The UK Office of Financial Sanctions Implementation, part of HM Treasury, has issued new guidance for high value dealers, luxury goods markets, and art market participants, concerning compliance with financial sanctions. The guidance is intended to complement OFSI’s general sanctions guidance.
The guidance defines “high value dealer” as businesses and individual traders who make or receive cash payments of € 10,000 or more in exchange for goods; high value dealers can also sell, receive or trade in luxury goods, which are identified as superior in design, quality, durability or performance to comparable substitutes, serve as status symbols, and are characterized by high income elasticity of demand – where the demand increases disproportionately as income rises. The guidance is also intended for art market participants who buy, sell, or store works of art worth € 10,000 or more.
Several typologies for circumventing sanctions regulations are enumerated in the guidance, including the movement of high value assets that were previously associated with a designated person, followed by disbursement of funds offshore, and transactions that exploit vulnerable characteristics in the art, automobile, precious metals, jewelry and antiques markets. Factors that make such dealings more likely to enable sanctions evasion include:
- The ability to maintain anonymity;
- The use of intermediaries and shell companies;
- Unregulated markets in the international arena;
- Markets in which the bulk of transactions involve the movement of durable and precious goods internationally;
- Subjective valuation of luxury goods, and the possibility of price manipulation;
- Transactions involving some types of wine and spirits and associated real estate, and;
- The sale of cultural objects that may be used to finance terrorist activities.
The sanctions evasion risk inherent in digital asset transactions is also noted by the guidance, which states explicitly that persons trading in and dealing with cryptocurrencies and non-fungible tokens are subject to sanctions regulations.
The guidance lists the categories of persons subject to the reporting obligations set out in the UK sanctions regulations. These include currency exchange offices and businesses that engage in the transmission of money; statutory and local auditors; accountancy firms; casino operators; persons permitted to carry out regulated activities pursuant to Part 4A of the Financial Services and Markets Act 2000; crypto asset exchanges and custodian wallet providers; persons who deal in precious metals, precious stones, palladium or pearls, and; firms that carry out estate agency work under 22 UK financial sanctions as described in the general guidance of August 2022. OFSI refers readers to the full list of those subject to financial sanctions, and reminds them that breaches of financial sanctions are serious criminal offenses punishable by up to seven years in prison (following indictment), and six months in prison (England, Wales, Northern Ireland) or twelve months in prison (Scotland) for a summary offense not involving indictment. The guidance also restates the ownership control parameters of the sanctions regime, and the mechanics of asset freezes and financial services restrictions applicable to designated parties.
Noting that the onus is on organizations to ensure that sufficient measures are in place to avoid breaches of financial sanctions, OFSI offers general guidance on due diligence for sanctions compliance, while urging organizations to seek independent legal advice. Recommended measures include enhanced due diligence checks before onboarding new clients, careful assessment of all aspects of and parties to a transaction, enrolling in subscription-based resources to check for ownership structures and beneficiaries, and a thorough understanding of relevant sanctions regulations.