AML Compliance Requirements for Jewellers in UAE
AML Compliance Requirements for Jewellers in UAE
Precious metals and stones have undoubtedly been a point of attraction among financial criminals, given their characteristics such as:
- Small size, high value
- Easy to transport
- Use as a store of value
- Use as a medium of exchange
- Worldwide acceptability
- Retains value and is subject to lesser value fluctuation
Criminals or money launderers use dirty money to buy gold, diamonds, etc., which is subsequently resold to bring the money back into the financial markets, merging the funds disguised as if obtained authentically.
To safeguard the precious metals and stones segment against financial crimes, the AML regulations mandate that dealers in precious metals and stones design and implement robust ML/FT risk mitigation measures.
Here is a comprehensive guide for dealers in precious metals and stones to understand and navigate their AML compliance journey in the UAE.
UAE’s AML Legislative Landscape for the Dealers in Precious Metals & Stones
The primary law governing the anti-money laundering framework in the UAE is Federal Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations. Cabinet Decision No. 10 of 2019 supports the effective implementation of the Federal Decree-Law No. 20 of 2018 by regulated entities, including dealers in precious metals and stones (DPMS).
AML compliance is not complete without Targeted Financial Sanctions compliance. For this, the UAE authorities have issued Cabinet Resolution No. 74 of 2020 regarding Terrorism Lists Regulation and Implementation of UN Security Council Resolutions on the Suppression and Combating of Terrorism, Terrorist Financing, Countering the Proliferation of Weapons of Mass Destruction and its Financing and Relevant Resolutions, which lays down the detailed directives for the regulated entities around sanctions compliance.
These fundamental laws and regulations, along with the guidelines issued by the supervisory authorities*, help the DPMS sector understand its risk exposure and customise the AML/CFT program, focusing on timely detection and reporting of money laundering, terrorist financing, and proliferation financing vulnerabilities.
* The Ministry of Economy is the AML supervisory authority for the DPMS licensed in the UAE, with the following exceptions:
- The supervisory authority for dealers in precious metals and stones operating in or from the Abu Dhabi Global Market (ADGM) the ADGM’s Financial Service Regulatory Authority.
- For DPMS licensed with the Dubai International Financial Centre (DIFC), it is the Dubai Financial Service Authority.
The primary guidelines which a DPMS is required to adopt for necessary guidance around complying with AML requirements are:
- Central Bank of UAE issued AML/CFT Guidelines for Designated Non-Financial Businesses and Professions
- UAE Ministry of Economy’s Supplemental Guidance for Dealers in Precious Metals and Stones
- ADGM or DIFC AML and Sanctions Compliance Rulebook
Understanding the DPMS subject to AML Compliance
Under the UAE AML laws, dealer in precious metals and stones engaged in conducting single cash transaction or several interlinked transactions amounting to AED 55,000 or more would be considered as one of the Designated Non-Financial Businesses and Professions (DNFBPs), obliged to implement AML measures.
Here, for the purpose of AML compliance, “Precious Metals and Stones (PMS)” would include:
Precious Metals
- Gold, with a minimum purity of 500 parts per 1,000
- Silver, with a minimum purity of 800 parts per 1,000
- Platinum, with a minimum purity of 850 parts per 1,000
- Palladium, with a minimum purity of 500 parts per 1,000
Precious Stones
- Diamonds (rough) of any weight in carats
- Diamonds (polished), with a minimum weight of 0.3 carats per stone if loose or a minimum weight of 0.5 carats per any single stone mounted in a setting
- Colored Gemstones (polished Emeralds, Rubies, Sapphires), with a minimum weight of 1 carat per stone if loose or a minimum weight of 2 carats per any single stone mounted in a setting
Pearls
- Loose, with a minimum diameter of 3 millimeters per bead
- Strung or mounted in a setting, with a minimum diameter of 10 millimeters per any single bead
Other
- Any object whose at least 50% monetary value is comprised of PMS
- High-value industrial metal (e.g., wolframite, cassiterite, and coltan), cobalt, and other platinoid metals (e.g., rhodium, etc.)
- Semi-precious gemstones (e.g., amethysts, opals, jade, etc.)
