Art Galleries and Money Laundering: Key Issues
Obligated Parties in the Prevention of Money Laundering in the Art Sector
Law 10/2010 of 28 April on the Prevention of Money Laundering and Terrorist Financing establishes the status of obliged parties for individuals or legal entities trading in works of art or antiques. This status entails a legal duty to comply with a series of obligations related to the prevention of money laundering and terrorist financing, as detailed in the Law and its implementing regulations. In this article, we analyse the key issues concerning art galleries and money laundering.
Obligations of Parties Trading in Works of Art or Antiques for the Prevention of Money Laundering
Among these obligations, particular attention must be paid to any transaction, regardless of its amount, that, by its nature, may be related to money laundering or terrorist financing, documenting the results of the examination in writing.
In particular, special attention must be given to any complex, unusual transaction, or one lacking an apparent lawful economic purpose, or that shows signs of simulation or fraud. To address this, two types of measures must be adopted: those aimed at detecting suspicious transactions before they occur and those designed to prevent future transactions following the same pattern. In this regard, the art gallery must report to SEPBLAC any transactions that are inconsistent with the nature, volume of activity, or operational background of the clients, provided that, after examination, no economic or professional justification for such transactions is found. This suspicious activity report must be submitted without delay.
Due Diligence for Art Galleries
Furthermore, art galleries must operate within the legal and economic framework with what is known as due diligence, which in this context aims to identify and understand those individuals seeking to establish business relationships.
The Law provides for different levels of due diligence measures based on the level of risk (standard, simplified, and enhanced measures). Standard measures require the identification of those seeking to participate in any transaction. Enhanced due diligence applies to countries with strategic deficiencies in their systems for combating money laundering and terrorist financing, as listed in the European Commission’s decision adopted in accordance with Article 9 of Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015.
Internal Control Measures to be Adopted by Art Galleries
In addition, art galleries with an annual turnover or balance sheet exceeding 2 million euros and employing more than ten people must adopt certain internal control measures, such as:
(i) Approving in writing and implementing appropriate policies and procedures regarding due diligence, information, document retention, internal control, risk assessment and management, compliance with relevant provisions, communication, and client onboarding, with the aim of preventing and deterring transactions related to money laundering or terrorist financing;
(ii) Approving a money laundering and terrorist financing prevention manual, which must be kept up to date and include comprehensive information on the internal control measures adopted. The manual must be made available to SEPBLAC for the exercise of its supervisory and inspection functions.
(iii) Appointing a representative to SEPBLAC who holds a management or administrative position within the company and will be responsible for ensuring compliance with the reporting obligations established by law. Additionally, it must be demonstrated that the representative has received appropriate external training to carry out their duties;
(iv) Implementing measures to ensure that employees are aware of the requirements arising from the Law and approving an annual training plan on the prevention of money laundering and terrorist financing.
Penalties for Non-Compliance with Money Laundering Prevention Obligations in the Art Sector
Regarding non-compliance with these obligations, the penalty regime established by the Law provides for fines ranging from €150,000 to €10,000,000. Notably, in addition to the liability of the legal entity, the Law holds individuals in administrative or managerial positions personally responsible if their conduct has been wilful or negligent. Therefore, it is essential to ensure the adequacy of protocols and compliance with these obligations within the company.
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