AML Compliance Requirements for Jewellers in UAE​

AML Compliance Requirements for Jewellers in UAE​

The industry of gems and jewellery, and precious metals and stones is a key contributor to the UAE’s economy. But, it is also an attractive point for illicit activities and financial crime. So, jewellers must protect themselves from money laundering and terrorism financing activities.
In this article, we focus on the factors that make the jewellery industry vulnerable to money laundering activities. We will list the regulations that govern AML compliance in UAE. We will also enlist the AML requirements that jewellers have to fulfill to comply with AML regulations.

Factors contributing to the higher vulnerability of jewellery industry to financial crime

Some characteristics of the jewellery industry make it vulnerable to exploitation by criminals. Unless jewellers are aware of these factors, their efforts against money laundering will not be successful. Following are these factors:
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  • The jewellery industry’s products have high intrinsic value, which may increase over time.
  • It is easy to physically transport the jewellery pieces, gems, and precious metals from one place to another.
  • Money launderers can use jewellery in two ways in money laundering activities. Firstly, they can use it as the source to generate illegitimate money. They can also use it as the vehicle to launder the proceeds of criminal activities.
  • Money launderers can use jewellery directly as a form of currency. They can also use it indirectly by exchanging its value with other financial products.
  • It is difficult to track the movement of jewellery items and precious metals since it requires the capability and capacity of laboratory techniques
  • Cash-based markets exist for certain types of gems or precious metals. These are often decentralized and well-established. It is easy to trade or exchange precious stones through these cash-based markets by remaining anonymous.
  • There is a low level of involvement of the formal financial system in jewellery transactions.
AML Compliance Requirements for Jewellers in UAE​
  • The market for jewellery and precious metals and stones is global in nature. So, many cross-border and multi-jurisdictional situations arise in jewellery transactions. Criminals find it easier to take advantage of such situations to engage in financial crime.
  • There are several small and medium-sized companies in this industry. Generally, their awareness of ML/FT risks and due diligence requirements is low. This increases their exposure to money laundering and terrorism financing activities.
  • There is a common cultural practice of buying and selling precious metals and stones in some regions. This leads to difficulty in identifying which transaction is legitimate and which one is illicit.
  • Different regulatory regimes in different countries affect global transactions. Some countries have a strict regime while some have few to no restrictions. Also, some jurisdictions do not pay heed to supervision and monitoring of every transaction.
All the above factors make the jewellery industry an attractive means of money laundering activities. So, the UAE government introduced relevant regulations to combat such activities. These regulations run parallel to the global AML/CFT regulations.

AML regulation for jewellers in UAE

Decree-Law No. 20 of 2018on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations is the primary law for AML in UAE. The Cabinet Decision No. 10 of 2019 concerning the Implementing Regulation of this Decree-Law makes dealers in precious metals and stones (DPMS) subject to the AML law. This means that the AML law applies to jewellers and dealers in precious metals, gems, and stones.
The Cabinet Decision provides a list of Designated Non-Financial Businesses and Professions (DNFBPs). AML regulations apply to these DNFBPs that include dealers in precious stones and metals and jewellers. If they engage in transactions valuing not less than AED55,000.0, AML regulations apply to them. Herein, a transaction can include any single transaction or several interrelated transactions.
The Guidelines for Designated Non-Financial Businesses and Professions mentions the Customer Due Diligence (CDD) obligations for jewellers. But, they must also be aware of the ways to identify suspicious transactions followed by reporting. In the next section, we describe the compliance requirements for jewellers in UAE.

AML compliance requirements for jewellers in UAE

Jewellers must comply with the following requirements under the AML regulations of UAE:

AML Policy Documentation

Jewellers need to document their AML Policy and prepare an AML Policy Manual describing the procedures and controls embedded to counter the risk of money laundering.
The jewellers must implement necessary measures to manage and mitigate the ML/FT risks. One of the key measures is the implementation of strong and effective internal policies, controls, and procedures. You must assess these policies for effectiveness and update them accordingly as and when the need arises.
The AML Policy Manual should cover the following areas:
  • The identification and assessment of ML/FT risks
  • Customer due diligence (CDD, EDD, SDD), including its review and updating, and reliance on third parties in regard to it
  • Customer and transaction monitoring and the reporting of suspicious transactions
  • AML/CFT governance, including compliance staffing and training, senior management responsibilities, and the independent auditing of risk mitigation measures
  • Record-keeping requirements

