In the fight against money laundering and terrorist financing, suspicious transaction reporting, in particular, is crucial to the Financial Transactions and Reports Analysis Centre of Canada’s (FINTRAC) ability to generate actionable financial intelligence for Canada’s law enforcement and national security agencies. 

Businesses subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, known as reporting entities, must report completed or attempted suspicious transactions to FINTRAC when there are reasonable grounds to suspect that the transaction is related to a money laundering, terrorist financing, or sanctions evasion offence. Among these reporting entities are dealers in precious metals and stones (DPMS), whose unique position in the marketplace makes their adherence to reporting obligations particularly crucial in preventing and detecting financial crime.

The importance of reporting suspicious transactions

The DPMS sector is particularly attractive to criminals due to the high value and liquidity of precious metals and stones. These items are easy to purchase, transfer, and store, making them an ideal medium for money laundering, terrorist financing, or sanctions evasion. Therefore, diligent reporting is vital in the fight against financial crimes.

Recognizing reasonable grounds to suspect

As previously outlined by FINTRAC, a Suspicious Transaction Report (STR) must be submitted when there are reasonable grounds to suspect that a transaction or attempted transaction is related to the commission of money laundering, terrorist financing activity, or a sanction evasion offence. One or many indicators can be present to establish reasonable grounds to suspect. This suspicion does not need to be based on certainty or even a high likelihood, but merely the possibility that an offence has occurred. This is a key distinction, as an excessively high reporting threshold is a common failing in many organizations’ reporting processes.

Indicators specific to DPMS

FINTRAC has identified several common themes in the STR submitted by the DPMS sector. These include refusal to provide identity, use of confusing or fake identity, structuring transactions to avoid the $10,000 threshold, and the use of multiple methods of payment. By recognizing these common indicators or “red flags,” DPMS organizations can better identify suspicious transactions and fulfill their reporting obligations.

The indicators that follow are intended to help DPMS determine if they have reached the reasonable grounds to suspect threshold. DPMS should use these indicators in conjunction with other published indicators, such as those contained in FINTRAC’s money laundering and terrorist financing indicators for DPMS.

Indicators—retail and wholesale/suppliers

FINTRAC has developed indicators of suspicious transactions based on key factors related to the retail and wholesale/supplier segments of the DPMS sector. These indicators detail situations and/or transactions in which a DPMS is at an increased risk of being exploited for money laundering or terrorist financing.

Indicators related to retail transactions:

• The individual appears to be structuring amounts to avoid customer identification or reporting thresholds.
• The individual frequently uses layaway plans in an apparent attempt to avoid reporting requirements (also known as structuring).
• The individual uses a payment card that appears to be altered or stolen.
• The individual buys high-value goods using small-denomination bills ($5, $10, $20).
• The individual sells gold in non-standard bricks or similar shapes with no distinct markings or value.
• The individual will only trade items for cash or other precious metals and stones.
• The individual attempts to buy precious metals or stones with a company credit card or a credit card not in their name.
• The individual trades items for similar items of near-equal value.
• The individual uses negotiable instruments or credit cards issued in a country other than Canada to make purchases.
• The individual frequently crosses the Canada-U.S. border to buy jewellery or precious metals, in particular where there is not a strong economic incentive to do so.
• The customer or supplier attempts to maintain a high degree of secrecy with respect to the transaction, such as requesting that normal business records not be kept.
• The individual makes large or frequent purchases in funds other than Canadian dollars.

Indicators related to retail behaviour:

• The individual appears to be living beyond their means.
• The transactional activity (level or volume) is inconsistent with the individual’s apparent financial standing, their usual pattern of activities or occupational information (e.g., student, unemployed, social assistance).
• The individual cannot explain the origin of the precious metals
  and stones.
• The individual is willing to sell items at rates significantly lower than their typical sale value.
• The individual appears to be uninterested in the details of the sale or purchase of goods, which would normally be material information for a client.
• The individual indiscriminately purchases merchandise without regard for value, size, or colour.
• The individual is vague or refuses to provide details about why they are selling or buying items, or about the origin of the items.
• The individual uses alternative addresses for deliveries, uses post office boxes or uses third parties to receive purchases.
• Multiple individuals are involved in retrieving, transporting, or purchasing items.
• The individual does not wish to buy or sell face-to-face and is nervous about information related to their identification.
• The individual attempts to purchase abnormally large quantities of precious metals or loose jewels in non-wearable form.

Indicators related to wholesale/supplier transactions:

• The individual or entity appears to be structuring amounts to avoid customer identification or reporting thresholds.
• The individual or entity pays for high-priced jewellery or precious metals with cash only.
• The individual or entity makes payments for purchases through a lawyer’s trust account.
• The individual or entity pays for expensive purchases exclusively with cryptocurrency, especially when buying gold stored by a wholesaler or supplier.
• The individual or entity uses financial instruments from a foreign bank and/or that are not in Canadian dollars.

