On July 24, 2019, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) issued a new operational brief on risks and indicators for dealers in precious metals and stones (the “Operational Brief”). The Operational Brief provides guidance on money laundering and terrorist financing risks for individuals, retailers, and wholesalers dealing in previous metals and stones.
The Operational Brief flags five focus areas for dealers in precious metals and stones to concentrate on when assessing money laundering or terrorist financing risks:
- Products, services and delivery channels – Money laundering risks are influenced by the liquidity of the products in which precious metals and stones dealers trade as well as the market for the products. The value, physical size, storage requirements and transferability of precious metals and stones will also affect their risk of being used in money laundering transactions.
- Clients and business relationships, including clients’ activity patterns and geographic locations – Dealers in precious metals and stones should consider how the clients present themselves and conduct transactions in assessing the risk of money laundering and terrorist financing, including in particular in the case of transactions involving large amounts of cash or structuring.
- Geographic location of the business – Money laundering and terrorist financing risk is influenced by whether the transaction is taking place in a high-crime area, the proximity to a border crossing, or whether the business conducts transactions with foreign clients and suppliers based in countries subject to sanctions, embargoes or other measures.
- New technologies – Dealers in precious metals and stones need to consider the effect of new technologies such as virtual currencies, email money transfers, and payment processors which could potentially increase the risk of anonymity, transaction speed, and transactions outside the scope of anti-money laundering regulations.
- Structural factors – Issues such as high staff turnover and use of intermediary agencies may increase the risks involved. Conversely, barriers to entry, such as requirements for specialized licenses to sell jewelry, may decrease the risk of money laundering.
The Operational Brief calls for organizations to take a risk-based approach to mitigating money laundering and terrorist financing risks associated with precious metals and stones. This includes having a comprehensive and effective compliance program to meet all obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
Indicators of Suspicious Transactions
The Operational Brief also provides a list of indicators to help dealers in precious metals and stones determine whether they should report a suspicious transaction for both retail entities and wholesale/ supplier entities.
In the case of retail entities, the Operational Brief lists the following transactional and retail indicators:
- The individual appears to be structuring amounts to avoid customer identification or reporting thresholds.
- The individual frequently uses layaway plans in an apparent attempt to avoid reporting requirements (also known as structuring).
- The individual uses a payment card that appears to be altered or stolen.
- The individual buys high-value goods using small-denomination bills ($5, $10, $20).
- The individual sells gold in non-standard bricks or similar shapes with no distinct markings or value.
- The individual will only trade items for cash or other precious metals and stones.
- The individual attempts to buy precious metals or stones with a company credit card or a credit card not in their name.
- The individual trades items for similar items of near-equal value.
- The individual uses negotiable instruments or credit cards issued in a country other than Canada to make purchases.
- The individual frequently crosses the Canada–U.S. border to buy jewellery or precious metals, in particular where there is not a strong economic incentive to do so.
- The customer or supplier attempts to maintain a high degree of secrecy with respect to the transaction, such as requesting that normal business records not be kept.
- The individual makes large or frequent purchases in funds other than Canadian dollars.
- The individual appears to be living beyond their means.
- The transactional activity (level or volume) is inconsistent with the individual’s apparent financial standing, their usual pattern of activities or occupational information (e.g. student, unemployed, social assistance).
- The individual cannot explain the origin of the precious metals and stones.
- The individual is willing to sell items at rates significantly lower than their typical sale value.
- The individual appears to be uninterested in the details of the sale or purchase of goods, which would normally be material information for a client.
- The individual indiscriminately purchases merchandise without regard for value, size or colour.
- The individual is vague or refuses to provide details about why they are selling or buying items, or about the origin of the items.
- The individual uses alternative addresses for deliveries, uses post office boxes or uses third parties to receive purchases.
- Multiple individuals are involved in retrieving, transporting or purchasing items.
- The individual does not wish to buy or sell face to face and is nervous about information related to their identification.
- The individual attempts to purchase abnormally large quantities of precious metals or loose jewels in non-wearable form.
Entities dealing in precious metals and stones, such as retailers selling jewelry, should review the Operational Brief and their compliance policies and procedures (including their suspicious transaction indicators) to reflect the additional guidance in the Operational Brief.