When it comes to the mechanics of money laundering, most think of property being the primary vehicle by which international criminals turn their ill-gotten funds from illicit to legitimate. But, as much as genuine and honest art lovers and dealers would prefer it not to be true, their sector is now awash with money laundering. There is a solid reason why this is the case, as while property-related transactions are immutably recorded through history, the life journey of an artwork is often not. This, in turn, makes it incredibly easy for art to pass hands without even knowing who owns it.

Ideal playing ground for money laundering

According to Thomas Christ, a representative of the Basel Institute on Governance, a Swiss non-profit which has looked into this matter in some depth, “the art market is an ideal playing ground for money laundering.” Indeed, the Basel Institute is now at the forefront of helping dealers and auction houses to curb money laundering. One of the most renowned auction houses, Christie’s has now adopted new processes which require agents to divulge the name of the art owners they represent in order for a transaction to proceed.

This view is echoed by Deloitte, which believes that the art market is vulnerable to money laundering due in large part to its sheer scale and high values. They assess that the value of art and collectable assets held by ultra-high-net-worth individuals (UHNWIs) will grow to US $2.7t in 2026 (from what was US $1.6t in 2016). They also observe that terrorists readily exploit the art market to raise ‘hard cash’ by selling illegally gained antiquities (sometimes referred to as ‘blood antiquities’).

Free ports as an enabler of art-based money laundering

According to, now, PM, Boris Johnson, free ports will form part of the UK’s future customs strategy, but it is clear that the EU Parliament feels very different about such entities. Far from rushing towards a new world of free ports across the country, the EU believe they are nothing more than bastions of tax evasion and money laundering (despite having around 80 across the EU). Free ports (also called ‘free zones’) for those unfamiliar with the term are storage areas, typically located within the confines of existing ports, where high-value assets are stored on a semi-permanent basis. Luxembourg, Geneva, and Singapore all boast vast free port facilities providing highly secure, air-conditioned storage for the storage of fine wines, art, and vehicles. Some facilitate the storage of art and other valuable assets while protecting the name of the ultimate beneficial owner (UBO) (although this is not the case of the Luxembourg free port). Good stored at free ports are effectively deemed as being ‘in transit’, rather like a person at an airport between flights; this allows the owners of such items to avoid the payment of sales tax and being subject to customs duties.

How can art galleries protect themselves from unwittingly aiding money laundering?

The Fifth Anti-Money Laundering Directive (5AMLD), adopted by the European Parliament on 19 April 2018, has been designed to create a more hostile environment for those wishing to shelter criminals proceeds and assets through non-transparent structures. As such, art businesses in the UK must now act to implement processes and systems which enable the ongoing and systematic monitoring of the beneficial owner/s of artwork and ensure any proof of registration documents are kept up to date for corporate or trust owners.

Art businesses also need to show they have made robust efforts to understand and document the background and purpose of complex art transactions, and to determine if the nature of any business relationships involved appear suspicious.

Indeed, the obligations of art businesses under 5AMLD are now significantly more onerous than those under 4AMLD (the Fourth Anti-Money Laundering Directive); and we expect these only to increase with future iterations of the directive.

UK based art businesses can ensure they remain compliant with 5AMLD by:
• Putting in place a money laundering reporting officer (MLRO) whose role it is to manage any reports of potential money laundering within their business.
• Developing, updating and enforcing business-specific ‘anti-money laundering’ policies and procedures including for customer due diligence, record-keeping, and risk assessment.
• Training employees in policies, procedures and systems designed to prevent money-laundering, and ensure they know how to report suspicious activity.

It is also essential to make sure that your business embraces a culture of awareness and understanding when it comes to art and money laundering. This must include explaining the potential penalties for individuals and the company if money laundering is discovered. Under Section 330 of the Proceeds of Crime Act 2002 (POCA), if an individual employed by an obliged entity fails to disclose knowledge or suspicion of money laundering to an MLRO or the National Crime Agency, they may face five years’ imprisonment or an unlimited fine.

In summary

The UK is home to a vast array of honest and scrupulous art businesses, dealing with items of relatively modest value, to many hundreds of millions of pounds. Given the potential rewards for those wishing to launder money through our much-valued art sector, everyone must play their part in rejecting the interest of criminal ventures. Not only are the personal penalties too high to contemplate for anyone, but there is also much to be gained from protecting and upholding the reputation of the UK’s art sector. However, if you know or suspect you have been an unwitting party to money laundering involving art, it is imperative you seek legal guidance as soon as possible. By seeking the assistance of a Barrister specialising in defending those accused of money laundering, an effective and robust legal strategy can be drawn up which affords you the very best chance of a favourable outcome given your unique circumstances.

