2008

FINCEN Clarifies Anti Money Laundering Rules

April 2008

James H. Freis, Jr. director of the Financial Crimes Enforcement Network, recently clarified the agency’s money laundering rules during a JVC series of educational programs, titled: "Anti-Money Laundering Update: What's Next and What You Need To Know."

Freis explained that in certain circumstances the risks of money laundering associated with purchases from a foreign source may not be greater than those associated with a domestic suppliers. He said retailers should review the following risk factors:

1. The nature and scope of the regulatory efforts of the supplier’s jurisdiction to prevent money laundering and terrorist financing in its precious metals, precious stones, and jewels industry.
2. The nature and scope of the regulatory efforts of the supplier’s jurisdiction to prevent money launderers’ and terrorist financers’ entrance into, or exploitation of, the industry.
3. The dealer’s relationship with the supplier.

If U.S. dealers determines that their foreign suppliers have implemented AML controls sufficiently to mitigate risks associated with money laundering, compliance, their monitoring of purchases can be minimal.

"The new guidance clarifies the requirement that has been in place since June 2005. Retailers should insure that their foreign sources of supply are themselves complying with their AML obligations," said Cecilia Gardner, JVC’s president, chief executive officer, and general counsel. "The new guidance still requires a retailer who purchases from foreign suppliers (even if they comply with the AML requirements of their home jurisdiction) to have an AML program for those purchases. As a result, retailers’ AML programs may be less extensive than originally developed--or very extensive–depending on their exposure to risk."

Freis stressed the need for dealers to develop procedures to make reasonable inquiries to determine whether a transaction involves money laundering. The rule does not differentiate between domestic and foreign suppliers. Examples include whether the transaction involves the use of unusual payment methods, such as the use of a large amount of cash, multiple money orders, traveler’s checks or payments from third parties. He added that jewelry dealers are not required to file suspicious activity reports but are encouraged to do so voluntarily. To date, FinCEN has seen very few Suspicious Activity Reports (SARs) filed by the jewelry industry under the voluntary filing provision of the Interim Final Rule.