ATG has run various articles on the anti money laundering regulations, such as this HMRC column in issue no 2494.
It seemed straightforward at first but didn’t quite turn out that way.
A client was selling a painting. High end-stuff, seven figures.
The deal had already been agreed in principle with a well-known American investor and art world figure.
It then turned out that it was going to be a joint purchase with another reasonably well-known investor, again not an uncommon scenario.
Co-purchaser was based in the Far East, again hardly unusual.
All was set to go, no issues, terms of contract agreed, goodwill all round.
We then needed to carry out the KYC [Know Your Customer] and due diligence checks which have been required for some time in the art world now, further to the Fifth Anti- Money Laundering Directive.
All parties were again co-operative and enquiries moved along smoothly.
In accordance with the regulations, we sought ‘source of funds’ confirmation from the two respective purchasers.
This was quickly forthcoming from the American gentleman, and his copurchaser was equally obliging.
Specialist support
The figures were substantial and for this transaction we had engaged a specialist in AML art world compliance.
The co-purchaser’s funds were coming from a bank whose ultimate owners were believed to be of Russian origin.
The compliance specialist’s concerns were with a view to not offending against US sanctions.
On further investigation it turned out that the bank was 49% Russian owned by a ‘Designated Entity’.
Input from the specialist was that this was permissible in accordance with US sanction rules, as long as this ownership remained below 50%.
However, in July 2022 a ‘Red Alert’ missive was sent out by the UK-based National Economic Crime Centre (NECC), advising that “from case studies identified through financial intelligence and other sources, some Designated Persons (DPs) are using a range of techniques in order to evade sanctions impacting on their personal and commercial holdings”.
It went on to advise that DPs are using associates, including family members and close contacts via enablers to: … ‘divest investments to ensure ownership stakes are below the 50% threshold, or relinquishing previous controlling stakes’ and that ‘although a DP may claim to have relinquished the asset, it is highly likely that they will retain their influence through trusted proxies and enablers’.
No surprises there.
Further investigation was carried out, as you may expect. It did indeed turn out that the previous Russianbased holding of the bank was of the order of 59%, and that 10% had been transferred to a ‘family member’.
It was noteworthy that the UK sanctions appeared on the face of it to be arguably more stringent than those of the US, at least in this particular instance.
Moving on
The bottom line judgment call was that this transaction could not proceed.
My client wasted no time in putting it all behind him and moving swiftly on to a keen – and sanctions free – underbidder.
With thanks to Maria O’Sullivan LLP, compliance specialist
Milton Silverman is senior commercial dispute resolution partner at Streathers Solicitors LLP, London.
