Know Your Customer for Precious Metals

Why Dealers in Precious Metals need AML/CTF?

Dealers in Precious Metals, Jewels and Stones engage in the business of production, mining or trading of precious metals or jewellery. This is a high-risk sector as it offers a lucrative market for criminals who want to hide, transfer or invest their illicit proceeds. As a registered dealer, manufacturer, trader or a miner in precious metals, jewels or stones, you are a “regulated entity”, if you:

do import, deal or trade in coin or bullion; or
deal in precious metals (like gold, silver, and platinum), jewels (like a pearl, amber, and coral) and stones (like diamond, rubies and sapphires); or
produce precious metals or precious stones at mining operations; or
are a buyer or seller in the secondary and scrap markets; or
are a jewellery manufacturer who uses precious metals and precious stones for retail sellers.

Risk exposure

This sector is an attractive channel for money laundering because cash is an acceptable method of exchange, and the goods can be transported easily. Trade-based money laundering: false reporting, commodity misclassification, carousel transactions, or round-tripping through other countries; make it difficult to identify the source of funds or the purpose of transactions. This allows the proceeds of crime and illicit activities to be laundered through these goods, exposing dealers to fraud, bribes or terrorism financing (TF).

Compliance requirements

Compliance begins at the onboarding stage with KYC, determining third-party involvement, ultimate beneficial owners, conducting sanctions and PEP checks, as well as checking SDN lists, if applicable. The ongoing risk-based approach includes scrutiny of cash transactions above the designated threshold, high-value transactions, high-risk clients, or high-risk countries; declaration of the sources of funds and legitimacy of the transaction; monitoring for unusual behaviour; and reporting of suspicious transactions and invoicing.

Gaps in compliance

The ability to trade anonymously in these high-value goods using cash or cryptocurrencies makes it difficult to trace ownership. Other factors like ease of illegal smuggling or mining, transporting these goods across borders for criminal transactions, trade-based money laundering, lack of transparency in transactions and ownership structures, allows illicit funds to be incorporated into the legitimate economy. Other bad practices like inadequate documentation or using these precious goods for bribing, make dealers in precious metals vulnerable to AML/CTF compliance.

Establish a Compliance Programme

Businesses dealing with precious metals, jewels and stones are expected to establish the framework for a risk-based compliance program:

Conduct a risk-based assessment for exposure by its products, services, and delivery channels; types of clients and third-parties involved; the country in which it operates or transacts with; size or pattern of transactions; nature of trade; and business relationships.
Create risk reduction measures and controls to lessen risk.
Develop an AML/CTF program: client identification, beneficial ownership or third-party business relationship, Sanctions/SDN/PEP screening.
Have policies and procedures in place for Suspicious Transaction Reporting (STR).
Implement a risk-based approach to ongoing monitoring of transactions, cross-border trades, patterns and business relationships.

Maintain your Compliance Programme

Set up and maintain your compliance program, as per the laws of your regulatory body. Non-compliance may result in criminal or administrative monetary penalties.

Ongoing compliance involves:

Training staff, and designating an AML Compliance or Digital Ethics Officer.
Conducting customer due diligence (CDD) when establishing a new business relationship or enhanced due diligence (EDD) for cash transactions above a designated threshold, or when a criminal is found to be the beneficial owner or holding a management function in the precious metals business.
Keeping records as required by your regime.
Ongoing CDD and transaction monitoring to identify and report suspicious activity.
Complying by the laws set out by your country’s regulator, and industry bodies.
Reviewing your compliance program at regular intervals.