Jewellery Sector Faced with Serious AML/CFT Concerns: Experts Warn
The global jewellery sector is facing significant anti-money laundering (AML) and combating the financing of terrorism (CFT) concerns. The industry’s reliance on cash transactions, lack of transparency, and complex supply chains make it vulnerable to money laundering and terrorist financing.
Country Risk Assessment
When evaluating country risk, dealers in precious metals and stones must consider various factors, including:
- Location of mining, refining, or finishing operations
- Location of sellers or purchasers
- Use of funds in transactions
- Lax regulations, corruption, or terrorist activity
Experts warn that some countries pose a higher risk due to these factors.
Factors to Consider
When evaluating country risk, dealers should consider the following:
- Participation in the Kimberley Process for rough diamonds
- Known mining or trading activities in the transaction source country
- Anticipated sources of large stocks of existing diamonds, jewels, or precious metals
- Government oversight and regulation of business and labor practices
- Extent of cash use and informal banking systems
- Presence of designated terrorist organizations or criminal networks
- Access to nearby competitive markets or processing operations
- Application and enforcement of AML/CFT laws and regulations
Customer and Counterparty Risk
Dealers must also assess customer and counterparty risk, particularly at the retail level. Factors such as use of cash, payment by third parties, and structuring may indicate higher-risk transactions.
Retail Customer Risk
Higher-risk customers may include those who:
- Use cash for purchases
- Make payments or deliveries to third parties
- Structure multiple smaller transactions
Business Counterparty Risk
Dealers must also consider risks associated with counterparties, including wholesalers, manufacturers, and retailers. Higher-risk counterparties may lack knowledge of the industry, have inadequate resources, or propose unusual or excessive transactions.
Mitigating Risks
To mitigate AML/CFT risks in the jewellery sector, experts recommend:
- Implementing robust customer due diligence and transaction monitoring
- Conducting thorough country risk assessments
- Establishing relationships with reputable counterparties
- Monitoring cash transactions and structuring behavior
- Providing training on AML/CFT regulations to employees
The jewellery industry must take proactive measures to address these concerns and ensure compliance with anti-money laundering and combating the financing of terrorism regulations. Failure to do so may result in reputational damage, fines, or even criminal prosecution.