On June 9, 2005, FinCEN (Financial Crimes Enforcement Network) issued an Interim Final Rule (Regulations) requiring certain jewelers and precious metal dealers to establish an AML Program by January 1, 2006. Here are some of the FAQ (frequently asked questions) by members of the industry in response to the interim final rule and FinCEN’s answers. Title 31 § 5312(a)(2)(N) defines “a dealer in precious metals, stones, or jewels” as a financial institution. Coin/Bullion dealers fall within the parameters of jewelers and precious metal dealers and must establish an AML Program, which at a minimum, must comprise the following four elements 31 CFR 103.140(c):
- Written and implemented policies, procedures and internal controls based on the dealer’s risk;
- A compliance officer who is responsible for ensuring that the AML Program is effectively implemented;
- Ongoing training of personnel concerning their responsibilities under the program (annually); and
- An independent audit/review (annually) to monitor and maintain an adequate AML program and ensure that the program is operating as specified in the AML Plan.
* The reason we state that training and the independent audit/review/testing should be conducted annually is because that is what the government wants, but more importantly, the banks require this information annually.
Note: Some Pawnbrokers may also fall under the definition of a precious metals dealer. See pawnbrokers
Many dealers believe that the Interim Final Rule (AML Regulations) is the same as the “Cash Reporting Requirement (Form 8300) (26 USC § 6050i) that became effective on January 1, 1985. However, the two have nothing to do with one another. The Cash Reporting Requirement law requires every trade or business (non-bank financial institutions) to prepare and file a Form 8300 when receiving, as payment, more than $10,000 in cash from a customer in one 24 hour period for one transaction or a series of related transactions. That law remains in effect today and has not changed, except for the Form 8300 being updated numerous times and the expanded definition of cash that became effective on February 3, 1992 (See Publication 1544 “Reporting Cash Payments of Over $10,000). In addition to that, as a dealer, you would also be required to comply with the AML rules and regulations effective January 1, 2006.
Who is required to comply? See 31 CFR 103.140(a)(2) Simply said, if you purchase more than $50,000 in covered goods from members of the public or foreign sources and sell more than $50,000 in covered goods to anyone, you meet the definition of a dealer and must comply.
What is Covered Goods See 31 CFR 103.140(a)(1)
Precious Metals, Jewels & Stones See 31 CFR 103.140(a)(3-5)Many dealers believe that if they have an AML Plan (written policies and procedures), they are compliant with the AML rules & regulations. Believing that could cost you. An AML Plan is not the same as an AML Program, but is just one of the four minimum requirements of an AML Program. Companies in other industries had the same belief and have been heavily penalized because of it. An adequately prepared AML Plan will state the minimum requirements needed to be compliant, so if it is implemented, you should already have had an independent audit and AML training. If you are not complying with the minimum requirements, then you have not implemented your AML Plan and are not compliant. I have prepared an AML plan for over 500 dealers across the United States and more than half of them have not had an independent audit or training conducted.
We continue to receive telephone calls and emails from dealers who have never heard of the AML rules & regulations. They first hear about it when asked by their bank for a copy of their AML Plan and the most recent independent audit report or when contacted by the IRS for a compliance exam. The U.S. Government, mainly IRS and FinCEN, are very serious about enforcing the regulations and the IRS is aggressively conducting compliance audits/exams/checks to determine if dealers have adequate AML Programs and fully compliant with the regulations.
“Don’t Aggregate” if the cash transactions are more than 24 hrs. and not related in any way. If you are not absolutely sure that they are related, I do not recommend aggregating cash payments. Instead, the SAR is available to file and you have the “safe harbor” provision, which you do not have with the Form 8300.
