preventing money laundering or terrorist financing.
In other words, when you provide the name of your buyer to another AMP, they are not allowed to use it for commercial purposes. Similarly, you must not use the identity of a collector received for AML purposes for anything other than AML.
From a business perspective, why not put in place an agreement in which all parties that will receive such confidential information commit to not using the information for any reason other than fulfilling AML / compliance obligations per Section 41 of the MLRs?
Q: Reliance isn’t enabling ‘business as usual’, so what’s the point?
A: The start of Paragraph 5.191 of the BAMF Guidance tells us:
To have several AMPs requesting the same information from the same customer in respect of the same transaction does not help in the fight against financial crime, and adds to the inconvenience of the customer.
Reliance therefore represents an extra distance that you can go in order to smooth the path for the collector, rather than reducing your obligations.
Q: How can ArtAML™ help?
A: In addition to having a ‘reliance’ feature in our platform for relying upon another AMP’s AML / compliance checks, a feature being released later this week, AML Certificate of Completion, provides key information for other AMPs to know what AML checks you’ve conducted.
This enables you to issue an ArtAML-branded certificate, providing reassurance to collaborators that you’ve used ArtAML to take a risk-based approach.
As our platform follows requirements of the BAMF Guidance which requires that the relying AMP knows the identify of the beneficial owner, their name will be included on the AML Certificate of Completion.
Caution is always urged when using reliance: It’s not an easy avoidance measure, but is instead a convenience for customers in support of transactions proceeding within a regulated market. If any AMP relies on another’s reliance, they retain liability for AML / compliance checks conducted. Tread carefully.
–Susan J Mumford & Dr. Chris King, ArtAML Co-Founders
For brevity, the above references include relevant quotations from the BAMF Guidance and the Regulations. You’re encouraged to examine them yourself and take a ‘risk-based’ approach on how you apply them- documenting why you’ve come to the decisions made and securely storing any personal data associated with compliance checks in a GDPR-compliant manner:
The Money Laundering and Terrorist Financing (Amendment) Regulations 2019