Due Diligence

What is Due Diligence?

Monday, July 13, 2020

Put simply Due Diligence means doing your homework, or expressed another way: Leaving no stone unturned.
Before we conduct business with another business or an individual, we exercise caution, care and attention so that we may protect our property or that of another person.

In light of the 5th anti-money laundering directive (5AMLD) all galleries, auction houses, dealers and agents are required to conduct adequate due diligence for items over €10,000.

Naturally as the way we tend to do business changes from business to business, so too does it vary from industry to industry. As such there is no single definition we may reliably apply. Hence how one may choose to define Due Diligence in reference to the Art World is open to interpretation.

What we may wish to use in helping us arrive at a Due Diligence process applicable and relevant to our industry could be supported by our knowledge and understanding of Know Your Customer (KYC) processes and recent revisions of anti-money laundering legislation: the 5th Anti-Money Laundering Directive (AMLD5).

As the term - Know Your Customer - suggests, we use methods, services or systems to help ascertain who we’re dealing with. That is to say that to the best of our knowledge - and with a reasonable degree of certainty - we believe our buyer (our beneficial owner) to be bonafide, to present no threat and are not in conflict with EU anti-money laundering regulations. Moreover, our conducting a business transaction with them poses no identifiable risk to our business.

With respect to AMLD5 - and to ensure our compliance with the directive - we will need to ascertain the identification of the client purchasing from us, be that an individual or an institution, corporate structure or Private Limited Company. We refer to the ‘end owner’ of the Art object as the Beneficial Owner. We will need to identify whether or not - this beneficial owner is considered a Politically Exposed Person (PEP).

In any case, the Due Diligence process we believe is applicable to us - and how we do business - should be a process that we adhere to. Deviation from our predefined process exposes us to unnecessary risk.

Correctly and contextually implemented, Due Diligence actually helps us conduct our business with greater confidence. It helps reduces our exposure to risk and reduces the number of variables and unknowns.

The Art-World specific Due Diligence process built into Arcarta helps protect your business against possible regulatory and reputational damage by making due diligence and compliance with the forthcoming EU Directive 5AMLD easy, while protecting your business from fraud, cyber and financial crime when accepting payment.