Professionals involved in the trading of precious metals, gemstones, or other goods covered by the regulations at AML-CFT are subject to the obligations set forth in the Monetary and Financial Code. For occasional transactions, certain due diligence measures are triggered once the applicable regulatory thresholds are met, which are assessed, where appropriate, based on a series of related transactions.
The trade in high-value goods combines two characteristics relevant to compliance: a high unit value and an often brief customer relationship. A buyer may walk in, pay for an item costing tens of thousands of euros, and leave without any business relationship being established. This combination classifies the dealer as a regulated professional and explains why their obligations are triggered by the transaction itself rather than by the duration of the relationship.
Why is the trade in valuable goods subject to taxation?
Unit value and brief description
The precious metals and gemstones sector presents a unique risk profile. A dealer may enter into a transaction worth tens of thousands of euros with someone they have never met and may never see again. This lack of an ongoing relationship makes it more difficult to establish traceability.
The high unit value of the goods sold exacerbates this risk. A gold coin or a diamond is easy to transport, can be resold quickly, and crosses borders without requiring systematic declaration. These characteristics make them potential vehicles for laundering funds of illicit origin.
What Subjugation Encompasses
Tax liability stems from the nature of the goods sold, not from any presumption regarding the business’s profession. A merchant who complies with his obligations applies the same principles as a financial institution:
- identify the customer;
- understand the source of the funds or property;
- verify that there are no international sanctions;
- Keep records and report suspicious transactions to Tracfin.
Dealers in precious stones and metals that fall within the scope of the Customs Service’s “ AML-CFT ” program are subject to oversight by the General Directorate of Customs and Indirect Taxes (DGDDI). However, certain professionals in this sector may fall under the jurisdiction of the ACPR due to their specific status.
When does the identification requirement take effect?
Related Transactions and Stock Splits
The obligation to identify the customer is triggered when the applicable threshold is reached, whether it involves a single transaction or a series of related transactions. Several successive purchases of smaller amounts may constitute a series and must therefore be assessed as a whole.
The DGDDI memo “ AML-CFT ” specifies that the requirements apply to transactions or a series of related transactions totaling more than €10,000. Two purchases of €6,000 each made on the same day by the same person therefore exceed the threshold. Deliberately splitting up purchases to avoid triggering the requirement is, in itself, a red flag.
The dealer must assess the consistency of transactions over time. If a customer returns several times during the same week to make purchases totaling slightly less than the threshold, special vigilance is required. This assessment is based on the dealer’s judgment—precisely the judgment that the inspector will be examining.
The Case of Cash Payments
The use of cash is a factor to be taken into account in risk assessment and may, depending on the amount, the circumstances of the transaction, and the customer’s profile, warrant additional verification of the source of the funds.
For amounts exceeding the threshold of AML-CFT, cash payments must also comply with regulations governing payment methods, which set a cap on cash payments. These two requirements apply cumulatively.
How do you identify the customer and the beneficial owner?
The buyer and the beneficial owner
Identification applies to two distinct individuals: the person who comes to the counter and the person on whose behalf the goods are purchased. When the buyer acts on his or her own behalf, these two individuals are one and the same. However, whenever the buyer purchases on behalf of a third party, the merchant must identify both individuals.
The buyer’s identification is therefore not sufficient. The dealer must also verify the identity of the beneficial owner and understand the reason for the involvement of an intermediary. A purchase of several tens of thousands of euros made by a person who claims to be acting on behalf of another, without being able to provide proof of that authority, constitutes a red flag.
This two-step verification process does not require the beneficiary to be physically present. However, it does require collecting the beneficiary’s full contact information, understanding the relationship between the two individuals, and documenting that relationship.
Purchase by a Legal Entity
When the buyer is a corporation, an association, or any other legal entity, identification involves three levels:
- the legal entity itself;
- its representative present at the time of purchase;
- its web Beneficial Owners.
The “ Beneficial Owners ” registry maintained by the Commercial Court’s clerk’s office allows this information to be verified for French companies. For a foreign entity, the trader requests an equivalent document or has the representative sign a declaration. This verification stems from a regulatory requirement.
The representative is identified using a form of identification, just as with an individual. The dealer keeps a copy of the ID card, verifies that the name appears on the company’s documents, and ensures that the person has the authority to bind the company.
What should you check regarding the source of the funds and the property?
For Sale: The Source of the Funds
Understanding the source of funds does not mean asking the customer for details about their income. This process involves verifying that the transaction is consistent with the customer’s apparent financial situation. A purchase of several tens of thousands of euros made by a person with no declared employment, paid for in cash, and without a plausible explanation warrants a thorough review.
Due diligence is not based on a rigid threshold. A purchase of €12,000 made by a professional known to the dealer and paid for by bank transfer from a French bank account generally does not raise any concerns. The same amount, paid in cash by a person who refuses to specify their occupation, warrants heightened vigilance.
The merchant may request proof of income, a bank statement, or any other document demonstrating that the purchase is reasonable. If the customer refuses to respond or if their explanation is not convincing, the merchant may refuse the transaction and file a suspicious activity report with Tracfin.
Upon Purchase: The Origin and Ownership of the Property
When purchasing, the focus shifts: it is no longer a matter of verifying the source of the funds, but rather the origin of the item and the identity of its owner. A dealer who buys gold, coins, or precious stones must ensure that the seller is indeed the rightful owner.
