All that glitters isn’t 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’s 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, 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 isn’t 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 aren’t considered dealers, but in some circumstances they can be. If you’re not sure about your business, talk with an attorney with AML experience.

AML program

But 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, and
• 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.

(This is Blog Post #1002)