ECSH63345 - Regulation 14 - High value dealers, casinos, auction platforms and art market participants

Category Heading	Description
The Law	https://www.legislation.gov.uk/uksi/2017/692/regulation/14
What it means	“High value dealer” (HVD) is any business or sole trader who trades in goods and makes or receives cash payments of at least 10,000 euros, including cash deposited directly into a bank account or paid to a third party. It includes an auctioneer dealing in goods when the auctioneer handles the cash payment of 10,000 euros or more. Cash is defined by Regulation 3 as “notes, coins or traveller’s cheques in any currency". Goods are not defined in the regulations so take the ordinary dictionary meaning - things that can be bought and sold and that can be moved. It doesn't include services (as they can't be resold) or property (which can't be transported). There is no GBP equivalent; it would be the conversion from euros at the time of the transaction. For historical transactions you can use the conversion rates for Customs and VAT purposes published on GOV.UK - see link below. "When considering whether transactions “appear to be linked” you should consider the total amount of cash received and the opportunity to dispose of criminal funds. We consider a relevant cash payment to be: - a single cash payment of 10,000 euros (to pay for one invoice or a series of invoices) - several cash payments towards a single purchase totalling 10,000 euros or more (for example payment in instalments or on account) - cash payments totalling 10,000 euros or more which appear to have been broken down into smaller amounts to keep below the limit (smurfing)" "The transaction must be “by way of business”; so would include, for example, an individual buying and selling cars with the intention of making a profit but not a private individual selling a personal vehicle. If you’re not sure if a payment is a relevant cash payment under the Regulations, please speak to the Technical Specialist for HVD. Where an HVD offers other financial services or operates safety deposit boxes an agreement is in place that the FCA will supervise all relevant activity." “Art market participant” (AMP) means a firm or sole practitioner who by way of business trades in, or acts as an intermediary in, the sale or purchase of works of art, and the value of the transaction, or a series of linked transactions, amounts to 10,000 euros or more. See above section for an explanation regarding the GBP equivalent and linked transactions. It also includes the operator of a freeport when it stores works of art in the freeport and the value of the works of art stored for a person, or a series of linked persons, amounts to 10,000 euros or more. A “freeport” is a warehouse or storage facility where goods can be stored without payment of Customs duty or VAT. This is in line with section 100A(1) of the Customs and Excise Management Act 1979 - see link below. A “work of art” follows the same definition as for VAT purposes (i.e. as defined in section 21(6) to (6B) of the Value Added Tax Act 1994 (value of imported goods), is a work of art for the purposes of section 21(5)(a) of that Act). It includes a painting, drawing, collage, decorative plaque or similar picture (but not technical drawings or maps), as well as sculptures, tapestry or other hanging, ceramics and photographs. See link to Section 21 of VAT Act below. The definition also includes casinos who are supervised by the Gambling Commission.
Purpose	This regulation provides the legal definition of a High Value Dealer (HVD) and Art Market Participant (AMP). If the business activities don't meet these definitions then they are not a "relevant person" under the Regulations
Time Line	HVDs were brought into scope by MLR 2003 and were required to register by 1 April 2004. The threshold for cash payments was the equivalent of 15,000 euros until it was lowered to 10,000 euros by MLR2017 AMPs were required to register by 10 June 2021; although they must comply with the "relevant requirements" of the Regulations from 10 January 2020, when the law came into effect
What to establish	For HVD you must establish that the payment was in cash and is the equivalent of 10,000 euros or more at the time the payment was made or received. You must confirm that this is for the value of the goods and not any element of services. For example, if the total invoice amount of a new conservatory is £15,000 but the goods value (so, the bricks, UPVC, glass, flooring etc) is only £7,500 it is not a relevant payment even if it was all paid in cash. The balance is to pay for the tradesmen's services and is therefore not relevant. For AMP you must establish that the sale or purchase meets the definition above. Note that the payment can be made by any means, not only cash.
