Money laundering & terrorist financing is not just a concern for banks, other smaller financial business such as trust companies, remittance payment companies and auction
businesses are used by criminals to launder their illegal proceeds. The Financial Action Task Force had previously highlighted dealers in precious stones and metals are especially vulnerable to money laundering and terrorist financing. Precious gems are often stolen, smuggled and traded in the black market in countries around the world and then used in money laundering schemes. BBC News reported in 20 February 2003 “Several members of al-Qaeda's inner circle bought gems in Liberia and from Revolutionary United Front (RUF) rebels in Sierra Leone, according to research first published by the Washington Post. The move into diamonds came as al-Qaeda's assets were frozen. Much of the evidence comes from Western intelligence reports and from the trials of al-Qaeda suspects after the 11 September attacks and the bombings of US embassies in East Africa.”
According to Global Witness estimation al-Qaeda laundered $20m through purchasing diamonds.
From the above we can conclude the characteristics of jewels, precious metals and precious stones that make them valuable and make them potentially vulnerable to those seeking to launder money or to fund terrorist activities.
However, at present the precious stones and metals industry sector is largely not regulated for AML/CFT purposes. Currently, all PSMDs need to comply with the requirements under the cash transaction reporting regime which includes conducting customer due diligence for cash transactions worth S$20,000 or more. Unlike other financial sectors, the PSMD sector does not have to meet other AML/CFT obligations, such as conducting assessments of the money laundering and terrorism financing risks, enhance due diligence or implementing policies and procedures, introducing sufficient internal controls to address ML/TF risks.
To close the above-mentioned gap, the Ministry of Law has announced on 17 July 2018 that it will be introducing a new anti-money laundering and countering the financing of terrorism regulatory regime for precious stones and metals dealers and the public is invited to provide feedback on the proposed regime. The public consultation will run from 13 September 2018 to 12 October 2018. The proposed new AML/CFT regulatory regime will close this gap to combat money laundering and terrorist financing.
Under the new regime all PSMDs will be required to implement and comply with the following requirements when conducting transactions involving precious stones, metals, or products:
- Perform CDD during transactions:
- When carrying out cash transactions exceeding S$20,000;
- When there is suspicion of money laundering or terrorist financing; or
- When there are doubts about the veracity or adequacy of previously obtained customer identification data.
- Enhanced due diligence (EDD) for customers whom the PSMD assesses to be of higher money laundering and terrorist financing risks (e.g. politically exposed persons)
- Conduct internal assessments of money laundering and terrorist financing risks; and
- Introduce internal policies, procedures and controls to address money laundering and terrorist financing risks
- Include an annual independent audit review.
I have also submitted feed back to the Ministry of Law to include the following:
Definition of Customer
To include in the definition of customer to cover (i) retail clients purchasing from PSMDs (ii) private individuals and suppliers/traders selling precious stones and metals to PSMDs
Suspicion Prior to Sale
Guidelines and provisions to clarify the necessary action in the event where there are reasonable grounds for suspicion that the prior to the establishment of a sale from a retail client or from a private individual/supplier proposing to sell precious stones and metals to PSMDs. Examples of Reasonable grounds to suspect may include (i) unable to complete CDD of the individuals (ii) suspect the funds used to purchase from the PSMDs are proceeds of illegal activities or related to the facilitation of terrorism financing (iii) suspect the precious stones and metals sold to the PSMDs by a supplier or private individual are linked to illegal activities and related to the facilitation of terrorism financing.
PSMDs should not complete the sale process and file a Suspicious Transaction Report and extend a copy to the relevant authority for information.
Performing CDD on Persons buying on behalf of Another
To consider inserting guidelines to assist PSMDs to perform CDD or EDD in the following circumstances:
- When another person (or entity) is buying on behalf of another
- When another person (or entity) is selling on behalf of another
- CDD, identification and verification of an unseen controller
These guidelines will be helpful to flush out unseen criminals or terrorists employing proxies to facilitate placement, layering and integration within the precious stones and metal industry.
Performing CDD on Suppliers and Private Sellers
To include clarification that CDD or Enhance Due Diligence should not only be performed by PSMDs for retail clients purchasing precious stones and metals but also for suppliers or private individuals selling precious stones and metals to PSMDs, especially when there are reasonable grounds to suspect money laundering or terrorist financing activities. Private individuals acting as proxies for criminals or individuals owning dubious high valued precious stones and metals may approach PSMDs to sell such high valued items in exchange of cash as part of the layering or integration process.
Tracing Provenance and ownership for high value and antique precious stones and metals
My feedback suggests including provisions addressing the issue of Provenance, Legal Ownership (similar concept to Source of Funds and Source of Wealth) when PSMDs are purchasing high valued precious stones and metals (in raw material or set in jewellery). Not all precious gemstones and metals are recently sourced from mines, there are instances PSMDs especially luxury jewellery houses or prestigious auction houses (or lesser known local auctions) are able to purchase antique and high valued precious stones and metals. The proposed provisions may include guidelines on establishing the source of the precious stones and metals and cover the following important aspects to combat money laundering and countering of financing of terrorism.
- Obtain the Legal Title Ownership from the private seller or supplier
- Obtain a Provenance Statement from the private seller or supplier providing the history of sale and ownership
- Checking with international registers such as:
- Art Loss Register (www.artloss.com) -if the precious stones and metals are high valued work of art and has been stolen this register may have records of its provenance.
- Interpol database of stolen art (https://www.interpol.int/Crime-areas/Works-of-art/Database)
- FBI National Stolen Art Files
I encourage all PSMDs to obtain information on the precious stones and metals supplied to them, they should conduct reasonable checks on the origin of the precious gemstones and metals, to make sure the precious stones or metals are not mined from a sanction county.
In conclusion, it is not sufficient to merely establish an AML/CFT internal policies and procedures, compliance programmes and have a compliance officer manage it. No AML/CFT program can remain static. It will be a regulatory expectation that AML/CFT internal policies and procedures must be modified and updated in response to changes in the regulations or when a trigger event affects the business operations. Simply appointing personnel with no experience will not serve PSMDs, by designating a compliance officer or outsourcing the compliance function to a professional firm who are familiar with the AML/CFT requirements will go a long way to protecting the PSMDs industry.