UK warns art dealers risk sanctions breaches over Russian oligarch assets
Russian designated persons and their enablers ‘currently pose the most significant threat to compliance with UK financial sanctions, including for art market participants and high value dealers,’ according to a threat assessment published by the UK Office of Financial Sanctions Implementation.
It warned that enablers could deal with assets ‘by arranging for their transport, acquisition or sale or by claiming ownership of the asset on behalf of the designated person’, as OFSI extended financial sanctions reporting obligations to cover auction houses, commercial galleries, art storage facilities and dealers in luxury goods including jewellery, wines and musical instruments.
‘High value goods owned by designated persons in the UK have not been reported to OFSI,’ according to the assessment, which added, ‘It is likely that Russian DPs and their enablers have dealt with high value goods in the UK in breach of asset freeze prohibitions’.
The report identified key evasion threats, red flags that businesses should be aware of and guidance on areas where compliance could be strengthened.
‘Numerous designated persons across several UK sanctions regimes are high-net-worth individuals with historical footprints and assets in the UK, including high value goods,’ OFSI stated in the 22-page assessment. ‘Dealing with these high value goods, including by arranging for their acquisition, sale, transport and/or maintenance, without a relevant OFSI licence risks breaching UK financial sanctions.’
The watchdog highlighted that facing financial pressures due to UK financial sanctions, designated persons and their enablers are attempting to sell high value goods or transfer them beyond the reach of UK asset freeze regulations.
OFSI identified specific red flags including counterparties ‘attempting to conceal links to a sanctioned jurisdiction, including, for example, through the use of a “golden passport”,’ and buying or selling a high value good at a price substantially higher or lower than the market value, or where the seller or a third party acting on their behalf is uninterested in recouping their initial investment.
The guidance also warned of complex corporate structures linked to designated persons, which often include family trusts registered in intermediary jurisdictions, which obfuscate the ultimate beneficial ownership of high value goods.
Art market participants and high value dealers became subject to financial sanctions reporting requirements on 14 May, requiring them to inform OFSI ‘as soon as practicable’ if they know or suspect someone is a designated person or has breached sanctions regulations.
Under the expanded rules, art market participants and high value dealers must now treat transactions involving art, antiques, and cultural artifacts over £10,000 as potential sanctions risks, according to London law firm Dragon Argent. The firm noted that ‘cryptocurrency payments for high-value art and antiques are explicitly included under scrutiny’.
The new obligations also require firms to file any Suspicious Activity Reports to the UK Financial Intelligence Unit at the National Crime Agency within 24 hours, Dragon Argent noted, adding that ‘simultaneously, firms should notify OFSI when the suspicion involves a potential sanctions breach’.
‘Failure to comply with reporting obligations is an offence,’ OFSI warned, noting violators face ‘imprisonment for a term not exceeding 6 months, or a fine, or both,’ while OFSI can impose monetary penalties ‘up to £1 million or 50% of the estimated value of the funds or economic resources’.
Dragon Argent noted that breaches can be punishable by up to seven years’ imprisonment on indictment and up to 12 years’ imprisonment on summary conviction.
The assessment follows the recent sentencing of London art dealer Benjamin Ojiri to two and a half years in prison for failing to report suspected terrorist financing linked to Hezbollah-linked businessman Nazem Ahmad, highlighting enforcement risks in the sector.
The regulatory focus on high-value art transactions has intensified following recent enforcement actions. Dragon Argent pointed to ‘recent cases—such as the seizure of a £38 million Picasso linked to a sanctioned oligarch’ as examples that highlight regulators’ focus on the art market.
Meanwhile, The Society of London Art Dealers reported there had been no impact on the market from the new regulations.
‘As yet there has been no impact on the art market that can be directly linked with the introduction of increased reporting obligations from the Office of Financial Sanctions Implication on Art Market Participants,’ said Paul Hewitt, director general of the Society. ‘Members of The Society of London Art Dealers updated their Anti-Money Laundering Policies & Procedures as appropriate ahead of the regulation being implemented. We are not aware of any reports having been made to OFSI.’
