Risk-Based Approach to Anti-Money Laundering Crucial for Luxembourg’s Art Market
Since January 2020, the fifth Anti-Money Laundering Directive (AMLD5) has been in force across all EU Member States, aimed at regulating and increasing transparency in the global economy. The directive focuses on industries with higher money laundering and terrorist financing risks, including Luxembourg’s art market.
The Risk of Illicit Activities
The complexity of international art transactions, numerous intermediaries, and high-value artworks significantly increase the industry’s risk of being exploited for illicit activities. As a result, art galleries, auction houses, art-secured lenders, freeports, and even carriers are now subject to stricter regulations under AMLD5.
Definition of Art Intermediaries
Under the directive, art intermediaries are defined as those trading or acting in the trade of works of art, including transactions valued at €10,000 or more. This includes:
- Art galleries
- Auction houses
- Freeports
- Carriers
These entities must implement robust anti-money laundering (AML) measures to prevent financial crimes.
Compliance with AMLD5
To comply with AMLD5, the art industry must set up appropriate safeguards to prevent money laundering and terrorist financing risks from materializing. The directive outlines extensive obligations for entities in the art world, including:
- Implementing Know Your Customer (KYC) duties
- Monitoring transactions to detect suspicious activity
Challenges of Internal Implementation
Experts warn that internal implementation of KYC operations can lead to inefficiencies and high costs, making it crucial for art market players to consider external solutions that improve output quality, increase risk management, and accelerate counterparty onboarding.
Importance of a Risk-Based Approach
The Deloitte Luxembourg Art & Finance report highlights the importance of a risk-based approach to anti-money laundering in the art market. The report emphasizes the need for art industry actors to prioritize AML measures and adopt innovative solutions to mitigate risks.
Adapting to the New Regulatory Landscape
As the art market continues to evolve, it is essential that Luxembourg’s stakeholders adapt to the new regulatory landscape and prioritize AML compliance to maintain trust and integrity in the sector.