Understand possible ML/FT Risk Exposure

You must have a detailed understanding of how your jewellery business can be exposed to ML and FT risks. For this:
  • You must adopt a risk-based approach to identify risks in your business transactions. These risks may be of different types based on business nature, type of service, the operational environment, and other factors. Accordingly, you must adopt risk mitigation measures.
  • You must be aware of the source of ML/FT risks and the phase in which the money laundering risk is high.
  • You must know the latest ML/FT trends and how money is getting laundered in the jewellery industry.
  • You must consider different types of risks to your business due to money laundering. These risks include customer risk, geographic risk, transaction risk, channel risk, or any other. You must be able to identify each type and strategize for their elimination.
  • You must conduct a risk assessment to understand the impact of these risks on your business. You must also analyze it in depth, document it, and update it as and when the changes occur.

Implement customer due diligence measures

Jewellers must apply the necessary customer due diligence (CDD) measures based on the category and profiling of the ML/FT risk. If there is any change in the risk category, jewellers must be ready to update the due diligence measures as well. You must apply these measures during or before the transaction happens or the business relationship starts.
These due diligence measures include the following:
  • You need to identify the customers, beneficial owners, beneficiaries, or controlling persons. You must collect the necessary documents and relevant information that prove your identity.
  • You must understand the nature of your business’s relationship with that customer or business associate. Also, you must identify the key purpose of having this relationship.
  • You must employ policies to monitor and supervise the business relationship. If you see any sudden change in the transaction or behavior of the customer, it is a red flag.
  • You must keep updating the customer risk profiles to avoid any errors or missing data.
  • In the case of customers from high-risk countries or politically exposed persons, you must execute enhanced due diligence measures.

Report suspicious transactions to Financial Intelligence Unit (FIU)

Jewellers must report any kind of suspicious transactions to the Financial Intelligence Unit as and when they suspect it. You must add all the relevant information for the suspected transaction and keep it updated. You must be extra vigilant to identify any suspicion in any transaction or customer.
Some of the indicators for suspicious transactions include:
  • Unnecessary complex transactions whose purpose or beneficial owner is not known
  • Transactions that are inconsistent with the customer’s risk profiling
  • Large transactions (relatively large to a customer’s income or turnover)
  • Large deposits or withdrawals inconsistent with customer’s business nature
  • Unexplained changes in the ownership of entities or unnecessary involvement of a third party
  • Transactions involving high-risk countries or third parties with no relationship with customers
  • Unclear or dubious sourcing of funds for a transaction
  • Refusal of customers to provide relevant information or proofs required for due diligence measures

Devise and implement a sound governance structure

You must formulate a governance structure to ensure your business complies with AML/CFT requirements. For this, you must appoint a fit and capable compliance officer. He/she must be capable of handling Ml/FT reporting, AML/CFT program management, and training and development of the team.
You must keep your employee up-to-date on AML/CFT laws, policies, and norms. You must design a training manual and impart it to relevant team members. You must also assess the effectiveness of these training programs to ensure the right knowledge development.
A well-functioning governance structure is tested by an independent audit frequently. This auditing procedure will check the risk profile of products and services, customers, and target markets. If it is not possible for you to keep an internal audit team, then you can hire a third-party auditing team.

Keep and maintain records

Jewellers are required to keep records of all their financial transactions. You must also keep all documents, data, and records of your ML/FT risk assessment and implemented measures. You must submit these records to the relevant authorities as and when requested.
You must maintain the records for the following:
  • Records of all domestic and international financial transactions for at least five years, including customer correspondence, customer payment proofs, agreements, and analytical data of customers’ financial transactions
  • Records of customer accounts, customer correspondence, personal identification proofs, KYC and CDD forms, customer risk assessment, and classification records
  • Corporate documents and information on beneficial owners, legal shareholders, and senior managers
  • Records of ongoing monitoring of business relationships such as transaction reviews, customer correspondence, CDD profiles and documents, and transaction handling decisions
  • Records of suspicious transaction reports, related correspondence, competent authority’s investigation files, and notes by FIU on the feedback for suspicious transaction reports

Conclusion

These are the various measures that jewellers must implement to comply with AML regulations. These measures will enable them to save themselves from any fraudulent transaction or business relationship. This, in turn, helps them to minimize their exposure to money laundering and terrorism financing risks.
To plan and implement any of these measures, they can also take the support of AML consultants in the UAE. A professional, AML consultant will be better equipped to help jewellers with the right, relevant measures against money laundering. The consultant will ensure that industry-specific steps are taken in the fight against money laundering and terrorism financing.

About the Author

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Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.