High value dealers and art market participants: A guide to UK sanctions
The Office of Financial Sanctions Implementation ("OFSI") is expanding its definition of "relevant firms" subject to financial sanctions reporting requirements to capture high value dealers and art market participants. Those falling within such categories will be subject to reporting requirements from 14 May 2025.
The development is motivated by OFSI's concern that a variety of practices common in the art sector can be hijacked to allow individuals to circumvent UK financial sanctions. For example, the sector's facilitation of discreet or anonymous participants, the unregulated nature of some high value goods and the ease at which some goods can be transported internationally.
Who is captured by the expansion?
OFSI's revised rules capture high value dealers ("HVD"). In short, HVDs are defined as firms or sole traders that, by way of business, trade in goods, when the trader makes or receives payment(s) in cash of at least €10,000 in total. This definition includes auctioneers dealing in goods and the €10,000 floor applies whether the transaction is executed in a single operation or in several linked operations.
The rules will also capture art market participants ("AMP") – firms or sole practitioners that trade in or act as intermediaries in a transaction involving art, valued at €10,000 or more. AMPs are registered, or required to register, with HMRC as an AMP pursuant to regulations 56(5) and (6) of the Money Laundering Regulations.
Any business engaged in the making, selling, suppling or exchanging of articles made from gold, silver, platinum, palladium or precious stones or pearls is already captured by this reporting regime.
Reporting requirements
Relevant firms are required to inform OFSI as soon as possible if they know or have reasonable cause to suspect a person (i) is a designated person or (ii) has committed breaches under the Sanctions and Anti-Money Laundering Act. Designated persons are those subject to UK financial sanctions. A relevant firm is only subject to the reporting obligation if the "information or another matter" on which the knowledge or reasonable cause for suspicion is based, came to it in the course of carrying on its business.
For HVDs, this means in the course of carrying out the activity described in the definition of an HVD, as outlined above. For AMPs, the "course of business" is where an AMP trades in, or acts as an intermediary in, the buying or selling of works of art, where the transaction value (or the value of a series of linked transactions) is €10,000 or more; or when it stores works of art where the value of the works of art so stored for a person amounts to €10,000 or more. Storing works of art may include activity such as offering discrete storage services to designated persons (including storing art before or after a sale) or transferring items on behalf of designated persons to third party storage facilities. This is unless such sale or storage relates only to works of art created by or attributed to the AMP.
If a report is made to OFSI, the firm must include the information or other matter on which the knowledge is based, plus any information it holds about the person or designated person by which they can be identified. If the firm knows or has reasonable concern that a person is a designated person and that person is a customer of the firm, it must also state the nature and amount or quantity of any funds or economic resources held by it for that customer.
Penalties
A failure to comply with reporting requirements is a criminal offence. A person who commits the offence is liable on summary conviction to imprisonment for a term not exceeding 6 months, or a fine, or both.
In addition, OFSI has powers under the Policing and Crime Act 2017 to impose monetary penalties of up to £1 million or 50% of the total value of the breach, whichever is higher, for breaches of financial sanctions. It also has the power to refer cases to law enforcement agencies for investigation and potential prosecution. Breaches of financial sanctions can be punishable by imprisonment.
Best practice
In order to be in a position to comply with reporting requirements, AMPs and HVDs should implement strong compliance and due diligence procedures. Doing so will encourage relevant firms to be in the position that is required to spot the issues that they are obliged to report.
OFSI does not mandate specific due diligence procedures, but its guidance describes the following as "good practice recommendations":
- Implement a strong sanctions compliance programme, proportionate to the risk your firm faces. A programme may include communicating compliance expectations with counterparties, developing standardised operational policies and safeguards and establishing an internal mechanism for reporting suspected sanctionable activity.
- Ensure sanctions compliance programmes are routinely audited by a qualified third party and provide training and resources on procedures and obligations to relevant personnel.
- Routinely check the UK Sanctions List and the OFSI Consolidated List as part of due diligence checks, in addition to checking the same at the point of starting any new business relationship with a client and at any new point in any transaction with them. The lists are updated regularly and firms should be alive to the risk that clients may be added to the lists during the course of a transaction. It is clear from recent enforcement notices that OFSI expects the regulated sector to give effect to new designations immediately.
- Establish ownership and control structures within businesses you deal with. The identity of any direct or indirect controlling entity may leave a client subject to sanctions even if not specifically designated themselves.
Conclusion
This is a significant shift in the regulation of the art trade in the UK and applies an additional layer of compliance burden to firms newly captured by the regulations. Relevant individuals and firms should engage with OFSI's guidance as soon as possible to ensure they are in a position to comply with their new obligations ahead of 14 May 2025. Firms must understand their reporting requirements and have sufficient compliance procedures in place to fulfil their obligations. Developing such practices can be a time consuming endeavour and firms should seek advice at the earliest opportunity if they require new compliance protocols ahead of the reporting requirements becoming live.
