LONDON — At London’s annual Frieze art fair, attendees trickle into a fake sauna. Inside, a screen shows a person dressed as a pink alien in fuchsia lingerie, gyrating in an abandoned swimming pool. Thumping techno accompanies the spectacle. An employee speaks over the deep bass to lament Britain’s new anti-money laundering art rules. “It puts off rich people buying art in London because it’s a pain in the backside,” the gallery employee, granted anonymity like others in this article to speak freely about a sensitive topic, said. London’s art market is the third largest in the world, accounting for 17 percent of global sales in 2023, and just behind China, which mostly relies on Hong Kong. But experts fear Britain’s fresh anti-money laundering (AML) clampdown will send the city tumbling down the list. Although they were introduced a few years ago, it’s only in the past year that the British government has started to clamp down aggressively, according to industry experts. The United Kingdom taxman now requires art market participants to register with them for money laundering purposes and follow strict new rules if they sell works worth more than €10,000 — or if they operate a customs warehouse storing works of art above that value. At the heart of the financial crime rules, inherited from the European Union after Brexit in 2020 but adapted to fit the U.K. art market in 2021, is an obligation for sellers to know who their buyers are, requiring proof and verification of identity. “Commercial and personal confidentiality are an important feature of the art market, and for good and valid reasons. However, these new rules are designed to limit the risk of confidentiality being abused in order to hide illicit activity,” say the 2023 guidelines provided by the British Art Market Federation and approved by the U.K.’s Treasury. Industry players, however, say this ruins not only the romance of art sales — but makes them a little awkward too. Frieze, held in London’s Regent’s Park, showcases some of the world’s most expensive art, and has guests willing to meet those price tags. The guest list boasts some of the world’s top A-list celebrities. Spotted on the day POLITICO attended in early October was former Prime Minister Rishi Sunak, alongside hordes of glamorous art world insiders.  London’s art market is the third largest in the world, accounting for 17 percent of global sales in 2023. | Henry Nicholls/Getty Images One gallerist at Frieze pointed out the particularly personal nature of the art world. “We have to ask the mates of our boss for their source of funds, ID, proof of address. It makes that personal connection completely different. It’s embarrassing — you don’t want to ask your friends for that.”  Meanwhile, the United States has no art market money laundering regulations, despite New York coming out on top in the global art market rankings. China and Hong Kong don’t include art in their own AML rules, according to an anti-money laundering expert. “Doing business in the U.K. is seen as quite complicated these days. And perception is really important in a global market, where there are alternatives that people can go to,” said Martin Wilson, chief general counsel at Phillips auction house and chairman of the British Art Market Federation.  “The London art market is entrepreneurial, which basically means artwork comes in, gets sold here, and then often leaves the country. For that to happen, you need a really smooth process. You need it to be as smooth as your competitors,” he said. TRAVELING ART But purchasing art and taking it out of the U.K. now involves a lot more red tape. At another stall at Frieze, a large canvas depicts a fluorescent meadow of flowers, just out of reach, hidden behind a wire fence. The painting, a guide tells a crowd of eager onlookers, is supposed to represent the American dream. The freedom and opportunity of that ethos is something one cannot put a price on. The painting is on sale for £85,000. Someone wanting to purchase that piece of art would now be asked where their money came from. In 2020, the Treasury’s national risk assessment for money laundering and terrorist finance determined the art market to be a “high risk” for money laundering. It joins cash, property and other financial services industries in the high-risk bracket.  “The size of the sector, combined with a previous lack of consistent regulation, means the global art market has been an attractive option for criminals to launder money,” the Treasury’s risk assessment said. As a high-risk threat, sellers must follow new rules including registering with tax authority HM Revenue & Customs (HMRC), writing a risk assessment to state how exposed they are to money laundering and carrying out customer due diligence before a transaction is concluded. “Art is moved easily across borders. That’s the big advantage of art: A house in central London is a good investment, but you can’t take it with you,” explains Angelika Hellwegger, legal director at law firm Rahman Ravelli.  Purchasing art and taking it out of the U.K. now involves a lot more red tape. | Henry Nicholls/Getty Images And although the rules began a few years ago, it’s this year that HMRC has picked up the pace on compliance. “As a company, we have had about three times as many clients receiving interventions from HMRC so far in 2024,” said the expert who works in art and anti-money laundering.  “It feels like the honeymoon period is over. The pace has been definitely accelerating, both in the number of galleries investigated and the strictness of implementation. Previously, they would ask: ‘Are you registered and were you doing the basics?’ And now their questions are much more aggressive and assertive.” Financial penalties have already been dished out. Under the new regulations, between 2021 and spring 2023, 31 art market participants were fined for failing to register with HMRC. Between spring and fall 2023, 32 fines were issued. Figures for 2024 have not been released but art market participants speak of an even greater intensity.  Penalties have been up to £13,000 so far and limited to registration failings. But all art anti-money laundering experts POLITICO spoke to expect that HMRC would begin fining galleries for money laundering faults imminently — a more serious charge.  Even though some clients may have nothing to hide, the threat of increased oversight — which could result in a fine or an investigation — puts some off. “The money laundering regulations are the bane of my life. People who want to buy art want it instantly, they don’t want to wait 22 days to have all their details checked out,” said another gallery employee at Frieze.  Maria O’Sullivan, a lawyer who specializes in compliance in the art industry, described the particularities of the art market which make regulation difficult: “The art world is based on relationships, more than any other business that’s got anti-money laundering regulation,” she said. “The source of wealth is easier to establish than the source of funds. The source of wealth you can nearly always find online, for example, if your client is a major shareholder in a company. Asking about the source of funds is more personal. Galleries don’t want to ask for that information.”  The rules, which were brought in under the former Conservative government, threaten to further injure an already wounded art sector, which suffered increased taxes and red tape in the wake of Britain’s departure from the EU. “Between Brexit and these new money laundering regulations, the London market’s been hit pretty hard,” said the art AML expert. And as new Labour Chancellor Rachel Reeves prepares her first budget, which is set to increase taxes on the wealthy’s assets, art lovers fear it could be another nail in the coffin for London as a top destination for high-end art. THE REAL OWNER Across the Atlantic, the U.S. lacks regulation, despite art being well documented as a vehicle for money laundering. As new Labour Chancellor Rachel Reeves prepares her first budge, art lovers fear it could be another nail in the coffin for London as a top destination for high-end art. | Leon Neal/Getty Images “The art industry currently operates under a veil of secrecy allowing art advisers to represent both sellers and buyers masking the identities of both parties, and as we found, the source of the funds.  This creates an environment ripe for laundering money and evading sanctions,” said Tom Caper, a U.S. senator from Delaware, speaking in 2020 upon the release of a report, which found that the art market was “the largest legal, unregulated market in the United States.” It’s exactly that veil of secrecy that the U.K.’s rules seek to prevent. Beneficial ownership rules, which concern who will ultimately own a piece of art, include any companies or trusts that may be used to purchase it. It’s a key tenet of the U.K.’s anti-money laundering plan. For the U.K.’s Treasury, this isn’t a simple glance at an ID card. Conducting customer due diligence means “exhausting all possible means to verify the identity of the customer, or the ultimate beneficial owner,” it said in its risk assessment. “Criminals can conceal the ultimate beneficial owner of art, as well as the source of funds used to purchase art. This can be achieved by using complex layers of U.K. and offshore companies and trusts, agents or intermediaries, with agents and intermediaries commonly used in the market,” the department adds. While experts argue that the use of offshore trusts to purchase art is a thing of the past, that doesn’t mean gallery employees are willing to find out. “We’re not supposed to be detectives,” the first employee quoted above said. “We take the information from the individual at face value. We wouldn’t go to the authorities of a jurisdiction to check who the beneficial owner of a trust is, for example.” Another argued it is “misguided” to require small businesses to perform due diligence that the financial services industry should do. “The regulations put the onus on the galleries to jump through certain hoops. I think it’s like using a sledgehammer to crack a nut. Banks are subject to money laundering checks, so due diligence is already performed,” they said. Wilson, meanwhile, defended the purpose of the regulations in trying to target dodgy dealings. But the British Art Market Federation chairman also questioned what he sees as a failure to distinguish between low- and high-risk transactions. He pointed out, for example, that a painting sold by a seaside gallery for £11,000 is viewed in the same way as a multimillion-dollar transaction in an auction. As a result, gallerists approach the rules with a “tick box” mentality, he warned. “What’s dangerous is that everyone who ticks those boxes believes they’ve eliminated the money laundering risk.”