- Synthetic, treated, or artificial gemstones
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AML Compliance Obligations of a Dealer in Precious Metals and Stones
As entities subject to AML compliance, DPMS must detect and report ML/FT-related suspicious transactions promptly to the UAE’s Financial Intelligence Unit. To adhere to this reporting obligation effectively, the DPMS must comply with federal AML legislation and AML/CFT guidelines issued by the AML supervisory authorities.
The following are the core AML compliance components a dealer in precious metals and stones in the UAE must adhere to:
goAML Registration
Every DPMS in the UAE must get itself registered with the FIU’s goAML Portal, adequately completing the two-stage application process.
When making a registration application on the goAML Portal, the DPMS must furnish details about the person who will act as an AML Compliance Officer and the organisational details.
Appointing a right AML Compliance Officer
Every dealer in precious metals and stones is required to appoint a capable AML Compliance Officer or a Money Laundering Reporting Officer (MLRO) to design, implement, and oversee the effective implementation of the AML functions across the organisation.
The appointment of the Compliance Officer is subject to approval from the AML supervisory authority (which is applied for in the first stage of the goAML registration process).
Performing Enterprise-Wide Risk Assessment (EWRA) to uncover the potential risks
Each DPMS faces different ML/FT risks, which warrant a thorough analysis of these financial crime risks.
To evaluate potential vulnerabilities and adopt the risk-based approach as prescribed under the law, the dealer in precious metals and stones must conduct a comprehensive Business Risk Assessment or Enterprise-Wide Risk Assessment process.
EWRA shall help the DPMS assess the overall risk of money laundering, financing of terrorism (ML/FT), and proliferation financing (PF), understand the likelihood of each risk scenario materialising, its possible impact on the business, and the measures required to manage these risks. Further, as part of EWRA, the quality of the existing controls must be evaluated, and additional measures required to manage the residual risk must be documented.
While assessing the risk, the DPMS must consider all the potential risk parameters, such as:
- the nature and type of customers and suppliers it deals with
- the type of products offered
- the size, volume, and complexities of the transactions
- the geographies it operates in and the jurisdiction of its customers/suppliers
- delivery/distribution channel deployed, etc.
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Tailoring the AML/CFT Policies, Procedures, and Controls
As the ML/FT risk varies, every DPMS must customise its risk management program, detailing the AML/CFT policies and procedures. This program must be proportional to the nature and size of the DPMS’ operations and risk identified during EWRA.
Additionally, the AML program must provide for the controls and risk mitigation measures the DPMS shall deploy commensurate to the risk and the defined policies and procedures.
The AML/CFT program must match the latest AML/CFT regulations, covering the application compliance obligations and factoring in the evolving ML/FT trends and typologies around the precious metals and precious stones sector.
The AML/CFT policies and procedures must be clear and comprehensive to help the AML Compliance Officer and the staff understand their compliance responsibilities and navigate the AML tasks.
Customer Due Diligence (CDD) Measures
One of the essential components of the AML compliance framework for every regulated entity, including the DPMS, is to identify the customers and suppliers, including the ultimate beneficial owners.
The dealers in precious metals and stones must implement a robust and adequate “Know Your Customer” (KYC) program to identify customers, their activities, the nature of the business relationship and the intended purpose of the transaction, the ownership and controlling structure if the customer is a legal entity, etc. As part of KYC, once the details are obtained, the DPMS must verify their identities using independent and reliable sources.
For verification of the identity, the DPMS may rely on the government issued valid identity documents such as:
- Individual: Passport, Emirates ID, Driving License, etc.
- Legal entity: Trade License/Certificate of Incorporation and Memorandum & Articles of Association
This also includes appropriate address verification of customers, which helps the DPMS strengthen its efforts around the customer identification process.
Having adequately identified the customer’s basic details, the DPMS must carry out customer screening. The screening process shall assist the DPMS in determining whether the customer, their ultimate beneficial owners (UBOs), or senior management is designated under the Sanctions Lists—UNSC Consolidated List, UAE Local Terrorist List, or other international sanctions lists.