Tanveer Qureshi is a Legal 500 barrister, specialising in money laundering crime. If you require legal representation, please contact on 020 3870 3187.

When a company falls into financial strife, life can become desperate. Trying to save your business and the jobs of your employees can lead to you taking actions that, without proper thought and knowledge, can result in you been prosecuted for wrongful trading. And deliberate actions to defraud creditors can result in charges of fraudulent trading.

If you have been accused of wrongful or fraudulent trading, it is crucial to seek legal advice immediately, as both offences carry severe penalties, including disqualification from acting as a company director, fines, personal liability for debts, and in the case of fraudulent trading, a custodial sentence.

What is wrongful trading?

Wrongful trading is a statutory offence under section 214 and section 246ZB of the Insolvency Act 1986. These sections state that once a director knows, or ought to know that there is no way to avoid the company falling into insolvent liquidation or administration, they have a duty to take each of the steps a reasonably diligent person would in order to minimise potential loss to the company’s creditors.

If found guilty of wrongful trading, you will lose your rights to limited liability, meaning you could become personally liable to the company’s creditors for money owned.

To be liable under section 214, it must be proven that the company is worse off by continuing to trade. Therefore, the question of when to cease trading is a vital one. A director who cannot (or will not) rely on the defences available under section 214(3) or 246ZB(3) of the Insolvency Act 1986, namely that during any continuing period of trading they are taking every step with a view to minimising the potential loss to the company’s creditors, cessation of trading should be seriously considered.

You may experience a tension between different types of creditors regarding ceasing trading. A financial creditor may put pressure on you to continue to trade whilst rescue negotiations are taking place. They may even be prepared to fund continued trading. In accepting funding offers, you should have careful regard to the following risks:

• If your company does fall into liquidation, liabilities which are incurred in reliance on the promised funding might remain unpaid; and
• If conditions are placed on the use of the funds, whether this could come back to haunt you at a later date.

It is highly advisable that as soon as you realise that insolvency can or will become a reality, you seek professional advice. Most business owners do not have a full understanding of the complex laws around wrongful trading and could well find themselves inadvertently taking actions which could be challenged by the liquidators/administrators.

What is fraudulent trading?

Sections 213 and section 246ZB of the Insolvency Act 1986 cover fraudulent trading. Fraudulent trading occurs when a director deliberately takes actions for the purpose of defrauding creditors.

Fraudulent trading is also a criminal offence under section 993 of the Companies Act 2006.
For fraudulent trading to occur, there must be a deliberate intent to act dishonestly. The standard for intent is high – in Re Patrick and Lyon ltd (1933), this involved proving “actual dishonesty, involving, according to current notions of fair trading among commercial men, real moral blame”.

Unlike wrongful trading, people other than company directors can be found guilty of fraudulent trading. The offence extends to anyone knowingly party to carrying on the business with intent to defraud.

A cause of action for fraudulent trading can only accrue from the moment a winding-up order is made.

Fraudulent trading and public companies

Directors of public companies must keep in mind the provisions of the Market Abuse Regulation (MAR), Listing Rules(LR), AIM Rules for Companies (AIM Rules), Prospectus Rules (PR), the Financial Services and Markets Act 2000 (FSMA) (as applicable) and the Financial Services Act 2012 (FS Act), in particular the provisions on misleading the market.

You can choose to delay disclosure of inside information provided that immediate disclosure is likely to prejudice its legitimate interests, the market is not likely to be misled, and the company is able to ensure the confidentiality of that information. However, you should not deliberately fail to disclose details of financial difficulties. Where a company fails to make the necessary disclosures under MAR, the Financial Conduct Authority (FCA) may suspend the trading of its securities and impose sanctions.

It is also crucial to be aware of making misleading statements or impressions under the FS Act. Under section 89 of the FS Act it is a criminal offence for a person to either:

• Make a knowingly false or misleading statement or is reckless as to whether it is false or misleading.
• Dishonestly conceal any material facts, whether in connection with a statement made or otherwise.

An offence is only committed if the statements or impressions induce another to enter into or refrain from entering into a contract or exercise or refrain from exercising any rights conferred by a relevant investment.

In summary

This article barely scrapes the surface of the law surrounding wrongful and fraudulent trading. This is why obtaining professional advice is so vital to ensure your interests are protected. You may, inadvertently, carry out an action which you believe is in the best interests of your company, but is instead detrimental to your creditors.

To find out more about wrongful or fraudulent trading, please contact me on 020 3870 3187.

Last week, a Dyson television advertisement was banned by the Advertising Standards Authority (ASA) on the grounds it was misleading. A ‘modest’ budget for a TV advert is around £25k. Thanks to rigorous due diligence prior to an advertisement being made, most commercials are fully compliant with ASA rules.