For many years, dealers have been aggregating cash transactions in a 12-month period and filing a Form 8300 when the customer exceeds the $10,000 threshold. When a dealer calls for help, most tell me that they have been aggregating cash for the past 10 – 15 years because they’ve been told that they were required to do so by industry personnel, other dealers or the IRS. Other than being totally wrong and a violation of your customer’s privacy rights, what 12-month period would you use to aggregate. For example: What if you conduct a cash transaction today and want to aggregate for a 12-month period, what 12- month period does that transaction get aggregated with, the 12 months prior to or after that transaction. Or is todays transaction in the middle of a 12 month period (6 months before and after the transaction)? So now you may be aggregating for 24 month period. These misconceptions and beliefs can either have a disastrous financial effect on your business or will keep customers away and prevent you from maximizing profits. I have clients who would not conduct any cash sales because they were afraid of failing to record a cash transaction on the cash log and therefore would fail to file a Form 8300. Actually those were the fortunate dealers, because they did not have to worry about a customer suing them for a privacy violation. However, they also lost business. Aggregating cash (unless an installment sales) is one of the worse things any dealer can do because it could possibly destroy a business. It is actually better to forget to file a Form 8300 or file one late, than to aggregate when not required by law to do so and filing a Form 8300. The only time 12 months comes into the aggregation equation is on installment sales, such as a lay-away situation or when you have multiple payments on a single transaction or related transactions.
I’ve been told by dealers that IRS agents have told them that transactions conducted in consecutive weeks (more than 24 hours apart) were related and must be reported. And some dealers have filed 8300s based on what the IRS told them. And those dealers have told other dealers that they must aggregate cash received because the IRS said so. If an IRS agent ever tells you this, ask them to give it to you in writing on IRS letterhead or show you in Publication 1544 that it is required. They won’t and/or can’t do either. “Transactions are related even if they are more than 24 hours apart if you know, or have reason to know, that each is one of a series of connected transactions.” This is a quote from Publication 1544, page 3, bottom of middle column. Don’t just assume that an IRS agent is correct and knows the law, because although most of them are very competent in their job, there are some who are not or could be operating with incorrect information. There is incompetence in every industry and the IRS is no exception. I’ve had to correct them before and show them in writing that they were wrong. Some agents try to wing-it and get away with anything they can. I’ve met these agents and they are in all parts of the U.S. Should you have an IRS compliance exam scheduled, I would recommend that you have someone represent you, especially if you are not sure what is contained in your records. You need someone who knows the AML issues and knows what the IRS can and can’t do. And if you get sued for violating a customer’s privacy rights, I can assure you that the IRS won’t be around to help pay your legal fees or to even tell a court that they told you to aggregate the cash.
I WOULD RECOMMEND TO NEVER FILE A FORM 8300 UNLESS THE AMOUNT OF CASH AND/OR CASH EQUIVALENT RECEIVED IS OVER $10,000 AND DON’T FILE ONE FOR MULTIPLE TRANSACTIONS UNLESS YOU ARE FAIRLY SURE OR HAVE REASON TO KNOW THAT THEY ARE IN FACT RELATED.
I have performed all of these services (AML Plans, Independent Audit and AML Training) for some of the largest and smallest dealers in the U. S. and some of those references (testimonials) are available on this web site (under “About Us”).
If you have someone currently performing these services for you, I applaud you for being compliant. If not or should you have questions or concerns about your current AML Program, feel free to call or e-mail me. If you do not have an AML Program in place, you should seriously consider doing so immediately. I would like to perform these services for you, but if not me, call someone. Don’t wait until being contacted by the IRS, because it may be too late at that point. You may not have enough time to have an audit conducted before IRS gets there. That is where an annual independent audit will protect you. The independent audit should detect any problems before the IRS finds them and assesses a hefty fine and/or penalty on your company, if not worse.
Additionally, I continue to receive calls from dealers who have been contacted by their bank requesting their AML Plan and independent audit report, usually within a few weeks or their account(s) would be closed. This is exactly what happened to money service businesses and now it is extremely difficult for them to secure a bank account. If you give your bank the documentation they need without them asking, they will know you are serious about compliance.
My clients are extremely important to me and as a client they have unlimited access to me 24/7, for questions or concerns. I receive telephone calls virtually every day from dealers with questions concerning transactions in their business, whether in cash, monetary instruments or other forms of payment.
Should you need additional information concerning what is required or other types of questions, please feel free to contact me at any time. If you need an AML Plan prepared, fill out this questionnaire and email it to me. I will then send you some questions that I need you to answer for preparing your AML Plan.