Money laundering isn't just a worry for banks – many small businesses are touched by money launderers. Dealers in precious metals, stones or jewels are especially vulnerable.
Precious gems are often smuggled, stolen and traded in the black market in countries around the world and then used in money laundering schemes. “The characteristics of jewels, precious metals and precious stones that make them valuable," warns the U.S. Department of Treasury, "also make them potentially vulnerable to those seeking to launder money.”
Money laundering begins with the commission of a crime that produces ill-gotten funds. The perpetrator then processes this “dirty” money through a series of transactions intended to “cleanse” it so that it appears to have resulted from legal activities.
There is no one single method of laundering money – it may involve other individuals, businesses and companies. However, one constant remains: The funds need to be washed.
Dealers of precious metals, stones or jewels can be drawn into money laundering schemes, for example, by criminals who use dirty money to buy gold coins, diamonds or other gems. The money launderer then resells the coins or gems and introduces the proceeds into the financial system as supposedly clean money.
It is critical to understand how it can happen to your business and how to avoid it. Here are factors that may indicate a transaction is designed to involve a dealer in money laundering:
The USA PATRIOT Act and the U.S. Bank Secrecy Act requires all dealers in precious metals, stones, or jewels to have a comprehensive Anti-Money Laundering program.
A dealer is defined as a person or entity that purchases at least $50,000 worth of covered goods AND sells at least $50,000 worth of covered goods during the preceding calendar or tax year. The Financial Crimes Enforcement Network (FinCEN) defines covered goods as:
In addition to AML compliance, dealers are subject to Office of Foreign Assets Control (OFAC) sanctions screening as required by the U.S. Treasury. Failure to comply with AML or OFAC requirements may result in criminal and civil penalties. Both the IRS and the state where you conduct business will perform periodic examinations, and a review of your AML compliance program will be included.
Dealers are expected to have a reasonably-designed compliance program tailored to their business. It should begin with a risk assessment and then meet the "four pillar" requirements: