Financial Crime World

Jewelry Sector Must Implement Robust AML/CFT Controls to Mitigate Risk

The jewelry sector is considered high-risk for money laundering and terrorist financing due to its complex supply chain and lack of transparency. To mitigate these risks, dealers in precious stones and metals must implement robust anti-money laundering (AML) and combating the financing of terrorism (CFT) controls.

Assessing Country/Geographical Risk

According to the Financial Action Task Force (FATF), countries with a higher risk level for AML/CFT concerns include those with:

  • Inadequate government oversight
  • Limited regulation
  • Widespread use of cash

When assessing country/geographical risk, dealers must consider the following factors:

  • Participation in international initiatives such as the Kimberley Process
  • Known mining or trading activities in the transaction source country
  • Level of government oversight and regulation
  • Extent of informal banking systems
  • Presence of designated terrorist organizations or criminal groups
  • Readiness to access nearby competitive markets or processing operations

Assessing Customer and Counterparty Risk

At the retail level, higher-risk transactions may involve:

  • Use of cash
  • Payment by or delivery to third parties
  • Structuring

At the business level, counterparties involved in the precious stones and metals businesses pose a significant risk. Dealers must consider the risks associated with each stage at which they participate, including:

  • Lack of knowledge or understanding of the industry
  • Insufficient financial resources or business premises
  • Unfamiliarity with industry practices and common financial terms
  • Proposals that make no sense or are excessive

Implementing Robust AML/CFT Controls

To mitigate these risks, dealers should implement robust AML/CFT controls, including:

  • Customer Due Diligence and Ongoing Monitoring: Conduct thorough customer due diligence and ongoing monitoring to ensure compliance with regulations.
  • Enhanced Due Diligence for Higher-Risk Counterparties: Perform enhanced due diligence on higher-risk counterparties to mitigate potential risks.
  • Regular Reporting of Suspicious Transactions: Report suspicious transactions to the relevant authorities in a timely and accurate manner.
  • Staff Training: Provide regular training for staff on AML/CFT regulations and industry best practices.

Conclusion

By implementing these measures, dealers in the jewelry sector can significantly reduce their risk exposure and contribute to a safer and more transparent industry.