Jewelry's high value makes it an attractive target for criminals looking to "clean" illegally obtained money, which is why Anti-Money Laundering (AML) laws exist and why you need to understand and follow them carefully. Non-compliance can result in serious penalties, including significant fines and even imprisonment.
If you're not familiar with the laws, who needs to comply, how to comply, and what annual certification requires, here's what you need to know to understand Anti-Money Laundering programs.
What are Anti-Money Laundering laws?
The Financial Crimes Enforcement Network (FinCEN) defines "money laundering" as the process of making illegally-gained proceeds appear legal.
To prevent "dirty money" from being made "clean," Anti-Money Laundering laws were initiated in the United States beginning with the Bank Secrecy Act in 1970. These laws have not changed, but their scope has been broadened. Amendments made by the USA PATRIOT Act in 2001 include jewelers as part of the "financial system" because of the enormous value gems, jewelry and precious metals carry. Given the possibility that dirty money from illegal activities could be converted through jewelry transactions, there are no signs these laws will be rolled back.
Who needs to comply with AML laws?
FinCEN defines jewelry "dealers" and "retailers" differently, and compliance is based on how you conduct your business. Use this quick self-check to determine if AML compliance applies to you:
- Did you buy more than $50,000 in covered goods last year?
- Did you sell more than $50,000 in precious metals, jewelry or gemstones?
- Do you buy from non-dealers or overseas suppliers?
If you answered yes to any of these, AML compliance applies.
"Dealers" are defined as those who purchased covered goods exceeding $50,000 during the prior calendar or tax year and received more than $50,000 in gross proceeds from the sale of precious metals, jewelry and gemstones during the same period.
- Covered goods are defined as precious metals, jewelry, gemstones and finished goods.
- Gross proceeds from sales do not include finished goods.
"Retailers" (those who do most of their selling to the general public) may be exempt if one of the following applies:
- You are a licensed pawnbroker.
- You purchase only from other retailers or U.S.-based dealers who already have a certified AML program.
- You purchase less than $50,000 in covered goods from non-dealers in the prior calendar or tax year.
Regardless of dealer or retailer status, any transaction involving $10,000 or more in cash or cash equivalents (e.g., multiple cashier's checks, money orders, certain prepaid instruments) requires all industry members to file an IRS Form 8300.
What does AML cover?
Why is AML compliance important?
AML compliance isn't just about protecting your business — it's about helping stop illegal activity and protecting society. These laws exist not because jewelers will behave unethically, but because criminals and terrorist organizations will target unsuspecting businesses to legitimize their funds.
If your business is used to launder money, even unknowingly, you can face serious reputational damage, legal issues and potential closure. Negligence is not a defense — if you fail to take reasonable steps to identify and prevent laundering, you can still be held responsible.
What happens if you're not AML compliant?
Regulators can enact two types of penalties for non-compliance:
- A civil penalty of up to $250,000 or up to two times the transaction amount, not to exceed $1,000,000.
- A criminal penalty of up to $500,000 and a maximum of 10 years in prison, or both.
Regulators generally focus first on whether a business made a good-faith effort to comply through documentation, training and testing — which is why having a certified program in place matters.
How can jewelry businesses comply with AML laws?
Complying with AML laws might seem daunting, but breaking it into steps makes it manageable:
- Appoint a compliance officer: This person oversees your AML program and ensures your business follows the regulations.
- Assess your business risks: Evaluate your specific situation to understand where you may be vulnerable to money laundering exposure.
- Create a written AML program: This document outlines your procedures for identifying and preventing money laundering, including customer identification, suspicious activity reporting and employee training.
- Train your employees: Anyone who interacts with customers, vendors, finances or shipping needs to understand AML regulations and how to identify suspicious activity.
- Vet customers and suppliers: Before doing business with someone, assess their risk factors — verify their identity, check watch lists and understand their source of funds.
- Get your program tested annually: An independent professional reviews your AML program to confirm it is effective, up-to-date and properly documented. This annual certification is a legal requirement, not optional.
Jewelers Mutual and JVC offer an affordable AML program creator to walk you through every step of building and maintaining a compliant program for optimal business risk management.
By taking proactive steps toward AML compliance, you protect your business, contribute to a safer society and demonstrate your commitment to ethical and responsible business practices.
Protect your jewelry business with Jewelers Mutual
Staying compliant is just one part of running a secure jewelry business. Jewelers Mutual provides customizable jewelry business insurance designed to fit the specific needs of your operation, whether you run a small independent boutique or a large commercial showroom. Visit the Jewelers Mutual website today to learn more about keeping your business secure as you continue to grow.
This content is for educational purposes only and does not constitute financial, tax or professional advice.
