Dealers in precious metals and stones (DPMS) have a unique risk profile with regard to money laundering and terrorist financing because they trade in transferable items of value. This risk is heightened because these items could be one or more of the following:
- the proceeds of crime
- purchased with the proceeds of crime
- used to launder the proceeds of crime.
This brief aims to identify possible money laundering and terrorist financing activities and assess the risks DPMS face.
There are five areas that DPMS should be aware of when assessing their risk of being exploited for money laundering or terrorist financing:
- their products, services and delivery channels
- their clients and business relationships, including clients’ activity patterns and geographic locations
- the geographic location where they do business
- new technologies
- other relevant factors affecting their business
Accordingly, dealers are at risk for being exploited for money laundering or terrorist financing due to the following attributes associated with precious metals and stones:
- Liquidity: This is the degree to which a product can be sold for near-purchase price. Higher liquidity means a higher risk for money laundering or terrorist financing. For example, gold has very high liquidity, while most finished jewelry does not.
- Market size: A larger market makes it easier to convert a product into cash or other financial instruments, and thus presents a higher risk for money laundering or terrorist financing.
- Product value: The higher the value of the product, the more attractive it is to criminals; therefore, the risk of money laundering or terrorist financing increases.
- Product size/mass: The larger the product, the harder it is to transport and/or store, which reduces the risk of money laundering or terrorist financing. For example, lower quality or unrefined stones, which are larger or heavier than their value would suggest, present less risk for money laundering or terrorist financing than do higher quality stones.
- Ability to store/transfer: The easier it is to store or transport a product, the higher risk it presents for money laundering or terrorist financing. Some contributing characteristics are the durability of the product, the ease of detecting the product and the changeability of the product.
This operational brief provides information and guidance about the factors that expose individuals and entities (both retailers and wholesalers/suppliers) that are dealers in precious metals and stones to money laundering and terrorist financing risks. The brief also includes indicators to help such dealers determine when they should report a suspicious transaction to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).