USA PATRIOT Act - Interim Regulation Requiring Jewelry Dealers to Establish
Anti-Money Laundering Programs
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On June 3, 2005, the United States Department of the Treasury and the
Financial Crimes Enforcement Network (“FinCEN”) announced a USA PATRIOT
Act interim regulation that requires certain dealers in precious metals,
precious stones or jewels to establish anti-money laundering (“AML”) programs
to detect money laundering and the financing of terrorism.
|"The United States Department
of the Treasury and the Financial Crimes Enforcement Network (“FinCEN”)
announced a USA PATRIOT Act interim regulation that requires certain
dealers in precious metals, precious stones or jewels to establish
anti-money laundering (“AML”) programs to detect money laundering
and the financing of terrorism."
The interim regulation will take effect on July 11, 2005. The interim
regulation will be final and binding. It is being issued as an interim regulation
in order to solicit additional public comment and provide FinCEN the flexibility
to further tailor the regulation to money laundering risks in the industry,
if appropriate. Comments on the interim regulation are due on or before
July 25, 2005.
The interim 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 has not previously defined the term or issued regulations regarding
The interim regulation defines a “dealer” as any person within the United
States who has purchased and sold at least $50,000 worth of “covered goods”
during the preceding year. “Covered goods” include jewels,2
or finished goods.5
The interim 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 interim
regulation 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; and
(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” (i.e.,
a person engaged within the U.S. in sales of covered goods primarily to
the public) is a dealer only if it purchased more than $50,000 in covered
goods from persons other than from other “dealers” or other retailers (such
as members of the general public or foreign sources of supply) during the
prior calendar or tax year. Therefore, a retailer that purchases jewels
from a dealer would not 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, businesses licensed or registered as pawnbrokers
under state or municipal law are specifically exempted from the definition
of “dealer.” Therefore, pawnbrokers are not required to establish anti-money
laundering programs under this exception as long as they are properly licensed
or registered with the appropriate state or local government and engaged
in pawn transactions.
Anti-Money Laundering Program
A person that meets the definitions of “dealer” in the proposed regulation
and does not fall under one of the exceptions would be required to establish
an AML program by January 1, 2006. The AML program, at a minimum, must include:
- 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.
A link to the proposed rule may be found on FinCEN’s Web site at:
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. §103.140(a)(2).
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
5 “Finished goods” means goods (including, but
not limited to, jewelry, numismatic items, and antiques) that derive 50
percent or more of their value from jewels, precious metals or precious
stones contained in or attached to such goods. 31 C.F.R. §103.140(a)(1)(i).
This Alert was authored by
Carl Fornaris and
Ramon Rasco in the Miami
office. Please contact Mr. Fornaris at 305-579-0626, Mr. Rasco at 305-579-0813
or your Greenberg Traurig liaison if you have any questions regarding the
subject matter of this Alert.
© 2005 Greenberg Traurig
For more information, please review our Financial Institutions Practice
description, or feel free to contact one of our attorneys.
This GT ALERT is issued for informational purposes only and is not intended
to be construed or used as general legal advice. Greenberg Traurig attorneys provide
practical, result-oriented strategies and solutions tailored to meet our clients’
individual legal needs.