ECSH54700 - Auction Houses: What you expect to see

Auction Houses - What you expect to see

This guidance is intended to be supplementary to ECSH54650: AMPs - What would you expect to see and should be read in conjunction with it.

 

AMP Threshold for Auctions

The value of a work of art sold at public auction is the hammer price including taxes, fees and commission.

For example, if a work of art is sold at auction for 8,000 euros, plus 20% VAT (1,600 euros), plus 10% (800 euros) commission, the total value of the work of art is 10,400 euros and the transaction would therefore be in scope of the MLR 2017.

The full value of the work of art may not be known at the outset prior to the auction, which can make it difficult for an auction house to know whether the transaction will cross the AMP threshold and therefore whether they need to conduct customer due dilligence (CDD) prior to the auction.

AMPs need to take a pragmatic approach. If the estimated value of the work of art (including commission and taxes, as above) is above 10,000 euros then we would expect CDD to have been carried out on the seller and, if reasonable, on the registered bidders prior to the auction commencing.

CDD measures must be applied to the successful bidder prior to completion of the transaction, that is, before the work of art is released to the successful bidder.

For unexpected sales over the threshold, CDD on both buyer and seller should be undertaken as soon as possible once a bid (combined with fees etc) is above the threshold.

 

Customers for AMP Auction Houses

For an AMP who is an auction house, the customer will be:

  • The seller of a work of art, or other AMP, who has paid the auction house to auction the work of art.
  • The purchaser, or other AMP, who has paid the auction house for the work of art.

CDD must therefore be conducted on both the seller and the buyer where the transaction is in scope.


Sales on consignment

Auction houses usually offer sales of works of art on a sale or return basis – items not sold at auction will be returned to the seller.

CDD should be performed on the seller when the consignment is agreed, and on the buyer prior to completion of a transaction (before the work of art is released to the successful bidder).

If it is a secondary sale (artwork which has been sold at least once before), provenance checks to confirm the origins of the work of art should be carried out to prevent breaches of the Proceeds of Crime Act, or trade sanctions.  

 

Charity Auctions

Some auction house will hold charity auctions where works of art are sold in order to raise funds for charities.

If an auction house conducts charity auctions, they will still need to conduct CDD on the buyer and seller if they receive any kind of fee for holding the auction – they would still be acting “by way of business”. 

For more information on “by way of business” and charities, please see ECSH42525 and ECSH42575.

 

Auctioneers as intermediaries

It is possible that an auction house acts as an intermediary. For more information on intermediaries see ECSH54525.

 

High Value Dealers (HVD)

Some auction houses will also be HVDs if they make or accept payment in cash of at least 10,000 euros in total for goods, in respect of any transaction whether the transaction is executed in a single operation or in several operations which appear to be linked. If an auction house is also a HVD it is important that record testing covers both sectors.

For more information on HVDs please see ECSH51500.

 

Online Auctions

Some AMP auction houses offer auctions of works of art online instead of, or alongside, a physical auction.

Online sales pose some additional risks when compared to face-to-face transactions. These can be mitigated through:

  • Additional risk-based checks to mitigate impersonation fraud.   
  • Verification that funds originate from a bank account held in the customer’s name.
  • Verification of delivery address, with differences between the invoice address and delivery address being investigated.

More information on risks can be found in ECSH54625 and the “Understanding money laundering risks and taking action for art market participants” guidance on gov.uk.