All that glitters is not gold. This includes gold — and other precious metals, stones, and jewels that are sometimes used to launder the ‘dirty’ proceeds of criminal activities such as drug trafficking and terrorism. But several U.S. laws and regulations target these international money-laundering operations.
Good as Gold
Precious metals, stones, and jewels make ideal vehicles for money laundering for several reasons:
Ownership and control: Precious metals are bearer instruments, meaning that like cash, the individual in possession of the precious metal owns and controls it.
Readily transferable: There is an active, global market that enables criminals to trade them. Because precious metals have many legitimate uses, criminals often can move them without attracting attention.
Relatively stable: Although the price of precious metals fluctuates like those of any commodity, the value of precious metals tends to remain reasonably steady.
Easy to smuggle: Money launderers may use private jets to bypass major airports and cross international lines. Diamonds and other precious stones are small enough to smuggle in someone’s pocket.
Difficult to track: Criminals can manipulate these goods to disguise their source or create a fake document trail to prove their authenticity.
Defining the Dealers
Most precious metals dealers must comply with the U.S. Bank Secrecy Act of 1970, which requires that they create and follow an anti-money laundering (AML) program. Certain AML provisions of the U.S. Patriot Act and rules of the Office of Foreign Assets Control also apply to precious metal dealers.
The Financial Crimes Enforcement Network (FinCEN) defines a dealer as someone who is not a retailer and who both buys and sells covered goods (as described by FinCEN). A dealer must have bought at least $50,000 and sold at least $50,000 of goods in the previous year. Note that there are exceptions. For example, pawnbrokers generally are not considered dealers, but in some circumstances they can be. If you are not sure about your business, consult an attorney with AML experience.
If you do qualify as a dealer, your AML program must have the following:
- Written policies, procedures, and a robust set of internal controls
- A designated compliance officer
- Training for employees
- Frequent third-party testing
Other businesses also should be aware of potential criminal activity. For example, if your company is involved in a transaction involving gold coins, be sure to assess the dealer’s compliance efforts.
Contact us for more information, particularly if you are not a precious metals dealer but are contemplating a transaction that involves precious metals or stones.