Art market money laundering rules catch interior designers and toy-soldier sellers
Regulations designed to stop criminals washing millions of pounds through high-value art sales are ensnaring small businesses
In a shop on a smart arcade in central London, ranks of toy soldiers fire at each other and the miniature cavalry charge, while three bronze busts of Sir Winston Churchill resolutely stare on.
These are standard wares for The Armoury of St James’s, which sells military antiques such as portraits, silverware and sculptures, as well as regimental brooches alongside the toy soldiers.
But last year The Armoury met a foe it could not defeat: the British tax authority, its weapon anti-money laundering regulations. Bathgate Ltd, the company behind The Armoury, was fined £5,000 following an audit because it had registered the wrong employee as its person responsible for the regulations.
“We’d always been willing to engage with [HM Revenue & Customs] but they came round and tried to catch us out, which they did,” said manager James Rawlins. “We did our best but our best wasn’t good enough.”
The UK anti-money laundering (AML) rules relating to the art trade, designed to prevent criminals laundering millions of pounds through masterpieces sold by auction houses and galleries, have also been catching small businesses including the designers of yacht interiors, publishers of artists’ books and Bathgate.
Those who have been fined told the FT that the rules were too complex for small businesses to fully grasp and had not been promoted clearly enough.
They accused HMRC of auditing less-resourced companies — “low-hanging fruit”, according to one of Rawlins’ colleagues. There is no official regulatory body for the art market that could provide a blanket dissemination of rules.
HMRC said recent changes, such as refining due diligence requirements, “have made the regulations clearer and easier to comply with” and that it provided “extensive guidance and tools to support businesses”, such as a film about money laundering in the art market. The agency added that it took “a targeted, evidence-based approach to compliance”.
Art galleries, art advisers, auction houses, interior designers and intermediaries have to register with HMRC as art market participants (AMPs) if they buy or sell a work of art worth £10,000 or more in a single or a series of linked transactions. Bathgate said it had handled three such transactions in five years.
Among AMPs, the most common breach of the rules was a business not registering by HMRC’s deadline, but other breaches included failing to tell HMRC about material changes, to keep appropriate records and to train staff to make proper checks.
DYS44 Art Gallery in London was fined nearly £160,000 for multiple breaches, but half of all fines have been between £1,250 and £3,500. All of the companies in breach are named on a government website.
Cesare Lampronti of DYS44 Art Gallery, which is now in liquidation, said: “The fine that my company received is linked purely to lacks in our former procedures, which we have since corrected, and not to engaging with criminals or money launderers.”
Rena Neville, director of Corinth Consulting, which specialises in advising the art trade on AML, said businesses that did not think of themselves as AMPs needed to be particularly careful, for example interior designers, who “are often helping clients buy works of art for homes that they’ve designed”.
Neville added that it was important for AMPs to ask “who they’re dealing with and where the money is coming from . . . given the current world of sanctions and wars”. But she said there needed to be “more flexibility” and a “proportionate risk-based response” from HMRC.
Katherine Elworthy, chief operating officer of the British Institute of Interior Design, said it had published stories and social media posts and run a webinar to give its members “practical guidance” about the AML rules.
But because the field consisted mostly of micro, small and medium-sized businesses already grappling with other new rules relating to fire safety and building safety, “it is a real challenge to keep on top of everything”, she said.
Elworthy added that both HMRC and her organisation “could be doing more to promote the rules to the profession” and that the institute was planning a campaign for later this year to highlight “the risks designers can be exposed to if they don’t take the proper steps to comply”.
Gertrude Art Technologies, an online art sales platform, was fined £1,650 for not registering in time. Chief executive Will Jarvis said he had taken over Gertrude during a time of crisis and by the time he had dealt with the most urgent issues, it was too late to register.
He said he had a four-hour audit from HMRC, which was “very jarring” given the small size of the company. The fine had made it “tempting almost to reduce the listings so there are not any [above £10,000] which push us over into that box of eligibility . . . Absolutely it’s a disincentive,” he said.
“I think [HMRC is] looking at the wrong part of the art market if they’re coming to people like me,” Jarvis added.
Neville, of Corinth Consultancy, said the complexity of the regulations was causing some AMPs to alter or wind down their business: “Quite a few elderly art adviser-dealers [have] said, ‘It’s too much, we’re giving up.’ Some said they’ll stop selling paintings, they’ll sell other objects.”
Back at The Armoury, Rawlins and colleagues bustle around their office above the shop, while downstairs the ranks of toy soldiers, taking aim at their enemies, live to fight another day.