Jewelry is a magnet for criminals looking to "clean" their illegal money. This is why Anti-Money Laundering (AML) laws exist, and jewelers need to be aware of them and follow them carefully as the IRS is empowered to audit your business for AML compliance. There are a lot of things you need to focus on to grow sales and keep your jewelry business successful. More money can bring about more problems, though.
It's not just because there's more of it to manage, but jewelers specifically need to be cognizant of Anti-Money Laundering (AML) laws. Complying with these laws can be tricky for jewelers, but one thing is for sure: if you don't, you could face serious penalties.
If you're not familiar with the laws, who needs to comply with them, how to comply, and what could happen if you're not compliant, it's time you learned.
Learning isn't the only thing you need to do, though — Anti-Money Laundering certification for jewelers is required and you need to do it on an annual basis.
Before you create a program and get it certified, these are some of the basics to know:
What are Anti-Money Laundering Laws?
The Financial Crimes Enforcement Network (FinCen) defines "money laundering" as the process of making illegally-gained proceeds appear legal.
To prevent "dirty money" attempting to be made "clean," Anti-Money Laundering laws were initiated in the United States beginning with the Bank Secrecy Act in 1970.
These laws have not changed, but their scope has been broadened. Amendments made by the USA PATRIOT Act in 2001 includes jewelers as part of the "financial system" because of the enormous value gems, jewelry, and precious metals carry.
Given the possibility that dirty money from illegal activities could be converted to clean money through trading jewelry, there are no signs that these laws will be rolled back.
Who Needs to Comply With the AML Laws?
FinCen defines jewelry "dealers" and "retailers" differently and compliance to Anti-Money Laundering laws is based how jewelers conduct their business.
"Dealers" are defined as those who purchased covered goods in an amount exceeding $50,000 during the prior calendar or tax year and received more than $50,000 in gross proceeds from the sale of precious metals, jewelry, and gemstones during the same time frame.
- Covered goods are defined as precious metals, jewelry, gemstones, and finished goods
- The amount for gross proceeds from sales does not include finished goods
A retailer does most of their selling to the general public. They may be exempt if one of the following situations is applicable:
- They are a licensed pawnbroker
- They purchase only from other retailers or U.S.-based dealers (who should already have a certified AML program)
- They purchase less than $50,000 in covered goods from non-dealers in the prior calendar or tax year
Any transaction involving a business accepting $10,000 or more (sale or purchase) in cash or cash equivalents still requires all industry members to file an IRS 8300 form.
Why is AML Compliance for Jewelers Important?
AML compliance isn't just about protecting your business; it's also about helping stop illegal activities and protect society.
What that means is the laws are not necessarily in place because jewelers will behave unethically if they weren't instituted, but criminals or terrorist organizations will target unsuspecting business.
Criminals might try to use your business to “launder” their money and make it look like it has a clean, legitimate source. This can damage your reputation, lead to legal trouble, and even force you to shut down. By complying with AML regulations, you're protecting your business from these risks.
We've shared how important it is for jewelers to keep their merchandise protected from fraud, but this has larger implications than losing your merchandise.
What Happens if Jewelry Businesses are not AML Compliant?
Regulators could enact two different types of penalties for non-compliance.
- A civil penalty may be a fine up to $250,000 or up to two times the amount of the transaction, not to exceed $1,000,000.
- A criminal penalty may be a fine up $500,000 and a maximum of 10 years in prison, or both.
Of course, formal investigations and legal proceedings would be done before any charges are filed, but much like an employment lawsuit, you may find it difficult to keep a positive public image associated with your business during the process.
Remember, even if you unknowingly contribute to or facilitate laundering money, you can still be charged for being negligent.
How Can Jewelry Businesses Comply with AML Laws?
Complying with AML laws might seem daunting, but it doesn't have to be. Here are the key steps:
- Appoint a "Compliance Officer": This person will be responsible for overseeing your AML program and ensuring your business follows the regulations.
- Assess your business risks: Different businesses face different risks when it comes to money laundering. Evaluate your specific situation to understand where you might be vulnerable.
- Create a written AML program: This document outlines your procedures for identifying and preventing money laundering. It should include things like customer identification, suspicious activity reporting, and employee training.
- Train your employees: Everyone in your business who interacts with customers, vendors, opening new accounts, finance, or shipping needs to be aware of AML regulations and how to identify suspicious activity.
- Check customers and suppliers for risks: Before doing business with someone, assess their risk factors. This could involve checking their background, verifying their identity, searching watch lists, and understanding their source of funds.
- Get your program tested annually: An independent professional can review your AML program to ensure it is effective and up-to-date.
Creating and maintaining an AML program can be complex. Thankfully, you don't have to go it alone. We have an affordable AML program creator to help guide you through every step.
By taking proactive steps toward AML compliance, you protect your business, contribute to a safer society, and demonstrate your commitment to ethical and responsible business practices.