The UK’s Office of Financial Sanctions Implementation (OFSI) released guidance aimed to help “high value dealers” and art market participants (AMPs) identify and mitigate sanctions risks. It is no surprise that the UK is a major hub for trade in high value goods including art, antiques, “supercars,” precious metals and gemstones, and fine wine and whisky.
Businesses and sole traders in these items which make or receive relevant cash payments of EUR10,000 or more are defined in the UK Money Laundering Regulations as “high value dealers”. AMPs include companies or sole practitioners who “by way of business” trade in, or act as an intermediary in buying or selling works of art with a value over EUR10,000, and includes operators storing such works of art.
High value dealers and AMPs may be particularly vulnerable to designated persons (i.e., sanctioned persons) seeking to evade sanctions restrictions given that:
- Many designated persons have already been known to trade heavily in these items;
- Some companies may be unfamiliar with or unprepared to implement sanctions screening controls; and
- The ease of moving items and secrecy already inherent within the industry.
To help the industry to design and apply risk-based controls to identify sanctions risks, OFSI sets out the following non-exhaustive typologies of sanctions “circumvention” including:
- Attempts by family members of designees to move assets which were previously owned by or associated with a designated person;
- Attempts to conduct business discretely, anonymously and/or confidentially;
- Use of intermediaries and shell companies to source, buy, or sell goods and/or to make associated payments;
- Involvement of cultural objects or cultural property particularly sourced from conflict areas, or areas where terrorist groups are known to operate;
- Manipulation of price or attempts to conceal value;
- Movement of precious metals and stones; and
- Use of digital assets including non-fungible tokens (NFTs).
What should high value dealers do?
OFSI reminds high value dealers and AMPs that all persons subject to UK sanctions jurisdiction are required to comply with UK sanctions and will be expected to take steps to ensure they do not breach financial sanctions. This includes sufficient measures in place to conduct risk-based due diligence for transactions they enter into, especially if the dealer operates in higher-risk jurisdictions.
In higher-risk situations, OFSI advises that “enhanced due diligence” should be applied which could include, for example “assessing all aspects of proposed business activity to identify if any partners, contractors, third parties or financial institutions appear on the OFSI consolidated list of financial sanctions targets.” Due diligence should also take into account the fact that asset freeze sanctions must be applied not only to individuals and entities listed on the UK sanctions list, but also to entities owned or controlled, or anyone acting on behalf of, designated persons. OFSI suggests that “subscription-based resources… may be of benefit”, but also directs the industry to review online resources including checks with Companies House.
If a UK person “deals” with funds or economic resources believed to be “owned, held or controlled” by a designated person, or anyone operating on the designated person’s behalf, the UK person should immediately “freeze” (i.e., stop dealing with and seek to block any further movement of the funds or resources) and report to OFSI.
UK persons, including high value dealers and AMPs should also pay attention to updates to OFSI’s other sanctions guidance and enforcement actions for guidance and insights, see e.g. the penalty against the Hong Kong International Wine and Spirits Competition Ltd. for failing to identify dealings with a designated person.
Markets that high value dealers operate in have vulnerable characteristics which can be used by designated persons who are subject to financial sanctions and their associates trying to circumvent restrictions. For example, these can include but are not limited to, markets in art, cars, antiques, precious metals and stones, wine and spirits, and jewellery.