The art industry is internationally revered and is a cultural and economic overachiever. In this powerhouse, it is imperative to ensure everything is legitimate. Million-dollar exchanges can prove to be a hive of activity for money laundering and other criminal acts. London Daily News will investigate how fraud and money laundering prevention in the art world with help from the CEO of Arcarta, Tom Noon, who heads up the Manchester-based Due Diligence platform.
Arcarta, who works with over 400 businesses in the art sector, recognises that there are misinterpretations around fraudulent transactions in the industry, “there are clear gaps in knowledge and misconceptions in the Art Market in relation to Anti-Money Laundering (AML) regulation, specifically: How compliance is achieved and how to perform Due Diligence correctly to the standards required by EU and UK regulators – such as HMRC – the UK Art Market supervisor since January 10th 2020.” Due to meeting regulations across borders, and the UK’s stringent standards, Due Diligence undoubtedly appears to be an arduous task when dealing with significant sums of money.
The task is made trickier by the aura of prestige that envelopes the art world. Due Diligence checks are even more problematic when addressing the issue with longstanding customers. It applies to everyone, as advised by Tom Noon, “for any business trading in works of art – be this a gallery, auction house or advisor – to perform Due Diligence correctly, it must first recognise that all customers should be subject to Due Diligence – even those it has known for many years.” Although they are not unaware of the issues it can impose, Noon continues, “once it acknowledges that Due diligence applies to all its business relationships, it must then understand the differences between verifying a customer’s identity before determining the money laundering risk the customer presents.”
The importance of Due Diligence withstanding there now begs the question of how to do the checks. Visual ID is necessary for any gallery or institution, “it is essential for any art business to ask for ID – and other appropriate documentation from its customers – it must understand that Verification of Identity – achieved by asking for ID and Proof of Address, or Liveness and Selfies – is done to prove that the person on the document is our customer.” but as impressed by Noon, “this tells us nothing about the possible AML risks the customer may present.”
Kicking off a process in which platforms such as Arcarta come into their own, as their CEO advises, they must “determine if their customer triggers the requirement for Enhanced Due Diligence”. Specialist information is required, followed by an analysis of this information, and then the ‘Relationship Period’.
Regarding gathering specialist information, Tom Noon explains, “Google alone is not sufficient, the gallery must consult specialised information to determine any possible AML risks. While this includes checking to see if a customer is a Politically Exposed Person (PEP) or Sanctioned, this alone is not sufficient. Consider that as the majority of customers will not fall into either category – Due Diligence also requires having considered the occupational, transactional and geographical risks for all its customers.”
The following analysis then determines what would be the “appropriate course of action, where its decisions will be documented as a report or record that brings the entire process together, inclusive of an audit trail and a written report which illustrates why the gallery felt it was safe to proceed with the customer.”
Finally, the process nears completion with the ‘Relationship Period,’ specifying “how long must Due Diligence information be stored and maintained, which in the UK is presently 5 years but is different from one country to the next.” Although this marks the end of initial checks, “over the lifetime of the relationship, the art business must also ensure that its Due Diligence reports accurately reflect the customer’s circumstances” and additionally “the gallery must store and manage all this information in a manner that is aligned with GDPR and the obligations to which it is subject.”
Unfortunately, some individuals still view the art sector as frivolous, but the economic and cultural impact is not something to scoff at. With such large financial transactions of desirable and irreplaceable goods, Due Diligence and careful checks are not to be ignored and thus taken seriously.