How to test compliance and Evidence to obtain	The hardest part of an intervention is finding relevant activity to test. Businesses may say that they don't accept payments above the threshold and are only registered as a "safety net"; robust testing often proves this to be false. This is made even more difficult for AMP because art is subjective; what one person thinks is valuable another may not; prices can therefore vary considerably. If a business is registered "just in case" it is expected to comply with the regulations; that means it must keep up-to-date risk assessment and policies, controls and procedures and train it's staff in how to identify and appropriately handle a relevant transaction. The majority of HVD/AMP will be registered for VAT. VAT return analysis may be useful in establishing the level of trade. HVDs can trade in any goods, from retail sales of luxury items to wholesalers of meat, fish and poultry. RIS Tactical and Information Packages may help to explain how a business operates and it's associated tax risks - see link to TIPs below. You will need to review business records to firstly understand how the business operates and what paperwork is created during a sale or purchase, and then establish an audit trail to payments shown in the business's bank account. Where payments can't be traced within business records they are likely to have been made in cash. Business records will include reviewing copies of: - invoices - to establish value of the goods sold - bank statements - will show payments for goods purchased from suppliers (debits) and sold to customers (credits). If the business uses multiple banks/accounts, you must look across all accounts to identify relevant activity (including personal accounts which are often used to avoid business charges). Look for any regular transfers from another account; you may find cash is deposited into a different account and then transferred to the trading account. - sales and purchase records (such as sales day books, sales lists, petty cash book - to confirm the level of trade and average transaction values) - freight or export documents (such as bill of lading_ - to ensure the goods sold were shipped to the invoiced customer. Confirming weights and values shown on Customs documentation may identify trade-based money laundering - computerised accounts (such as Sage, QuickBooks, Xero etc). A separate nominal code can be used to identify cash payments and allow a cash report to be provided. If a business doesn't have a way of distinguishing cash payments it will need to keep a separate record of relevant cash payments to demonstrate it can effectively monitor activity. Asking to see a customer's account will confirm firstly that a business relationship has been established (see Regulation 4), the value of invoices raised and payments made against the account. Even though individual sales invoices may be below the 10,000 threshold, larger payments on account may be being made; these are often indicated by rounded amounts (e.g. £10,000) rather than a whole invoice value in pounds/pence (e.g. £11,350.76) - till "z" readings - a report of all transactions rung through the till is produced at the end of each day to record total value of sales. These will report payments and times but not customer details; again a business will need to keep additional records to demonstrate how it monitors relevant activity. Much of the records testing above is also relevant to AMPs although further details will be added in due course, once visits to AMPs commence.
Best Practice	You must establish what is a normal sale/purchase for the business and ask yourself if relevant transactions are likely. If not, why is the business registered?
AMP	You will need to understand the business's involvement in the sale of art and it's position in the chain in order to establish who is it's customer and ensure due diligence measures are applied to the correct person/entity. If cash payment is received for a relevant work of art, it will also need to be registered as a HVD.
ASP	If an HVD appears to be fraudulent and is represented by an external accountant or tax advisor, it is best practice to establish who supervises the ASP and refer any evidence of non-compliance with the MLRs via the relevant gateway.
EAB	N/A. Sales of property are not considered to be "trade in goods" and therefore even if it is a cash purchase it would not fall to be registered as a HVD. A "cash sale" generally means a sale or purchase of a property which doesn't involve a mortgage or financing arrangement, rather than a cash payment using notes/coins.
LAB	N/A. Lettings, even if paid in cash, is a service and is not "trading in goods"
HVD	If carrying out an intervention to a HVD, use the information in the risk package to determine which period of trading records to select to test. Included will be the VAT Return Analysis Tool (RAT) and may highlight if there are any periods with a higher volume of sales or changes in trading patterns. To establish if the business is carrying out relevant activity, start by asking the business who it's main customers and suppliers are, regardless of how the goods are paid for. You can verify these names within business records, for example invoices and bank statements. Then ask which customers pay in cash, again, regardless of the value. Ask to see records to demonstrate these payments. This will then give you an understanding of how cash payments are recorded. From there you will be able to request relevant records to establish all cash payments made/received. Remember, even if a business tells you that it doesn't bank cash it receives from customers, you must still view bank statements to ensure that the business is paying for other items, such as utilities, to ensure it is a legitimate business. Where you see fees or charges raised by the bank ask to see a breakdown; these may indicate that the business has been charged for banking cash (often up to 90p for each £100 banked). Banks have different ways of listing transactions - some may show an obvious listing, such as "Cash in at [branch code]"; others may show symbols next to the word "deposit" to demonstrate which were made in person and which were electronic payments. A list of banking terms are shown in the HVD section of the Knowledge Library. Paying in books - these will show the total cash paid into it's account (usually daily or weekly, depending on volumes); further records will be needed to breakdown the total amount paid in against individual sales. Businesses who have a large volume of cash may use the services of a SIA registered firm for Cash and Valuables in Transit (CVIT) (for example, G4S). There will be a written contract in place detailing the agreement/charges and you should be able to confirm these fees within the bank statements If the business does not bank it's cash, what records does it keep to maintain an audit trail of sales/purchases? Does it request/provide a receipt for the cash or annotate the invoice showing the method of payment? You should always confirm the value of goods and cash on site. It's useful to ask for the level of insurance for both - what will the business do if the goods or cash are stolen and the business isn't insured? At the end of a HVD F2F visit, you should ask to see the contents of a safe or other storage area. The volume of cash should match the level of activity stated throughout the visit. If it doesn't, question the business owner as to it's origins and consider contacting POCIT and/or raising an Intelligence Report. Where a business receives a relevant cash payment from another business, that customer is making a relevant payment and therefore is also required to register as a HVD
MSB	HVDs are known to receive cash from unknown third parties purporting to be operating as a MSB. You must confirm if the business is registered to carry out money transfer by checking the Supervised Business Register on GOV.UK and checking the FCA register. Where you find they are not registered and they are conducting MSB activity you must submit an Intelligence Report to the relevant gateway.