However, the Dyson case shows that even the biggest companies who have the kind of marketing and advertising budgets most of us can only dream of, can fall foul of ASA compliance.

The problem with the Dyson TV advertisement for the Pure Hot + Cool Fan

The advertisement for Dyson’s Pure Hot + Cool Fan was shown from several angles – from above, the side and front-on – no cord or power outlet was visible, the ASA said. The regulator stated that this could mislead viewers into believing the appliance was cordless, when in fact it needed to be plugged in.

Clearcast, the agency responsible for checking advertisements against the UK Codes of Advertising (the BCAP and CAP Codes), stated that said Dyson had invested heavily in cordless products, such as its series of vacuum cleaners, “so one could be confident” that it would promote any new addition to the range. This demonstrates that the watchdog will consider past strategies and promotion of recent products when deciding whether an advertisement is potentially misleading.

Following complaints, the ASA stated:

“if the fan had a cord that plugged into the mains electricity, viewers would expect to be able to see it in those shots”.

The regulator acknowledged that the final segment of the advertisement showed a cord leading from the base of the fan, but it was very difficult to see. It concluded:

“For those reasons, we considered that it could be easily missed and seen as part of the background by viewers.
“We concluded that, overall, the ad was likely to give consumers the misleading impression that the fan was cordless, and therefore that it breached the code.”

What constitutes misleading or false advertising?

According to the ASA, around 70% of the complaints it receives annually are related to misleading advertisements.

The Consumer Protection from Unfair Trading Regulations (CPUT), which implement the Unfair Commercial Practices Directive (UCPD) and the Business Protection from Misleading Marketing Regulations 2008, are the main laws controlling business to consumer advertising. Certain products such as tobacco and baby milk have specific regulations. The prohibitions in CPUT are reflected in the CAP Code.

Schedule 1 of the CPUT contains a ‘blacklist’ if 31 commercial practices that are always considered unfair, including:
• falsely claiming that a code of conduct is endorsed by a public body
• bait advertising
• falsely stating that a product will only be available for a limited time
• not declaring that you have paid for editorial content (false advertorials)
• false ‘closing down’ sales

The CPUT sets out three types of misleading practices in a commercial transaction, which includes the lifecycle of the seller/consumer relationship and therefore covers advertising:

• False or misleading practice – you cannot provide false information or deliver a false impression that could mislead the average consumer. An average consumer is defined as one who is “is reasonably well informed, reasonably observant, and circumspect.” The false or deceptive information must be of a kind that causes or is likely to cause an average consumer to make a purchase when they would have otherwise refrained. The Dyson advertisement falls within this category.
• A confusing comparison with the product of a competitor – an example of this is copycat packaging, designed to give your product the look and feel of a competitor’s. Note that this type of breach can also result in a trademark infringement.
• Failing to comply with a code of conduct – if you undertake to comply with a code of conduct and fail to do so if this failure leads to an average consumer making a transactional decision they would otherwise have not have made, you may be in breach of the CPUT.

You can also breach the CPUT via a misleading omission. This can occur if you:
• Omit or hide relevant information from the consumer.
• Provides material information in a way which is unclear, unintelligible, ambiguous, or untimely.
• Fails to identify its commercial intent, unless this is already apparent from the context.

To be in breach, the omission must cause or be likely to cause an average consumer to make a transaction they would not have otherwise made.

How to protect your business from a claim of false or misleading advertising

The key to avoiding an expensive claim of non-compliance is to ensure that all your advertisements:
• Include all the information consumers need to make an informed decision to purchase a product. This includes any conditions on the offer. These should be stated closely or via a clear link, to the main claim.
• Have clear pricing that includes VAT and booking fees.
• Do not overclaim the abilities of the product.
• Do not hide important information in the small print.
• Ensure you have evidence to back up any claims you make in an advertisement. For example, if you are advertising a fitness apparatus, ensure any claims you make about results can be corroborated with independent, professionally run trials.

In summary

Advertising is a significant investment for any business. Therefore, having an advertisement banned for being misleading is costly, both financially and reputationally. It is imperative that due diligence is performed throughout the creative stages of the process to ensure regulations are adhered to. The old saying, “an ounce of prevention is worth a pound of cure” is one that applies wholeheartedly to advertising compliance.

If you require legal representation, please contact us on 020 3870 3187.

Deferred Prosecution Agreements (DFA) provide a powerful tool for defence lawyers to prevent a company from being prosecuted by the Serious Fraud Office (SFO).

In July 2019, outsourcing company, Serco, was fined nearly £23 million as part of a  Deferred Prosecution Agreement  with the Serious Fraud Office (SFO) over electronic tagging contracts.  Serco’s UK subsidiary, Serco Geografix, took responsibility for three offences of fraud and two of false accounting between 2010 and 2013, related to understating profits from its electronic monitoring contracts with the Ministry of Justice (MoJ).  It was fined £19.2 million and ordered to pay £3.7 million in costs.

