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The FinCrime Files – Q&A with Tom Christopherson, Art Law Consultant

In our continuing series of the FinCrime Files, we caught up with Tom Christopherson, Art Law Consultant at Bonhams and Constantine Cannon LLP and former European General Counsel at Sotheby’s.

2020 saw the fifth EU Money Laundering Directive (5MLD) come into force in the UK. The regulation requires fine art dealers and auction houses to perform anti-money laundering (AML) due diligence on customers, and obliges them to report suspicions of any money laundering activity to the National Crime Agency, in order to avoid any criminal liability. We spoke with Tom, an expert on AML in the fine art world, to hear his thoughts and opinions on what’s happened since 5MLD took effect.

Hi Tom, could you tell us a little about yourself and how you advise fine art auction houses in terms of anti-money laundering?

After about 15 years in the legal world at Sotheby’s, I diversified into running training programmes for the art specialists at Sotheby’s and art law lecturing at the independent Sotheby’s Institute of Art.  I currently operate as an art law consultant to Bonhams and to Constantine Cannon LLP and sit on the committee of the Society of Fine Art Auctioneers (SOFAA), all of which has involved advising and training on AML related issues.

When at Sotheby’s I represented that company on the executive committee of the British Art Market Federation (BAMF) and I have continued to do that for Bonhams; a significant part of that role in recent months has related to AML issues, as I was a member of the specialist team producing the BAMF AML Guidelines which were approved in January by HM Treasury as the official AML Guidelines for the art market.

The 5AMLD came into force on 10 January 2020. Since that time, what developments have you seen in art market participants implementing the AML obligations? In particular, in view of the art market’s reputation for secrecy, has there been clear transparency demonstrated in obtaining information about where the money came from, and where it is going?

There has been a lot of work around the art market using the BAMF Guidelines to apply the AML rules to the market and its particular characteristics.

The art market has always put a high premium on discretion but this need not be the same as “secrecy”, and the important issue has been to ensure that while certain transactions remain confidential from the public gaze (and the gaze of competitors), they are always sufficiently transparent for the appropriate participants, so they can conduct appropriate client due diligence. The rules around this balance form one of the most important parts of the BAMF Guidelines.

Clearly, there is a gulf between a fine art auction house and an international bank. Can we assume then, that one of the biggest challenges in relation to dealing with money laundering is just a lack of resource?

Definitely. In fact, 2020 has presented three significant challenges to the art market – the introduction of AML regulations, the challenge of staying afloat during COVID, and the uncertainties over relationships with its closest international trading partners caused by Brexit.

The large majority of participants in the art market are small (sometimes very small) businesses, often owner-managed and with very limited resources and certainly nothing like those of a bank, international or otherwise! One of the primary challenges has been to assess how far the AML regulations cover art businesses, as several general dealers and the majority of auctioneers sell a mixture of items which are now regulated, alongside items which fall outside the regulations – for many, the regulated items form a small percentage of their total business. This makes allocation of scarce resource to the requirements of the regulations even more complicated.

Over time I think a general view of appropriate risk and resource will develop, but until this happens there is considerable pressure on art market participants to match the requirements of the regulations (as seen from the perspective of a bank) with the resources available to the art market participant.

5AMLD for art auction houses concerns transactions that amount to EUR 10,000 or more. But is it in fact the case that the vast majority of sales have a much lower value than this, so do you expect this amount to be lowered in the future?

I have not heard about any suggestions to lower the threshold and would have to be convinced this would make any sense, in terms of an appropriate balance between material money laundering risk and appropriate use of resources and cost to business.

Sales in the art market are individual transactions as opposed to being volume sales of several similar lots to the same parties – lowering the AML threshold would significantly increase the work load and cost for art market businesses (and potentially their supervising authority) without materially affecting the UK’s overall AML risk profile. An unintended consequence might well be that it becomes uneconomic to sell many of these goods, resulting in a contraction in this end of the art market.

COVID-19 has changed the way business is conducted. With more auctions and transactions going online, how is the art market adopting technology to meet the money laundering regulations?

The art market, like so many others, has been quick to grasp new technologies to meet the requirements of a post-COVID world, and the providers of such technologies such as online auction platforms have been active in developing processes to capture and store the ID of auction participants and to link with the various research resources now available to the market. 

Finally, you are speaking at the (virtual) Annual European AML & Financial Crime Conference in November. Which issues can we expect to see you addressing at this event?

I imagine we will be covering many of the issues we have discussed in this interview, and I’m also looking at improving the dialogue between the art market and other parts of the regulated sector, such as banks, with whom the art market interacts.