Terrorist financing, money laundering, and the Canadian jewellery industry (Part 8)

Posted on February 26, 2015

How’s your compliance regime?

Part 8 of 9

Recently, I attended a Canadian jewellery show and spoke with a number of jewellers about their AML compliance programs. The folks I met generally grouped themselves into two separate camps. Most had no idea what I was talking about and were shocked to learn of the act, the regulations, FINTRAC, and their legal obligations. Many in this group were relatively new business owners. The second group of people was at least generally aware of their obligations, but really felt no impetus to comply. Many thought that since they had been in business with no visits from FINTRAC for so many years, there was no real reason to worry, that this was just another cash cow for the federal government, or that they’d simply brush FINTRAC off if they ever actually called.

I hope by this point in the article, you have come to realize your AML/TF obligations are nothing to take lightly. You have tremendous investment in your business and shouldn’t dismiss the act, the regulations, or FINTRAC. This regime is a global movement and Canada is firmly committed. Simply review the administrative fines FINTRAC has assessed to other small business owners just like you to recognize the seriousness of this requirement. The average fine per violation is more than $3000 and FINTRAC usually assesses a reporting entity with multiple fines. Plus, names are posted on FINTRAC’s website. Being publically cited and fined for breaching federal money laundering and terrorist-financing laws is bad for business. On top of those fines, you’ll still need to get your AML/TF program in place. If you think the cost of compliance is high, consider the cost of non-compliance.

I spent a lot of time speaking with members of Canada’s jewellery industry this summer. Here are some of the more dangerous misconceptions I heard that could really hurt you.

I don’t plan on registering my business with FINTRAC. If they don’t know about me, I should be able to stay unnoticed.

This is analogous to not paying your personal income taxes until Canada Revenue Agency (CRA) comes knocking on your door. Do you know anybody who has had a CRA audit? They’re not pleasant. You should assume FINTRAC knows about your business, as it shares information with other federal government agencies, including CRA. When data mining, it’s pretty easy to run a search through tax returns and identify businesses involved in jewellery sales. Plus, FINTRAC investigators read magazines like this one and surf the Internet looking at your advertisements. Don’t assume FINTRAC doesn’t know about you just because you haven’t registered your business.

I don’t accept cash sales, so I don’t have to report to FINTRAC.

This statement demonstrates a lack of understanding about the threshold event that makes a dealer in precious metals and stones (DPMS) a reporting entity and subject to the act and regulations. Remember the trigger—which is subject to incredibly restrictive exceptions—is the purchase or sale of precious metals, precious stones, or jewellery in an amount of $10,000 or more in a single transaction. This includes an inventory purchase and it doesn’t matter how you paid for it.

If you never accept cash from a client, you will never have to submit a large cash transaction report to FINTRAC. However, don’t confuse the reporting requirement with the threshold event that activates your legal obligations. They are very different.

If and when FINTRAC calls, I’ll just throw something together quickly or drag things out.

I met a jeweller who was called up by FINTRAC for a compliance examination. A good deal of his business involved jewellery repair and he had never heard of the act or the regulations, and was completely caught off guard. It took him more than two weeks of work, all day and every day, to get enough of a compliance program assembled to please the investigator. That is time he could have spent repairing jewellery and earning sales. It was clearly stressful for him.

Some people are very comfortable managing risk through a crisis. Most of us, like my jeweller friend, are not, and we prefer to be more proactive managing our affairs. Keep in mind this important point: Canada’s DPMSs have been under this legislation since 2008. Don’t expect much in the way of concessions from the regulator.

I’m a wholesaler and I don’t deal with customers off the street. I’m exempt from this, since I sell to retailers, not the general public.

Not true. Remember the threshold event drawing you into this legislation involves a single purchase or sale over $10,000 in a single transaction, regardless of how payment was made and regardless of who you bought from or sold to. The threshold applies to all parties in the transaction, including wholesalers. Depending on your business activities as a reporting entity, you may never come across a situation where you have to submit a large cash transaction or suspicious cash transaction reports; however, you do need to have all the elements of a compliance regime in place to meet your obligations under the legislation.

More to come of this story in Part 9.

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