The case has been running since 2013, when Serco self-reported irregularities.  At the time of writing the DFA had been approved in principle by Mr Justice William Davis but still requires formal sign-off.

How do DFAs work

A DFA is an agreement reached by an organisation (they cannot be applied to individuals) and prosecutor – the Director of Public Prosecutions (DPP) or Director of the Serious Fraud Office (SFO) – under the supervision of a judge.  They set out that if certain conditions are met, prosecution will be suspended indefinitely.

An organisation can be invited to enter into a DPA by the Prosecutor who will only do so if they are receiving full cooperation with the corporate concerned.  Likewise, the defence lawyers can approach the prosecutor to enter into DPA negotiations.  The agreements are entirely voluntary, so either side can reject the offer.  In addition, either party can withdraw from negotiations at any time without providing a reason; however, the prosecutor will normally provide a reason for doing so unless disclosing such information would prejudice the investigation.

Why would a company elect to enter into a DPA?

According to the Serious Fraud Office, DPAs:

• Allow a corporate body to make full reparation for criminal behaviour without the collateral damage of a conviction (for example sanctions or reputational damage that could put the company out of business and destroy the jobs and investments of innocent people).
• Are created under the supervision of a judge, who must be convinced that the DPA is ‘in the interests of justice’ and that the terms are ‘fair, reasonable and proportionate’
• Avoid lengthy and costly trials
• Are fully transparent and public

How does the prosecution decide if DPA negotiations should be offered?

The test for whether a DPA is appropriate is set out in the DPA Code of Practice and comprises of two stages:

Stage One

The evidential stage of the Full Code Test in the Code for Crown Prosecutors must be satisfied, and there must be a realistic possibility of a conviction based on the evidence procured.

Stage Two

The prosecutor must decide if it is in the public interest to enter into a DPA rather than prosecute the organisation. The Code for Crown Prosecutors states how public interest may be evaluated.  Factors to be evaluated include the scale of the offence, the impact of the offence on the community, and the defendants alleged culpability.

Will a DPA be offered if a company does not self-report?

Ben Morgan, Joint Head of Bribery and Corruption at the SFO initially stated in various talks (see, at a Bird and Bird seminar: DPAs and the UK Aerospace and Defence Industry (1 July 2014); the Global Anti-Corruption and Compliance in Mining Conference 2015 (20 May 2015)) that the regulator would only offer to negotiate a DPA with an organisation which self-reported on a matter the SFO was unaware of.

However, Mr Morgan has said more recently (Annual Bar and Young Bar Conference 2016, London (17 October 2016)) he was not aware of a case where a DPA would be automatically ruled out.  However, he said that the key factor in determining whether to offer a DPA or prosecute is “the stance the company takes once it becomes aware of the issue”.  It is likely that whether a company self-reported or not will be a deciding factor.

There is no hope of being offered a DPA if an organisation does not fully cooperate with the investigator.  For example, a DPA was offered to Rolls-Royce PLC and Rolls-Royce Energy Systems Inc even though they did not self-report.  What triggered a willingness to negotiate was the “extraordinary” cooperation given by the company.

What are the advantages and disadvantages of a DPA?

For corporate bodies that rely on public procurement as part of their business model, the avoidance of prosecution is a significant advantage of a DPA as convictions can result in debarment from public tenders.

DPAs also allow the organisation to control the PR around the wrongdoing.  In addition, DPAs provide for a quicker result than a prosecution (especially if it is defended).

The fine given to the company will be broadly similar to one which would be imposed by the Court in a successful prosecution.  However, the two most recent DPAs suggest that the discount obtained can be up to 50%.

The disadvantages of a DPA include the fact that if a DPA is not agreed or approved by the Court, the Prosecution can use certain documents related to the DPA in later Court proceedings.

Furthermore, a DPA can contain conditions that would not be imposed by the Court, for example, steps to improve compliance, which may be expensive and difficult to implement within the timeframe set.

Remember, just because a company avoids criminal prosecution in the UK under a DPA, it does not preclude other jurisdictions from investigating allegations of wrongdoing or civil claims from being brought.

Final words

The decision to propose or enter into a DPA must be taken with care and following expert advice from a corporate crime barrister or lawyer.  They will provide the advice and representation required to ensure you make the best decision for your organisation.

Tanveer Qureshi is a Legal 500 barrister, specialising in ASA compliance, business to business fraud, health and safety, food standards, civil litigation, and corporate crime.  If you require legal representation, please contact directly on 020 3870 3187.