Due diligence focuses on identifying the seller, providing a precise description of the property, and verifying proof of ownership. An original purchase invoice, a certificate of inheritance, or a deed of gift constitute admissible evidence. Their absence does not preclude the purchase, but it does require increased due diligence.
An item whose origin remains unclear may indicate that it is stolen. The dealer then records the information gathered, refuses to purchase the item if doubts persist, and files a suspicious activity report if the situation warrants it.
What do international sanctions cover?
What the Screening Covers
The trade in precious metals and gemstones is directly subject to restrictive measures targeting certain countries of origin and certain destinations. Traders must verify whether the individuals or entities involved are subject to applicable asset freezes or sanctions and determine whether the transaction, the goods, their country of origin, or their destination fall within the scope of a sector-specific restrictive measure.
This screening applies to both individuals and legal entities. A buyer may be a politically exposed person (PEP), an entity associated with a regime subject to sanctions, or an intermediary acting on behalf of a sanctioned person. The screening is conducted before the transaction is concluded.
Screening of customers and counterparties automates this verification by querying regularly updated sources. A tool of this type reduces the risk of failing to detect a person who has recently been added to a sanctions list.
Sales to Foreign Markets
A sale to a foreign destination requires verification of the actual recipient and the applicable customs regime for the goods, beyond simply screening the customer present at the time of purchase. A buyer may appear in person, complete the transaction, and request shipment to a third country.
The restrictive measures applicable to certain diamonds of Russian origin illustrate the need to verify not only the counterparties, but also the origin of the goods, their nature, the relevant trade flows, and the restrictions applicable to the transaction.
The audit therefore focuses on three points:
- the identity of the customer present;
- the identity of the final recipient;
- the applicable customs procedure for the goods.
European regulations on international financial sanctions outline the obligations based on the type of asset and the country in question.
How can we document our work without slowing it down?
What Makes a Trace Usable
The purpose of documentation is not to accumulate documents, but to make it possible to reconstruct a transaction several months after it has been completed. A usable record contains the following elements:
- the identities of the parties;
- a description of the property;
- the amount and method of payment;
- the information gathered regarding matters requiring vigilance.
The dealer retains a copy of the customer’s identification, the itemized invoice, and proof of payment. If any doubts were resolved during the transaction, the dealer also records the explanation provided and retains the documents submitted.
The retention period for documents AML-CFT is established by the Monetary and Financial Code. It begins at the end of the business relationship or on the date of the one-time transaction.
The Case of Multi-Location Retailers
A retailer with multiple locations must organize the collection and centralization of information AML-CFT. A customer might make a €6,000 purchase at one store on a Monday, then a €5,000 purchase at another store the following Thursday. If the retailer does not cross-reference this information, it will not detect when the threshold has been exceeded.
Centralization requires a shared information system across sites or, at a minimum, a procedure for regularly reporting significant operations. Risk-based scoring of jurisdictions allows the level of vigilance to be adjusted based on the origin or destination of the funds.
This system organizes traceability so that the compliance officer can respond to a request from Tracfin or a customs audit without having to manually reconstruct several months’ worth of transactions.
How does AP Solutions IO support the trading of high-value goods?
Manually screening clients and counterparties exposes the trader to three risks: failing to detect a person who has recently been added to a sanctions list, wasting time dealing with namesakes, and keeping no record of the verification performed.
AP Scan automates screening by updating data daily from the sanctions and asset freeze sources integrated into the solution. It also identifies politically exposed persons (PEP) using the databases incorporated into the system. The engine reduces false positives and retains a record of every check performed.
AP Monitoring then continuously monitors clients and counterparties. It alerts the trader if any of them appear on a sanctions list after an initial transaction has been completed. Take stock of your sales process allows you to verify your current coverage and identify areas of exposure that are still managed manually.
FAQ
Is a dealer in gold or precious metals subject to the “ AML-CFT ”?
Yes. Professionals in the trade of precious metals and gemstones may fall within the scope of persons subject to the “ AML-CFT ” under the conditions set forth in the regulations. This status is determined by the characteristics of the goods sold, not by a presumption based on the profession. The obligations arise based on the transaction itself, without the need for an ongoing business relationship.
When is it necessary to verify a customer's identity when selling high-value goods?
The obligation takes effect when the applicable threshold is exceeded, whether the transaction is a single transaction or a series of related transactions. Several successive purchases of smaller amounts may constitute a series and must therefore be evaluated as a whole. The applicable thresholds, which vary depending on the method of payment, must be verified in the official source.
Does cash settlement change the dealer's obligations?
It changes the trigger and the required level of vigilance. A cash payment requires more thorough identification and verification of the funds’ origin than a traceable payment. It also subjects the professional to restrictions specific to this method of payment.
What should you check when selling gold or coins?
A buyback flips the question: the focus is no longer on verifying the source of the funds, but rather on the origin of the asset and the status of its owner. The focus is on identifying the contributor, providing a precise description of the asset, and establishing proof of ownership.
Does cross-border trade require additional checks?
The trade in precious metals and gemstones is directly affected by restrictive measures targeting certain countries of origin and destination. A sale destined for a foreign country therefore requires verification of the actual recipient and the applicable regulations governing the goods.
