What does KYC (Know Your Customer) mean?
In light of new anti-money laundering regulations, an acronym you’re likely to hear more and more frequently is KYC.
While it sounds like something from the Banking and Legal lexicon, the acronym actually means Know Your Customer and refers to the risk-based approach we adhere to when we want to protect our business from falling afoul of money laundering or other transactions which are likely to cause reputational or financial damage.
Unlike its meaning suggests, KYC actually requires us to go beyond simply learning and recognising the names of our client, rather the ‘Customer’ in Know Your Customer actually refers to the ultimate owner of the Art Object you are selling and can involve some investigative work.
To put KYC in into context, consider the following example:
When we sell a work of art to an institution, a business or a corporate structure - such as a Plc - we are raising an invoice against a business and not an individual.
In such instances - as we would with a private buyer - we are obliged by law to ascertain whom is the Beneficial Owner.
The term Beneficial Owner refers to the individual who will take ultimate ownership of the work of art sold to the business.
Law requires us to adopt an approach that enables us to correctly identify the Beneficial Owner because corporate structures - which could be considered to act not unlike a curtain - can be used by individuals to hide their true identities.
While this sounds ominous, the use of structures as a means to disguise whom is the true owner of a work of art, is what makes the Art World a target for laundering money. Consider tax havens and the proliferation of ‘Shell Companies’: Companies in name and address only, with no employees and no water coolers.
As part of our KYC process - like peeling away the layers of an onion - we are able to ascertain the ultimate beneficial owner. This can be a person or a company that is listed as part of a publicly available register e.g. Companies House in the UK or company listed on the stock exchange.
As one half of the transaction taking receipt of payment for the art object, we also have a responsibility to make it clear to our client whether we are acting as an agent or not. Learn more about how to Identify your clients as part of your KYC process here.