GT Alert

USA PATRIOT Act - Proposed Regulation Would Require Jewelry Dealers to Establish Anti-Money Laundering Programs

March 2003
By Carl A. Fornaris, and Ileana Gomez, Greenberg Traurig, Miami Office

  View or download the PDF version of this Alert here.

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 of terrorism.

"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.

Proposed Regulation

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 such dealers.

The proposed regulation defines a "dealer" as any person who is "engaged in the business of purchasing and selling jewels,2 precious metals,3 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.

Exceptions

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:

1. written policies, procedures, and controls;
2. the designation of a compliance officer;
3. an ongoing employee training program; and
4. an independent audit function to test the AML program.

A link to the proposed rule may be found on the Treasury Department’s Web site.

Footnotes

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 C.F.R. § 103.140(a)(4).

5 31 C.F.R. § 103.140(a)(1)(i).

© 2003 Greenberg Traurig

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