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Industries: Dealers in precious metals & stonesThe inclusion of dealers in precious metals and stones in the second tranche of the Federal Government's anti-money laundering (AML) and counter-terrorism financing (CTF) legislation is intended to address the vulnerability of the industry to money laundering and terrorism financing.
Vulnerability to money laundering/terrorism financingThe Financial Action Task Force (FATF) has identified dealers in precious metals and stones as particularly vulnerable to money laundering and terrorist financing. The high value per gram of gold and diamonds and the ease by which they can be transferred makes them an attractive option for criminals, yet the gem trade is one of the few remaining industries where large cash transactions remain anonymous. The FATF Recommendations on anti-money laundering and its Special Recommendations on Counter-Terrorist Financing (collectively the FATF Recommendations) impose significant obligations on dealers in precious metals and stones.
The Anti-Money Laundering and Counter-Terrorism Financing Act 2006The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the Act), which came into effect in December 2006, represents the first tranche of the Government's AML/CTF reforms (which are intended to bring the Australian AML/CTF regime into compliance with the FATF Recommendations). The Act sets out the primary obligations of providers (these are known as
reporting entities) of certain services (known as designated
services) and lists more than 70 types of designated services which
cover the financial services, gambling and bullion sectors. The Act (the first tranche of which will be implemented in stages over a two-year period) will be supplemented by Regulations (mainly technical in nature), AML/CTF Rules (which will contain the practical operational detail of the AML/CTF regime and have legislative force), and Guidelines (which will not be legally binding and which are intended to assist those businesses affected by the Act to interpret their obligations and are anticipated in time to represent a 'best practice' approach for reporting entities). Generally, the Act and AML/CTF Rules implement a risk-based approach to compliance. This approach recognises those businesses affected by the Act are best placed to assess and mitigate their money laundering and financing of terrorism (ML/TF) risk and it should allow those businesses to concentrate their resources on areas where their ML/TF risk is higher. The timetable for the second tranche is not yet settled, although the Government did indicate in November 2006 that work on the second tranche would start after implementation of the first tranche had commenced (that is, in December 2006). It is understood that drafting on the second tranche had commenced by January 2007. Who is affected?The FATF Recommendations apply customer due diligence (CDD), record keeping and suspicious matter reporting requirements to anyone who deals in precious metals and precious stones when they engage in any cash transactions with a customer equal to, or above, a designated threshold. That threshold is currently set at approximately A$20,000. In its Issues Paper on Dealers in Precious Metals and Stones1 (the Issues Paper), the Government indicated that an activities based approach would be used in defining dealers in precious metals and stones and that a 'dealer' would be any person engaged in the business of purchasing or selling, whether as a manufacturer, refiner, wholesaler or retailer of:
The Government also indicated that it was considering exempting artisans and small traders in precious metals or stones from the AML/CTF reporting requirements and requested comment on that option and what, if any, threshold reporting requirements might apply. More recently, the Government's statements on the application of the second tranche of the Act2 and the Explanatory Memorandum released with the Act have referred to the second tranche applying to 'jewellers' rather than the wider category of dealers in precious metals and stones used in the Issues Paper. Core requirementsCore requirements that will affect those dealers in precious metals and stones that are captured by the Act are likely to include CDD, suspicious matter reporting, development of and compliance with an AML/CTF program and record keeping. AAR has commented in detail on some of these core requirements in Focus publications (22 December 2005, 27 July 2006, 3 August 2006, 2 November 2006, 17 November 2006, 8 December 2006 and 14 December 2006. Customer due diligenceThe Issues Paper indicated that under the new AML/CTF regime dealers in precious metals and stones will be subject to CDD requirements and, in particular, will be required to:
Consistent with a risk-based approach, the level of CDD required may be less where the risk of money laundering or terrorism financing is lower; the information on the identity of customers or beneficial owners is publicly available; or where adequate checks and controls exist elsewhere. The Government has indicated that the implications of extending these measures to all dealers in precious metals and stones will have to be explored in consultation with the industry. Record keepingDealers in precious metals and stones will be required to collect and retain the additional information required for the enhanced level of CDD, for example transaction information and business records. It is expected that format requirements for record keeping will be developed in consultation with the various industry bodies. ReportingIt is anticipated that the suspicious matter reporting obligations in the Act will be extended to dealers in precious metals and stones. Dealers will be required to make a report to the Australian Transaction Reports and Analysis Centre (AUSTRAC) if they suspect on reasonable grounds that a client is not who they claim to be or that information about the provision (or prospective provision) of a designated service may be relevant to tax evasion, a criminal offence, proceeds of crime or a money laundering or terrorism financing offence. The suspicious matter reporting obligation does not apply a threshold (as is permitted by the FATF Recommendations) and the Government has indicated it is considering the implications of such an approach. As noted in Who is affected?, the Government is considering exempting artisans and small traders in precious metals and stones from reporting requirements and it is also considering exempting low-risk transactions, such as retail trading in low-value items. It will be an offence to tip off a customer to the fact a report has been made. AML/CTF programsThe Government has indicated that dealers in precious metals and stones will be required to put in place AML/CTF programs. The elements of an AML/CTF program would include internal AML/CTF policies, procedures, operational controls and compliance management systems, staff screening and staff training programs, and procedures for independent auditing. For further information about the AML/CTF reform process and the AML/CTF Act see the Attorney-General's website. Footnote
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