What links expensive jewellery, fine wine, antiques and works of art? All these high-value goods offer the potential for criminals to keep dirty money out of the financial system and convert illicit cash into high-value, eminently portable assets.

But, one of these routes to sanitizing ill-gotten gains has only recently been blocked. The UK art market, said to be worth over £1bn ($1.2bn) a year, came under strict European-wide rules last year designed to prevent money laundering by forcing businesses to flush out high-risk customers. And in February this year the Financial Action Task Force published Money Laundering and Terrorist Financing in the Art and Antiquities Market – meaning it is likely that scrutiny will be renewed.

The pandemic was a boom time for the art market. Trapped at home on their laptops, without parties or travel, the super-rich have been feverishly buying art. But despite this explosion in the market, smaller UK art houses are struggling with the huge administrative burden of complying with these onerous regulations. Many say they need to employ extra staff to keep up with customer checks, now mandatory for every transaction over €10,000 ($10,900). 

Where, pre-covid, a gallery owner would meet the customer in person, most transactions are now ‘remote’, which requires digging into a purchaser’s background before a sale can occur. In an industry famed for its discretion, these changes have come as a shock. As one senior industry figure told us, “we’re basically having to ask for their inside leg measurements”.

This is also causing problems outside the EU, with many international clients puzzled and irritated by the need to provide personal data for sales in the UK. Some worry that clients who value their privacy are moving sales to the US, where the rules are more lax.

Others participants complain about significant duplication in the checks. An intermediary art adviser must complete cumbersome checks, only for galleries to insist on repeating them, a problem compounded ten-fold when multiple works are purchased from different galleries. It can be difficult to explain, and many clients seem frustrated by the intrusion. 

Experienced sellers are keen to emphasize that the respectable side of the market supports these checks in principle, accepting that allowing anonymity in the past may well have facilitated illicit money changing hands in the shadows: they want no part of that.

Nonetheless, with recent new guidance from HMRC bringing interior designers within scope for the rules, and new obligations to snitch on fellow sellers who aren’t complying with the duty to register with HMRC, there is a sense of resignation that the scope of the rules is only likely to widen, at least where the art world is concerned. 

In a move which sent a chill down the spine of the entire sector, HMRC also issued its first fine to an art market participant for failing to apply for registration with the regulator at the required time. Publishing details of the breach on a list of 175 firms from other sectors, HMRC has recently stepped up its fight against money laundering, with the last figures published showing a doubling in the fines imposed across all sectors, with penalties totalling £2.18m ($2.71m).

Meanwhile, those trading in diamonds and antiques can carry on business with impunity, free from the burdensome restrictions borne by their cousins in galleries and auction houses. But, as the inexorable trend towards greater regulation in this area continues, it may not be long before the vintage claret drinkers and their bejewelled companions need to provide more than just the cash when making their next high-value purchase.  

Ruth Paley is a partner in Eversheds Sutherland’s Corporate Crime and Investigations team. She is an expert in all aspects of financial crime including fraud, economic crime and money laundering, with a focus on specialist advice to corporates on compliance with the UK AML regime. 

Prior to joining Eversheds in 2016, Ruth spent 12 years at the London Bar conducting heavyweight fraud and financial crime defence jury trials. She also has extensive prosecution experience including with the FCA, the SFO, and the Crown Prosecution Service as a Grade III prosecutor and former specialist panel advocate for the Serious/Organised Crime, POCA, Fraud and Rape lists.