Jewelry Sector’s AML/CTF Concerns: Mitigating Risk Through Established Controls
In today’s global economy, combating money laundering and terrorist financing is a crucial aspect of the jewelry sector’s operations. To effectively mitigate these risks, dealers must remain vigilant in assessing country/geographical risk when engaging in transactions involving diamonds, jewels, or precious metals.
Country/Geographical Risk Assessment
When evaluating the risk level of a proposed transaction, several factors should be considered:
- Participation in the Kimberley Process: Has the source country participated in the Kimberley Process for rough diamond transactions?
- Known mining or trading activities: Are there known mining or trading activities in the source country that could indicate higher-risk transactions?
- Government oversight: Does the government of the source country have adequate oversight of business and labor practices, including regulation and supervision?
- Cash usage: Is cash widely used in the source country, potentially hiding illegal activities?
- Regulation and supervision: Are there effective AML/CTF laws, regulations, and enforcement mechanisms in place in the source country?
- Informal banking systems: Does the country have informal banking systems, such as hawalas, that could be used to facilitate illegal transactions?
- Designated terrorist organizations or criminal groups: Are designated terrorist organizations or criminal groups operating within the country, posing a higher risk of money laundering and terrorist financing?
- Access to competitive markets: Is the source country easily accessible to nearby competitive markets or processing operations, potentially increasing the risk of illegal activities?
- Credible sources: Are there credible sources indicating that the country has effective AML/CTF laws, regulations, and enforcement?
Dealers may consult various resources when assessing country/geographical risk, including:
- FATF’s lists of high-risk jurisdictions
- Guidance from the Egmont group of FIUs
- IMF reports
- National government bodies
- Non-governmental organizations
Customer and Counterparty Risk
Retail Customer Risk
When dealing with retail customers, dealers must be aware that purchases may not always have a legitimate business purpose. Higher risk may be observed when:
- Cash transactions occur
- Third-party payments or deliveries are involved
- Structuring of transactions occurs
Business Counterparty Risk
Dealers engaged in the precious stones and metals businesses should consider the risks associated with each stage of their operations, including:
- Counterparties lacking industry knowledge
- Inadequate business premises
- Unfamiliarity with industry practices
- Transactions that seem excessive or nonsensical
To mitigate these risks, jewelry sector stakeholders are advised to implement robust controls and procedures, including:
- Conducting thorough due diligence on counterparties
- Monitoring transactions for suspicious activity
- Maintaining accurate records of all transactions
- Reporting any suspected AML/CTF violations to the relevant authorities
By adopting a proactive approach to assessing country/geographical risk and customer and counterparty risk, the jewelry sector can effectively mitigate its exposure to money laundering and terrorist financing.