What you need to know about the EU’s Fifth Anti-Money Laundering Directive

What is it?

The fifth Anti-Money Laundering Directive (AMLD5) was released to fortify the EU’s stand against money laundering and terrorism financing; following the terrorist attacks in Paris and Brussels and the publishing of the Panama papers in 2016. The amendments to the previous directive were put forward by the European Commission, affecting industries that extensively use virtual currency, funds, trusts and large companies.

Phoebe Kouvelas, attorney with ArtSecure, said the fourth Anti-Money Laundering Directive loosely applied to the art industry, but AMLD5 is the first to include it explicitly.

When does it come into effect?

AMLD5 is understood to have come into effect on July 9, 2018, with member states given until January 10, 2020 to implement the new rules into their national legislations. If this deadline is not met, it is common legal practice for the member states to be fined in accordance with the length of delay.  

How does it affect the art market?

The art market – opaque as it can sometime seem – has increasingly been thought of as a potential funding vehicle for criminal and terrorist activities, through art transactions.

Art transactions can involve many parties often unknown to each other and acting with different interests. It is also common that both sides – the buyer and the seller – fall under different legal jurisdictions.

Many will remember the notorious case involving the 1981 Jean-Michel Basquiat painting, Hannibal, which was smuggled into the US by former Brazilian banker Edemar Ferreira. Although later returned to Brazil, it was discovered that Ferreira smuggled the $8 million Hannibal using false shipping invoices. They stated that the contents of the shipment were worth just $100.

The new directive outlines that art dealers conducting deals over €10,000 must show the processes for their dealings. Kouvelas said this in itself will cost more money, “because it takes time and they will need to seek special advising for these policies”. She also added that having a financial trail is essential.  

Although the directive extends to anybody who is implicated in a sale – including advisors and any other third parties – Kouvelas said: “I think dealers will be most affected as the price threshold is so low.”

The goal of the directive is for member states under the directive to have more transparency in dealings. This means that dealers – in the case of the art industry – will be forced to find out and identify the ultimate beneficial owner (UBO) of a given art transaction.

Member states under the directive will be obliged to create a national register of owners for UBOs of companies, which will pose a challenge for an industry comprised of players who prefer to remain anonymous nine times out of ten. 

Karolina Blasiak, art advisor, Rosemont Art Advisory, said: “One of the challenges will be the ability to prove provenance for imported or inherited pieces of art that are older than 200 years.”

And while the art market is characterised by the opacity of contractual agreements, Blasiak said: “Our collective duty is to bring art on a pedestal again – to make it more ethical and more transparent.”

This, she suggested, can be done by maintaining a dialogue with governmental bodies and institutions to open up the public and private sectors in art.

“It will take time to process the administrative backlog and for things to settle, however, it must be looked at less with fear or anxiety and more as something that will help connect the dots and create partners in the art and culture sector”, said Blasiak.