In addition to sanctions screening, the dealers in precious metals and stones must also screen the customers against the Politically Exposed Person (PEP) database to understand if the customer is PEP or associated with PEP, which may increase the ML/FT exposure in the particular business relationship.
The screening exercise must also be extended to cover adverse media and social media checks to verify customers’ connections with financial crime, be it fraud, money laundering, tax evasion, bribery, or other predicate offences that affect the risk.
Considering the customer identification and transactional (proposed or executed) details, along with screening results, the DPMS must perform customer risk profiling to identify the ML/FT risk the customer poses to the business and classify them as high, medium, or low.
When the customer is categorised as high-risk, the DPMS must apply Enhanced Due Diligence (EDD) measures and obtain additional details to establish the legitimacy of the customer’s identity. Further, checks must also be applied to understand and verify the customer’s source of funds and wealth using reliable sources.
Ongoing Monitoring of Transactions and Business Relationships
Dealers in precious metals and stones must keep their customers’ and suppliers’ databases up-to-date and capture valid and accurate identification details.
The CDD information must be closely monitored to ensure that the assessed customer risk is relevant during the ongoing business relationship, and if there is any change in the customer details that impacts the risk exposure, the same is immediately identified.
As part of transaction monitoring, the DPMS must check for the compatibility of the customer’s profile with the transactional pattern to see if values and volumes are within the customer’s known financial and commercial profile.
Further, ongoing monitoring of the transactions is also very important to identify any unusual activities or transactions by the customer that contradict the customer’s risk profile.
For high-risk customers, enhanced and more stringent monitoring measures must be applied.
Compliance with Targeted Financial Sanctions (TFS)
As a DNFBP, the dealers in precious metals and stones are required to implement a comprehensive Targeted Financial Sanctions compliance program in accordance with Cabinet Decision No. (74) of 2020.
As a first step towards the TFS program, the DPMS must subscribe to the Executive Officer for Control and Non-Proliferation (EOCN) Notification System to receive alert emails regarding additions, delisting, or any amendments in the United Nations Consolidated List and the UAE Local Terrorist List.
All the customers, their UBOs and senior management personnel must be screened against these sanctions lists, including any other relevant international sanctions regime.
Upon screening, if any matches are identified with the UNSC Consolidated List or the UAE Local Terrorist List, the DPMS must undertake the following actions, depending on the nature of the match observed (confirmed or partial name match where the DPMS is unable to determine if it is a confirmed match or a false hit):
- apply adequate TFS measures (such as freezing the funds, terminating or suspending the business relationship) and
- filing a Funds Freeze Report (FFR) or a Partial Name Match Report (PNMR) on the goAML portal.
Identifying and Reporting Suspicious Activities or Transactions
Dealers in Precious Metals and Stones are required to design and implement adequate mechanisms to identify potential ML/FT risk indicators and report suspicious activities or transactions to the FIU in a timely manner. To enable this, the DPMS must understand and document the industry-specific ML/FT/PF red flags for precious metals and stones and create awareness among the staff and relevant stakeholders.
Some of the red flags related to the precious metals and stones industry may include the following:
- Large value transactions in cash, without adequate justification around the source of such funds
- Involves the frequent trading of diamonds and gold in small incremental amounts
- Involves the barter or exchange of PMS with reasonable margins within a short span of time
- The customer is not willing to provide complete or accurate financial references, contact information, or any type of business affiliations
- The supplier or customer attempts to maintain a high degree of secrecy about a transaction
- PMS with characteristics that are unusual or do not conform to market standards
- Payments being paid through a third-party account
- Sales or purchases don’t conform to industry standards.
- Sales or purchases are unusual for a particular supplier or customer
- Transactions involving foreigners or non-residents from sanctioned, high-risk, or weak AML-regime countries
- Customer makes unusual requests before transactions
Additionally, the procedures and controls must be in place to encourage the staff to report the observed risk indicators to the AML Compliance Officer, who later independently evaluates the suspicions and determines whether a report must be made with FIU.
The suspicious transactions or activities must be reported on the UAE’s FIU by the entity’s AML Compliance Officer by filing a Suspicious Activity Report (SAR) or Suspicious Transaction Report (STR), as the case may be.
