How’s your compliance regime?
Part 3 of 9
By Ken Brander
As a reporting entity, every dealer in precious metals and stones (DPMS), regardless of how large or small, must comply with the act and regulations. With the exception of a few elements, a DPMS reporting entity must have essentially the same compliance regime as Canada’s other reporting entities, such as financial institutions, securities dealers, and casinos.
Definitions are very important in law. The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and regulations are interpreted and applied according to the strict meanings of key words and phrases. FINTRAC applies these definitions using these specific meanings. For instance, in the context of the act and regulations, there are six types of precious stones, no more and no less. In terms of your compliance regime, you must adopt this definition, too. It is crucial for you as a DPMS reporting entity to recognize the business activities, products, and services you offer that draw you into this legal regime. The first step is to understand the legislation’s key terms. The following definitions are found in Section 1 of the act.
• Precious metal means (only) gold, silver, palladium, or platinum in the form of coins, bars, ingots or granules, or in any other similar form.
• Precious stones means (only) diamonds, sapphires, emeralds, tanzanite, rubies, or alexandrite.
• Jewellery means objects made of gold, silver, palladium, platinum, pearls, or precious stones intended to be worn as a personal adornment.
Section 1 of the regulations defines a DPMS to mean: “a person or an entity that buys or sells precious metals, precious stones, or jewellery in the course of business activities.” There are three elements to the definition:
• A person or entity;
• That buys or sells; and
• Precious metals, precious stones, or jewellery in the course of business activities.
The definition of DPMS, by design, is very broad and applies to the business activities of people and entities, not their particular role or function in the jewellery industry. There is not one set of rules for retailers and another for wholesalers, for instance. Refiners and cash-for-gold operations are likewise not distinct.
If you meet these three criteria, then you as a ‘person’ or your company as an ‘entity’ are in fact a DPMS reporting entity.
For sales agents and sales agencies selling products on behalf of a supplier, your standing as a DPMS is entirely dependent on your particular business practices and the arrangements you have with the company you represent. A key consideration is whether you physically conduct the transaction. If you provide the product on behalf of the supplier and receive payment from a customer, you are deemed a DPMS. Even in circumstances where the AML compliance responsibilities might fall on the company whose products you are selling, some reporting requirements, such as client identification, suspicious transaction reports, and large cash transaction reports, might fall on you. If you are conducting transactions on behalf of some other entity, you need to co-ordinate your AML obligations and above all, have this arrangement documented in writing. If in doubt, seek clarification.
More to come of this story in Part 4.
Read the full article: Terrorist financing, money laundering, and the Canadian jewellery