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Precious Metals
The global AML landscape is diverse and the precious metals industry must keep pace with developing rules and regulations in order to meet their compliance obligations.
Why Dealers in Precious Metals need AML/CTF?
Retailers in Precious Metals, Jewels, and Stones produce, mine, or trade precious metals or jewellery. Since this is a profitable sector for criminals who wish to conceal, transfer, or invest illicit proceeds, the precious metals industry is considered a high-risk industry. You are a "regulated entity" if, as a registered dealer, manufacturer, trader, or miner of precious metals, gems, or stones, you:
Include a system of internal controls to assure ongoing compliance; provide for independent testing for compliance; designate an individual responsible for coordinating and monitoring day-to-day compliance; and provide training for appropriate personnel.
Establish effective customer due diligence systems and monitoring programs
Screen against Office of Foreign Assets Control (OFAC) and other government lists
Establish an effective suspicious activity monitoring and reporting process
Develop risk-based anti-money laundering programs
Customer Due Diligence (CDD) and Customer Identification Program (CIP) Programs
Keep records of cash purchases of negotiable instruments,
File reports of cash transactions exceeding $10,000 (daily aggregate amount),
Risk exposure
This industry is a potential avenue for money laundering as cash is a valid form of trade and the commodities are easily transportable. Instances such as fraudulent reporting, the misclassification of commodities, or carousel transactions are all trade-based money laundering and make it complex to trace the source of funds or the intent of transactions. This resultingly, enables the profits of crime and other lawful activities to be laundered via these goods, thereby exposing traders to the risks of fraud, bribery, and terrorism financing (TF).
Compliance Measures
Compliance starts at the stage on onboarding with KYC, verifying third-party involvement and ultimate beneficial owners, as well as conducting sanctions and PEP checks, and, if relevant, reviewing SDN lists. The continual risk-based approach includes the examination of cash transactions that surpass the predetermined threshold, high-value transactions, high-risk clients, or high-risk countries; declaration of the source of funds and legitimacy of the transaction; monitoring for irregular behaviour; and reporting of invoicing and suspicious transactions.
Gaps in Compliance
The opportunity to trade these high-value items anonymously using cash or cryptocurrencies makes it challenging to trace ownership. The ease of illegal smuggling or mining, the transportation of these goods across international borders for criminal transactions, trade-based money laundering, and the lack of transparency in transactions and ownership structures are other factors that permit the incorporation of illicit funds into the legitimate economy. As a result, dealers in precious metals are susceptible to AML/CTF compliance risks due to behaviours such as poor paperwork and the use of these items as bribes.
Establish Compliance
It is expected for businesses dealing with precious metals, jewels, and stones to establish risk-based compliance program framework. They are further expected to:
- Conduct a risk-based analysis of the company's exposure based on its products, services, and delivery channels; the types of clients and third parties involved; the country in which the company operates or transacts; the size or pattern of transactions; the nature of trade; and business relationships.
- Develop strategies and controls to reduce and mitigate risks.
- Create an AML/CTF programme: client identity, beneficial ownership, or commercial relationship with a third party, and screening for sanctions/SDN/PEP.
- Establish policies and procedures for reporting Suspicious Transactions (STR).
- Employ a risk-based strategy for the continual surveillance of transactions, cross-border trades, patterns, and commercial ties.
Maintain your Compliance Program
As per the regulations of your regulatory body, it is necessary to establish and maintain your compliance program. Penalties for non-compliance may be monetary or criminal in nature.
- Staff training and the appointment of an AML Compliance or Digital Ethics Officer.
- Performing customer due diligence (CDD) when establishing a new business partnership or enhanced due diligence (EDD) for cash transactions exceeding a specified threshold, or when a criminal is identified as the beneficial owner or a manager in the precious metals business.
- Collecting client information from all touchpoints and keeping records.
- Continuous monitoring of CDD and transactions to identify and report suspicious activity.
- Adhering to the laws established by your country's regulator and industry organisations.
- Periodically reviewing your risk assessments and compliance program with external audits.
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