AML Training
AML staff training is a critical compliance obligation for every dealer in precious metals and stones. Regular training must be provided to the staff and senior management to create awareness about AML compliance obligations and their roles and responsibilities.
Adequate AML training must be part of the new employee orientation program, and a refresher course must be designed for all employees to keep them updated with recent AML developments.
The training must not be restricted to mere AML regulations laws. The Compliance Officer must understand the training needs of the employees and design a personalised training program for the team, depending upon their involvement in AML activities (for example, for the customer-facing team, the training agenda must cover the Customer Due Diligence program and identification and reporting of red flags).
Focused. Flexible. Tailor-made
AML training for the Jewellery Sector by Certified AML Specialists.
AML Governance
To establish a robust AML compliance culture within the organisation, the AML/CFT program must be supported by senior management.
The senior management must set the right tone at the top. To enable this, the regulations require the Compliance Officer to prepare and submit a periodic AML/CFT report to the senior management, covering the necessary details on the compliance and the entity’s risk exposure, bringing management on board the AML compliance function. Senior management must review this report and provide inputs/feedback to the Compliance Officer to enhance the AML/CFT measures and risk mitigation capabilities.
Employee engagement is equally important for the effective functioning of the AML measures across the business. This calls for an adequate staff screening program, ensuring high standards in staff hiring, and imparting regular AML training to the staff (as discussed in the preceding point).
Further, DPMS must also implement an independent AML Audit function to ensure periodic testing of the quality and adequacy of the AML/CFT measures deployed and remediate any gaps.
Other goAML Reporting
Checkout the goAML reports you need to apply as a Dealer in Precious Metals and Stones Report (DPMSR)
Dealer in Precious Metals and Stones Report (DPMSR)
The DPMS is required to file a Dealer in Precious Metals and Stones Report (DPMSR) on the goAML portal to report the cash transactions or transactions involving international wire transfers (in the case of a legal person) amounting to AED 55,000 or more.
AML Record Keeping
Every dealer in precious metals and stones must maintain all AML-related records and documents, CDD files including identification details and documents, transactional records, reports submitted on the goAML Portal, etc., for five (5) years.
The record retention period is six (6) years for the DPMS registered with DFSA or the ADGM’s FSRA.
How can AML UAE assist Dealers in Precious Metals & Stones with AML Compliance?
AML compliance is critical for dealers in precious metals and stones operating in the UAE to safeguard their business operations and the overall PMS ecosystem from being exploited by money launderers.
With our domain knowledge and understanding of the AML regulatory requirements, we assist you with achieving AML compliance obligations while keeping your guard high against the financial crime risk.
AML UAE is a leading AML consultancy service provider. It assists DNFBPs, including dealers in precious metals and stones, with assessing business risk, customising AML/CFT policies and procedures, and training staff to adopt the best AML practices for combatting financing crimes.
FAQs: AML Compliance for Dealers in Precious Metals and Stones in the UAE
Criminals use gold, diamonds, and other precious metals/stones to launder illicit funds. Tracing the origin of such PMS is difficult, given its inherent characteristics of easy movement, high value-minimal size, and global market. Further, the PMS sector is a cash-intensive segment, wherein the transactions happen in cash, which can be brought from any source, giving criminals a larger window to introduce illegal proceeds.
No, if transactions are for the specified amount (i.e., equal to or exceeding AED 55,000), both B2B and B2C transactions must be reported in DPMSR on the goAML portal.
To adequately carry out the risk assessment, the dealers in precious metals and stones must consider the following factors:
- Customer or Business Relationship specific risk
- Products and transaction-related risk
- Delivery channel-related risks
- Geographical risk
Yes, adequate due diligence measures must be applied to identify the suppliers, their UBOs and verify the identity details using reliable, independent sources.
Ghost shipping under AML indicates a bogus or fictitious transaction, wherein buyer and seller come together to prepare fake documents for the fictitious transaction indicating that the PMS was supplied and payments were made, where neither there has been any goods movement nor any payments transferred. Ghost shipping is one of the Trade-Based Money Laundering methods.
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About the Author
Pathik Shah
FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)
Pathik is a Chartered Accountant with more than 25 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.
He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.