Monday, March 20, 2023

Money Laundering, NFTs and artists selling their own work.

NEW WEBPAGE: Money Laundering and the Art Market

Back in April 2021, I wrote about how I needed to update my Art Business Info for Artists website for new law, rules and regulations for the Art Business and Artists.
For example:
  • completely new law and regulations relating to Money Laundering in the Art Market
  • updates for existing law and regulation eg international trade and shipping for post Brexit ramifications (some is done - but this is still a work in progress as things work their way through - I'm waiting for the resolution of the Irish angle)
I started my Money Laundering Page - but it soon became clear that there were going to be a lot more developments so I held off from Publishing.
A number of other industry sectors, such as banking, have long been the subject of an anti-money laundering regulatory framework. The reason for now extending that framework to the art market is a concern that the art market could be used by criminals to launder the proceeds of crime such as drug trafficking, modern slavery, tax evasion, corruption or theft.
Today I published the new page - in part in response to an artist friend who wrote to me about the nuisance (scam) communications relating to NFTs - to which my response was "they're scams - it's all about money laundering!" 

However to write about the NFTs I needed to provide some context in terms of the MEGA changes in law and regulations which MUST now be complied with by a variety of those who are active players in the art market - so I can highlight how most NFTs approaches to artists are linked to money laundering. 

It's all about a very welcome exemption from the Regulations for artists trading their own art.

NEW: Money Laundering & the Art Market

Plus here's the main reason why I held off.......
  • The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 took effect on 10th January 2020. This introduced the notion of the Art Market Participant who must comply with the regulations
  • The 2019 Regulations indicate that the definition of Art Market Participants (AMPs) is as follows
    “a firm or sole practitioner who by way of business trades in, or acts as an intermediary in the sale or purchase of, works of art and the value of the transaction, or a series of linked transactions, amounts to 10,000 euros or more”
  • In 2022, the Money Laundering Regulations related to the draft legislation recorded the fact artists are not included as AMPs 
The changes introduced mean that from 10 January 2020, AMPs as defined in the MLRs (which excludes artists selling their own work (my underlining) – see paragraph 19 below) must: 

  • Register with HMRC before they carry on with their business, where this involves a transaction of 10,000 euros or more, or a series of linked transactions of 10,000 euros or more 
  • Carry out a written risk assessment of the extent to which they are exposed to money laundering 
  • Maintain a written prescribed range of policies, controls and procedures 
  • Carry out CDD measures on customers before they conclude a transaction 
  • Appoint a nominated officer 
  • Train staff appropriately 
  • Report suspicious transactions to the authorities 
  • Keep appropriate records of CDD and of transaction

This is the relevant link to the supporting HMRC Page Guidance - Money laundering supervision for art market participants

This is the new guidance on artists in relation to AMPs ( my bold )

19. Artists selling their own work, whether as an individual/sole practitioner or through a business they own, are not within the scope of the MLRs, and so are not required to register as an AMP. This extends to sales of an artist’s own work through their business, which only sells their work (but not for sales of other artists’ work if also sold through their business). Similarly, sales out of an artist’s estate, or sales of an artist’s work by someone employed by the artist, or the artist’s business, to sell the artist’s work, are not within scope of the MLRs.

How this affects artists and NFTs

The major change affecting artists is that artists are now NOT identified as "art market participants" (AMPs - who must register and comply with all the legislation) any more IF they are only selling their own art.

It's odd how artists are now being bombarded - mainly via Instagram - with requests to make their artwork available for NFTs.

Hence, given they are excluded from the monitoring requirements, artists are now prime targets for those wanting to launder money.

So if you are one of those being bombarded with NFT requests:

  • just be aware, and stay away from unconventional sales of unconventional art commodities if you want to play it safe and avoid being involved with money laundering.
  • make NFT a term which means that a message cannot be sent to you
  • ALWAYS check that you know who you are dealing with - particularly if the transaction is international.

NOTE: I've still to do a detailed note and update about NFTs for the Money Laundering page.

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