Indicators related to wholesale/supplier behaviour:

• The individual or entity amasses a large amount of stored bullion or precious stones over time, in an apparent attempt to avoid reporting requirements (known as structuring).
• The individual’s or entity’s listed address is in a high-risk jurisdiction known for corruption or smuggling relating to precious metals
  or stones.
• The individual or entity sells a large amount of precious metals and stones that originate or are known to be traded from areas not known for their production (i.e., trading centres).
• The individual or entity amasses a large amount of precious metals or stones in a wholesaler’s or supplier’s storage facility or pool over time.
• The entity’s ownership structure appears invalid or altered, or the entity refuses to provide additional information when requested.
• The individual benefiting from the purchase cannot be identified.
• The location to which bullion or stones are moved directly to or from storage is different from the individual’s or entity’s listed address.
• The individual or entity continually moves large volumes of bullion directly into and out of storage.
• The individual provides only a non-civic address such as a post office box or disguises a post office box as a civic address for the purpose of concealing their physical residence.
• The individual or entity does not appear to understand the precious metals and stones industry or lacks the appropriate equipment or finances to engage in activity in that industry.
• The individual appears to be uninterested in or uninformed about the structure or transactions of their business.
• The size or type of transactions is atypical for the individual or entity.
• The customer or supplier attempts to maintain a high degree of secrecy with respect to the transaction, such as requesting that normal business records not be kept.

Some cases may involve multiple indicators, while others may present only one. Regardless of the number, the DPMS must carefully assess and consider all indicators when determining if a suspicious transaction should be reported. Just remember, the threshold to report is reasonable grounds to suspect that a transaction or attempted transaction is related to the commission of money laundering, terrorist financing activity, or a sanction evasion offence.

Potential scenarios

Scenario 1

You are a retailer offering services  that  include the purchasing and selling of precious metals/stones, jewellery, and watches. You have one retail location in an urban setting where crime rates have been on the rise, including scams, break-ins, and theft. One recent morning, an elderly lady who has never visited your store comes to sell a couple of gold rings and diamond bracelets for cash. In the following weeks, the same elderly lady cam back to sell more old jewellery, each time with increasing amounts, for cash. Your sales representatives press the client to uncover why she wishes to sell jewellery. The elderly lady is reluctant to provide any details, saying she no longer needs the jewellery and needs cash to send funds abroad urgently. She appears to be nervous when asked further questions.

Is this suspicious? Answer: Yes

Based on the following indicators, the retailer should submit an STR to FINTRAC:

• Indicators of romance fraud victim—The client is at a potentially more vulnerable stage of life (i.e., a senior or widowed, separated, or divorced);
• The client provides minimal or inconsistent information and/or avoids answering questions about the purpose of the transaction;
• The client appears to be pooling all financial resources from various sources and depleting assets to fund transfers to individuals/entities; and
• The client exhibits nervous behaviour.

Scenario 2

You are a wholesaler that provides services in the DPMS sector, which includes the buying and selling of precious metals, stones, and jewellery with mainly corporate clients, such as jewellery retailers. Your business is located in a relatively low-crime area in a central business district where you know most of your corporate clients. A new corporate client is looking to purchase a large volume of diamonds to be stored at your facility. In your interaction with this corporate client, they do not exhibit any concern for the associated transaction costs, the origin and quality of the diamonds, and are unclear on the details of the purchase. When information on the beneficial owners of the entity is requested, the corporate client suggests that you do not need that information and refuses to provide it. While conducting your own research about the client, you are unable to find any information about them online or with any corporate registries. You decide  to not transact with this corporate client as you consider them to be high risk and exceeded your risk tolerance.

Is this suspicious? Answer: Yes

Based on the following indicators related to customer behaviour and identifying the entity, the STR should be submitted to FINTRAC as an attempted transaction:

• The customer exhibits a lack of concern about higher-than-normal transaction costs or fees;
• The customer indiscriminately purchases merchandise without regard for value, size, or colour;
• The customer presents confusing details about the transaction or knows few details about its purpose;
• The customer refuses to provide information regarding the beneficial owners of an entity, or provides information that is false, conflicting, misleading, or substantially incorrect; and
• The customer (individual or entity) amasses a large amount of precious metals or stones in a wholesaler’s or supplier’s storage facility or pool over time.

The impact of STRs

FINTRAC receives millions of reports, and a single STR submitted by a DPMS could be the critical piece that helps uncover valuable financial intelligence. STRs are more than just a regulatory requirement; they are a vital tool in the detection, prevention, and deterrence of money laundering, terrorist financing, and sanctions evasion. 

Money laundering, terrorist financing, and sanctions evasion jeopardize our financial system’s integrity and damage the Canadian economy. They fuel corruption, erode public institutions, and impact government revenues and international credibility.

By complying with your legal obligations, you are deterring criminals, protecting the legitimate economy, and targeting the organized networks threatening Canadians.

You are also helping FINTRAC gather insights on patterns, vulnerabilities, and emerging threats within Canada’s financial system.

For more information on indicators and how to report to FINTRAC, visit https://fintrac-canafe.canada.ca.