Sanctions regulations in Britain are being tightened in a bid to stop terrorists and criminals from using art and other high-value goods to conceal their wealth.
The move comes in the wake of the seizure of artworks belonging to alleged Hezbollah financier Nazem Ahmad in London, which The National revealed earlier this year.
Police believe all the work seized belonging to the Lebanese art dealer and diamond smuggler, valued at about $1.2 million, was probably to fund crime or terrorism.
The Office of Financial Sanctions Implementation has now issued regulations for those involved in the art market requiring them to report any suspicions of sanctions evasion or face fines and even imprisonment.
OFSI uses Mr Ahmad’s activities as a case study in the guidance it has issued that accompanies the changes in existing legislation.
The UK is a major player in the trade of artworks with sales of $11.05 billion, about 17 per cent of the global market, ranking it third in the world.
However, there have been concerns that it is increasingly being used to conceal assets to evade sanctions and fund terrorism, using front companies or intermediaries to hide ownership.
The UK’s National Crime Agency issued a warning earlier this year that specialist storage warehouses were being used to keep artworks hidden from law enforcement until they can be sold discreetly.
Existing legislation has been amended to extend the list of firms who are required to carry out due diligence checks and report potential sanctions evasion to include what OFSI calls ‘art market participants’.
These are firms or sole traders who buy or sell artworks where the transaction value is more than €10,000 or who store works of art of that value or more.
Lawyer Ms Angelika Hellweger told The National that his case served as a “catalyst” for the new measures, which will come into force in May next year.
“I think this is a textbook example of how to do sanctions evasion,” said Ms Hellweger, an art crime, sanctions and money laundering specialist, as well as legal director at London firm Rahman Ravelli.
“He had a complex network of companies that were owned by intermediaries and family members that was spread across several companies. So I think his activities made a big impact and why he is cited so often is because you see he is an example of how evasion works.”
Ms Hellweger warned that while the law may change in the UK regarding the sanctions evasion in the art market, many smaller dealers without the capacity to carry out all the due diligence required by the new legislation could simply move elsewhere.
“From a sanctions evasion perspective, everybody sees that the art market is a big playground,” she said.
“Many businesses will shift to places where there is not such a strict sanctions legislation, such as Hong Kong for instance or even the US, where the regulations look stringent but where the legislation when it comes to the art market is much weaker.”
The NCA’s warning came after the seizure of the 32 paintings belonging to Mr Ahmad when Met Police officers raided the Williams & Hill warehouse, near Heathrow Airport, and the auctioneers Phillips, in central London.
There is no suggestion Williams & Hill has committed any criminal offence. Phillips previously told The National it has co-operated fully with the authorities in the US and Britain.
Mr Ahmad was first accused by the US Department of the Treasury in 2019 of laundering “substantial” amounts of money and being involved in the smuggling of “blood diamonds” for Iran-backed Hezbollah.
He was sanctioned and then in April last year, he was charged by the US along with eight associates, including his UK-based right-hand man Sundar Nagarajan, with offences relating to breaching sanctions regulations.
Mr Nagarajan has been extradited to the US but Mr Ahmad is believed to be in Beirut. The US authorities have issued a $10 million reward for information about his whereabouts.
The changes in the regulations come in the form of a statutory instrument which allows the UK government to change a law without passing primary legislation.
The new measures also apply to ‘high-end dealers’ who trade in these items and are firms or individuals who receive payments of at least €10,000, rules which already apply to those dealing in precious metals and stones.
London also plays a significant role in antiques, luxury cars, precious metals and gemstones, says OFSI.
More than 36,000 prestigious cars from producers such as Aston Martin, Ferrari, Rolls-Royce, Jaguar Land Rover, Lamborghini, Maserati and Bugatti were registered at UK addresses in 2022.
OFSI has recommended that art market participants and high-end dealers introduce compliance regimes and protect whistle-blowing employees who disclose illicit activity.
The body has powers to impose fines of up to £1 million or 50 per cent of the total value of the sanctions breach, whichever is higher. Breaches of financial sanctions are considered a serious criminal offence punishable by up to seven years in prison.
But Ms Hellweger said it remains to be seen if the UK will match the new regulations with proper enforcement, which she said “is still lacking”.
“It’s also acknowledged that the art market is prone to money laundering and also sanctions evasion perspective but we will see how the enforcement lies,” she said.