TCSP	Fraudulent businesses may use the services of a TCSP to form companies and/or offer virtual office space to give the business an air of legitimacy
Further Reading	Registration Guidance - High Value Dealer Registration Guidance - Art Market Participants Gov.uk Guidance for High Value Dealers Gov.uk Guidance for Art Market Participants Tactical and Information Packages (TIPs) Apply for the fit and proper test and HMRC approval FATF - Trade based money laundering indicators National Risk Assessment Dec 2020 National Risk Assessment Oct 2017 **ADD LINK Compliance Manual MLR3C10200 - HVD HVD specific guidance in the Knowledge Library Exchange rates for Customs and VAT VAT Act 1994 - Section 21: Value of Imported Goods Customs and Excise Management Act 1979 - Section 100A: Designation of Free Zones **ADD MISSING LINKS  Best practice guide - Inspecting cash on an HVD or MSB intervention 35 Customer due diligence - Regulation 27 Customer due diligence measures - Regulation 28 Obligation to apply enhanced customer due diligence - Regulation 33 Enhance**
FAQs	A business banks large volumes of cash on a daily basis, should it be registered as a HVD? Not necessarily; a cash rich business may not be a HVD as it may not accept individual payments above the threshold. Is it the bank's responsibility to monitor cash payments made directly into an account? No, the bank won't know if it's a relevant cash payment for goods, although it may consider the payments to be high risk and will carry out it's own enhanced due diligence on the cash payment. How do I find an HVD in another country? There is no equivalent of a HVD in another country; most EU countries have criminalised the use of cash and have a limit in place for all sales/purchases (e.g. 1,000 euros in France) - see list of cash limits in Knowledge Library. Cash loaded onto a pre-paid card is not relevant HVD activity and falls under the e-money regulations. Coins which are no longer legal tender, even though may have a high value, are not relevant HVD payments. I intended to issue a penalty for trading whilst unregistered for 20 months but the business has told me that it was only involved in one relevant transaction during that time, should I reduce the penalty? Yes, unless you can evidence a continuous breach, you should reduce the penalty calculation to one 3-month quarter. My business says they have never sold anything over £3,000, do I still need to carry out an intervention? It depends on how likely a relevant sale is. If the business will meet the threshold within say, the next 3 months, you must check it has effective AML controls and make sure customer-facing staff are aware of them; if it’s unlikely the business will meet the definition in its current financial year, it may be more beneficial for the business to re apply at a later date. You should always check some business records to confirm transactions are not in scope before advising a business to deregister. You must confirm the business has deregistered via its Government Gateway account before you close your case; just upload a screenshot from ETMP into Caseflow. My AMP sells art via an online sales platform, does it still need to carry out CDD? Yes, the online sales platform is either the AMP’s customer or an intermediary in the sale and purchase. If it is subject to the MLRs (or equivalent) and there are no other risk factors present, the AMP may decide to carry out simplified due diligence measures on both the intermediary and the underlying customer (paragraph 5.214 of the BAMF guidance refers). As long as the requirements of regulation 39 are met, the AMP may rely on the sales platform to carry out CDD on the buyer, where required. Artists are out of scope for supervision, doesn’t that mean a person could buy art with the proceeds of crime direct from the artist without any AML checks? Yes, we’ve raised this loophole with Treasury. Until Policy and Guidance are amended you should suggest the AMP carries out simplified due diligence on the artist (provided there are no other risk factors).