USA PATRIOT Act - Proposed Regulation Would Require Jewelry Dealers
to Establish Anti-Money Laundering Programs
By Carl A. Fornaris, and Ileana Gomez, Greenberg Traurig,
View or download the PDF version of this Alert
On February 21, 2003, the United States Department of the Treasury and
the Financial Crimes Enforcement Network ("FinCEN") proposed a new
USA PATRIOT Act regulation that would require certain dealers in precious
metals, precious stones and jewels to establish an anti-money laundering
("AML") program designed to detect money laundering and the financing
|"A proposed USA PATRIOT Act regulation
would require certain dealers in precious metals, precious stones
and jewels to establish an anti-money laundering program designed
to detect money laundering and the financing of terrorism."
Comments on the proposed regulation are due on or before April 22, 2003.
The proposed rule will take effect 180 days after the final regulation is
published in the Federal Register.
The proposed regulation marks the Treasury Department’s latest effort
at implementing Section 352 of the USA PATRIOT Act, a provision that requires
all "financial institutions" to establish AML programs. Although a dealer
"in precious metals, stones or jewels" is a "financial institution" under
the Bank Secrecy Act,1
FinCEN had not previously defined the term or issued regulations regarding
The proposed regulation defines a "dealer" as any person who is "engaged
in the business of purchasing and selling jewels,2
or precious stones,4
or jewelry composed of jewels, precious metals, or precious stones."5
The proposed regulation covers entities including manufacturers, refiners,
wholesalers, retailers, and any other entity engaged in the business of
purchasing and selling jewels, precious metals, precious stones, or jewelry.
To exclude small businesses from the AML program requirement, the proposed
definition contains a minimum dollar threshold. A person is a "dealer" only
if, during the prior calendar or tax year, the person: (1) purchased more
than $50,000 in jewels, precious metals, precious stones, or jewelry; or
(2) received more than $50,000 in gross proceeds from the sale of jewels,
precious metals, precious stones, or jewelry.
In addition to the minimum dollar threshold, the definition of "dealer"
contains two exceptions. Under the first exception, a retailer is a dealer
only if it purchased more than $50,000 in jewels, precious metals, precious
stones, or jewelry from persons other than other "dealers" during the prior
calendar or tax year. Therefore, a retailer that purchases jewels from a
dealer would not itself be deemed a "dealer" – and therefore not be subject
to the AML program requirement – even if its gross sales of jewels exceeded
$50,000 in the prior calendar or tax year.
Under the second exception, persons buying or selling value-added fabricated
goods containing minor amounts of precious metals or gemstones are not dealers.
Precious metals, stones and jewels often have minor uses in equipment for
which they act as a very small component, for example, in computers or drills
with industrial diamond cutting tools, or as a reflective coating on windows.
Anti-Money Laundering Program
A person who meets the definition of "dealer" in the proposed regulation
and does not fall under one of the exceptions would be required to establish
an AML program that includes, at a minimum:
- written policies, procedures, and controls;
- the designation of a compliance officer;
- an ongoing employee training program; and
- an independent audit function to test the AML program.
link to the proposed rule may be found on the Treasury Department’s
1 31 U.S.C. § 5312 (a)(2)(N).
2 "Jewel" means organic substances that have
a market-recognized gem level of quality, beauty and rarity. 31 C.F.R. §
3 "Precious metal" means gold, silver, and the
platinum group of metals, when it is at a level of purity of 0.500 (50 percent)
or greater, singly or in any combination. 31 C.F.R. § 103.140(a)(3).
4 "Precious stone" means inorganic substances
that have a market-recognized gem level of quality, beauty and rarity. 31
C.F.R. § 103.140(a)(4).
5 31 C.F.R. § 103.140(a)(1)(i).
© 2003 Greenberg Traurig
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