Financial Crime World

Jewelry Sector Must Implement Controls to Mitigate AML/CFT Risks

The jewelry sector is a high-risk industry for money laundering and terrorist financing (ML/TF). The risk level varies depending on several factors, including the country of origin of the product, location of sellers and purchasers, delivery locations, and funding sources.

Country/Risk Assessment

To mitigate these risks, dealers must assess country/geographical risk in relation to proposed transactions involving diamonds, jewels, or precious metals. The Financial Action Task Force (FATF) recommends considering the following factors:

  • Whether a producing or trading country participates in the Kimberley Process
  • Known mining or substantial trading of the transaction product in the source country
  • Level of government oversight of business and labor in mining and/or trading areas
  • Extent of cash use, regulation of activity, and informal banking systems
  • Presence of designated terrorist organizations or criminal groups
  • Access to competitive markets or processing operations
  • Application and enforcement of anti-money laundering and combating the financing of terrorism (AML/CFT) laws

Dealers can also consult lists published by the FATF of high-risk jurisdictions with strategic deficiencies in their AML/CFT systems. Additionally, information from the Egmont Group of Financial Intelligence Units and guidance issued by the International Monetary Fund (IMF) and national government bodies can be useful.

Customer and Counterparty Risk

Retail customers purchasing jewelry, precious metals, or stones may not always have a legitimate business purpose for their purchases. Dealers must be aware that some transactions may be higher-risk due to factors such as:

  • Cash payment
  • Payment by or delivery to third parties
  • Structuring of multiple small purchases

Business counterparties in the precious stones and metals industries also pose risks, including those who lack knowledge of the industry, have insufficient resources, or propose excessive or nonsensical transactions.

Mitigating Risks

To mitigate these risks, dealers must implement effective controls and procedures to identify and report suspicious transactions. This includes:

  • Verifying customer information
  • Monitoring cash transactions
  • Ensuring compliance with AML/CFT regulations

Conclusion

The jewelry sector must take a proactive approach to mitigating ML/TF risks by implementing robust controls and procedures. Dealers must assess country/geographical risk, consider customer and counterparty factors, and ensure compliance with AML/CFT regulations to prevent the misuse of their businesses for illegal activities.