BRUSSELS — Paris is rapidly running out of both the time and political clout required to halt a European Union trade deal with South America, only adding to the woes of President Emmanuel Macron, who is likely to face a vitriolic backlash from France’s all-powerful farmers. The European Commission and EU heavyweights such Germany and Spain make little secret of their desire to close a deal before the end of the year with the Mercosur bloc of Argentina, Brazil, Uruguay, Paraguay and newcomer Bolivia. German Chancellor Olaf Scholz says the deal should be done “quickly.” France has long been the most dogged holdout on the accord, fearing that a deluge of beef and other agricultural imports from giant Latin American producers will undermine French farmers, one of the country’s most politically powerful groups. In previous years, Paris had sufficient political capital in the EU to hold an effective veto over the pact, but this influence is now waning after Macron’s thumping defeats in this year’s EU and national elections. The danger for Paris is that other EU countries will now simply enact the accord over France’s head, and the political impact of that will be explosive. “It is hard to see how the French government and its weak political support in the French parliament could survive a Mercosur trade agreement,” said François Chimits, an economist at the French research center CEPII.  “It’s a casus belli for French public opinion, which is specifically not fond of free trade, to say the least, and extremely protective of its agricultural sector. Any measures mixing the two produce political kryptonite for French leaders,” he added.  AGAINST THE CLOCK The time window for French officials to stem the pro-Mercosur momentum is narrowing fast. EU and Mercosur chief negotiators met from Oct. 7-9 in Brazil in a bid to drive the talks forward. Proponents of the deal reckon progress is also likely at a summit of the G20 group of leading economies in Rio de Janeiro in November, setting the stage for an endgame by the end of the year, or early 2025. Up against the clock, French officials in Brussels — long used to steering the EU agenda — are finding their options are unusually limited. Realizing they will no longer be able to block the deal single-handedly or build a coalition to stop the agreement, they are instead focusing on influencing the endgame. “I don’t think France is trying to bring more countries together. There’s a lot of pressure from the Commission; [the agreement] continues to move forward,” said a French official, granted anonymity to discuss the highly sensitive topic. In recent briefings, top French diplomats told French officials from the European Parliament that the country was becoming increasingly isolated, according to three people briefed on the meetings. They also hinted at an expectation the deal would be sealed early next year.  In previous years, Paris had sufficient political capital in the EU to hold an effective veto over the pact, but this influence is now waning after Emmanuel Macron’s thumping defeats in this year’s EU and national elections. | Pool photo by Teresa Suarez via AFP/Getty Images “There has been an acceleration in [EU-Mercosur] negotiations which has underlined France’s isolation on the Mercosur issue,” said one of the people briefed on the meetings.  The French Permanent Representation in Brussels denied such meetings took place. MACRON VERSUS VON DER LEYEN The trade agreement — covering more than 800 million people and accounting for a fifth of global economic output — has been a top priority of Commission President Ursula von der Leyen. But it eluded her in her first mandate after Macron stood in the way of a successful conclusion to the talks earlier this year.  The French Permanent Representation, representing France at the EU level in Brussels, said Paris was continuing to argue that the deal was unacceptable.  “The Permanent Representation is constantly reminding all its interlocutors of the French position, which is that the text is not acceptable as it stands. It recalls that other member states share this position,” said a spokesperson. Although the EU and Mercosur closed formal negotiations in 2019, the EU has put off signing the agreement in order to add extra conditions to address deforestation and climate concerns and to assuage French farmers’ worries about a glut of Latin American produce. France insists that it is not against the free-trade deal per se, but simply wants its environmental and agricultural demands to be met. Indeed, much of the French manufacturing industry — in stark contrast to farmers — supports the deal. A French diplomat pushed back against what he called “the caricaturing the French position.” “We are not against free trade in itself. We need a good deal with all the guarantees,” said the French diplomat. “We ask that the Commission includes in the negotiation robust elements on climate, deforestation,and mirror-clauses that protects our farming interests, fair competition conditions as well as access to critical primary resources.” But the worrying fact for the French is that the rest of the EU just isn’t as scared of standing up to Paris as it used to be. “We’ve set our red lines, but the French influence is reduced; [the Commission] continues to negotiate without being paralyzed by the fear of France,” said the French official cited above.  These tensions over Mercosur are symptomatic of the loss of French influence in Brussels, and support comes from relatively small EU countries such as Austria, Ireland and the Netherlands. The Elysée did not respond to POLITICO’s request for comment. Camille Gjis reported from Brussels, Clea Caulcutt reported from Paris.