Dealers in precious metals and precious stones (DPMS) are designated non-financial businesses and professions under Cabinet Decision No. 10) of 2019 on anti-money laundering and counter-terrorism financing (DNFBPs). When a DPMS engages in a single monetary transaction or numerous connected transactions with a value of AED 55,000 or more, they qualify as a DNFBP in the UAE.
According to studies, the nature and specific properties of precious metals such as gold and diamond render DPMS extremely vulnerable to money laundering and terrorism financing. To identify criminals who utilize DPMS for money laundering, AML compliance professionals should be aware of these dangers and frequent money laundering red flags. The following is a list of common dangers or red flags that DPMS (or the Compliance Officer) should be aware of:
Precious metals, particularly gold and diamond, can be utilized to store value due to their unique qualities. Criminals take advantage of this feature of precious metals and utilize them as a form of payment for products and services. Gold and diamonds are easily trafficked and can be transformed into cash or other kinds of value or value transfer later. For example, a corrupt official may request that a bribe be delivered in gold to his wife in order to obscure the link between himself and the bribe.
Gold and diamonds, for example, are international goods that can be exchanged and transported freely across borders. PMS can also hold its value or increase in value over time. They can also be insured, stored, and transformed into many physical forms. Because of all of these traits, as well as their relative secrecy, precious metals are well-suited for long-term value storage and money laundering.
The PMS supply chain is complicated, with several players involved at each level. This allows criminals to use a variety of tactics to conceal, disguise, and/or transfer unlawful proceeds. At various levels of the supply chain, they take advantage of the cash movements connected with trade-in PMS.
Theft or embezzlement; smuggling; commingling of illicit and legal materials; forgery or fraudulent certification; transfer pricing; misrepresentation of amount, quality, or type of precious metals are some of the most prevalent strategies used by criminals. Criminals frequently employ similar methods when laundering funds of crime through wholesale or retail PMS trading.
Due to the global nature of PMS commerce, criminals may take advantage of PMS-related activities and money movements. Over-invoicing, under-invoicing, or fraudulent invoicing, customs/VAT fraud, forgery and falsification of documentation, virtual trade, and other methods are the most common. Criminals mainly use these strategies in significant PMS trading areas, such as free trade zones.
PMS is difficult to detect or trace due to its high value-to-weight ratio and other features, and it may be smuggled rather simply. Trade-based laundering is frequently used in conjunction with the other ML/FT methods mentioned above and may employ a variety of strategies, such as disguising particular types of PMS as ordinary low-value items.
DPMS must take critical steps to create a safety net that will protect them from criminals and terrorists. DPMS should actively monitor activity connected to transactions, services, or customer activities with which such customers are involved, especially in cases where they identify high-risk clients. The following are some examples of how this can be accomplished:
1. The DPMS shall keep accurate records of the PMS’s certificate numbers and/or identifying characteristics. Weight, purity/quality, color, form, cut, inclusions or other markings, and other pertinent variables could all be considered.
2. When storing or safeguarding PMS on behalf of business partners or customers, the DPMS must preserve records and track the state of the item throughout the transaction or account life cycle to detect any odd modifications or substitutes.
3. While performing contracted services such as refining, cutting, or polishing, or selling on consignment or memorandum, monitoring is essential. The DPMS should ensure that the cash received for their services are from known sources on which they have completed customer due diligence, rather than from third parties, overseas accounts, or any other unknown source.
4. Assuring that the payment methods and/or financial instruments utilized are in line with the customer’s profile and aren’t used to conceal the source of funds.
Gold and other precious metals have inherent worth and can be smuggled or exchanged abroad in a variety of manners. As a result, the sector becomes riskier, and industry participants should put in place strong procedures to ensure compliance with AML/CFT legislation. The hazards in the business are likely to persist for the foreseeable future, thus precious metals traders require the help of the top anti-money laundering consultants in Dubai, such as Alya Auditors. We can assist DPMs with services such as tool and control design, existing AML Policy review, AML/ KYC/ CFT Plan and Framework, AML audit and reporting, due diligence Frameworks and process implementations, and corporate training.