Get ready, because a final version of a new law designed to combat terrorism is being completed, and it will have a major impact on nearly all segments of the gem and jewelry industry. That was the overriding message during a two-hour presentation on the USA PATRIOT Act, from a diverse group of speakers representing the U.S. Treasury Department, banking interests, a credit rating association, and, of course, the gem and jewelry industry.
“The USA PATRIOT Act is a new way of doing business. It’s a new reality that we have to deal with since Sept. 11 and for the foreseeable future,” said Dione D. Kenyon, president of the Jewelers Board of Trade, one of four speakers at the workshop held Wednesday at the Fashion Institute of Technology in New York City.
The seminar provided an overview of what to expect from the law and how to prepare for meeting its requirements. “Right now, there is no legal requirement to do anything,” said Cecilia Gardner, executive director and general counsel of the Jewelers Vigilance Committee. “But that time is coming, and businesses should prepare as soon as possible to comply with the law.”
The USA PATRIOT Act (an acronym for Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism) was passed by Congress weeks after the Sept. 11, 2001, terrorist attacks. Speakers at the workshop worked from a draft of the proposed rules. The final rules are scheduled to be published in January 2004. However, Gardner said that she has been assured by the Treasury Department that the version available to the public now should be very close to the final version. After the provisions are completed, companies will have approximately three months to comply.
The law is designed to prevent further acts of terrorism on U.S. soil. It also contains provisions designed specifically to curb money laundering. Gardner said this will affect a majority of businesses and individuals involved in the gem and jewelry industry.
Specifically, the law directs the Treasury Department to require “financial institutions” (a broad term under the law that includes the majority of the jewelry industry) to “create, implement, and test anti-money-laundering (AML) programs,” Michael A. Dawson, a deputy assistant in the Treasury Department, told the audience. The law applies to anyone defined as a “dealer” under the law. A dealer is defined as someone who buys and sells precious metals, stones, and jewels.
There are few exemptions. One applies to anyone who sells less than $50,000 per year in gems and/or jewelry. Another exempts persons or businesses that provide a place for people to buy and sell jewelry but do not buy or sell product themselves, such as a company that provides an Internet platform to sell items.
The law also provides clear definitions of gems, precious metals, and jewels, which are regulated under the law. The definition of precious metals, however, raised concern among attendees. The term “precious metals” is defined as gold, silver, or platinum of greater than 500 parts per thousand, which leaves out 10k gold. Dawson’s only response to attendees’ concerns was that the definition had to be somewhat broad. He didn’t say whether the problem would be corrected in the final draft.
While regulations vary among industries, Dawson said the required anti-money-laundering programs must have four common elements:
* A written anti-money-laundering program;
* the designation of at least one employee (a compliance officer) to head the program and to provide guidance to other employees on the program and to oversee its implementation;
* training for employees; and
* independent testing of the program to ensure that it is operating appropriately and effectively.
Gardner noted that the key message in terms of compliance with the law is that those in the industry must get detailed information on companies they deal with and clearly document the information.
Gardner also stressed that it’s important for businesses to plan now for the provisions. She said the first step is to assign someone as a compliance officer.
“It is highly recommended you identify and appoint a person now,” Gardner said. “You should begin today to start thinking about that. Then senior management should write a letter describing who that person is and what are his responsibilities.”
For approximately the past 18 months, the Treasury Department has been studying and working with the jewelry industry to enact effective anti-money-laundering rules while trying not infringe on the way gems and jewelry operations do business, Dawson said.
The result of the study and other input is a document flexible enough to meet the diverse needs of the jewelry industry, which includes mom-and-pop jewelry stores, large manufacturers, small design firms, and large operations that buy and sell diamonds and gemstones.
“Our proposed regulations allow individual firms to tailor their anti-money-laundering programs to the specific risks they face and to the specific nature of their businesses,” Dawson said. “For example, the program for a small two-person business will generally be different from the program of a large business with thousands of employees. As another example, although it is required that you designate one or more individuals as responsible for the program, it is not required as a general matter that this program be a full-time position.…You should first satisfy your money-laundering risk and then act accordingly.”
Outside of broad guidelines, the law, as currently written, provides few specifics; there are no detailed formulas or numerical requirements, and there is no “do and don’t” list. Dawson said such details were left out intentionally to recognize the diversity of the industry and to limit the amount of government oversight in regard to individual businesses.
“Overly prescriptive or inflexible regulations focus attention on complying with the regulations, rather than on stopping money laundering,” Dawson said. “Bad regulation can result in honest businesses being more concerned about legal risks they face for not complying with some aspect of our regulations than about the risk that their businesses will be the victims of money launderers or terrorists’ financiers.”
He added, “The moment you start worrying more about government bureaucrats than criminals, we have got you worried about the wrong thing.”
This vagueness in the law concerned at least one attendee, who noted that while the law doesn’t provide specific guidelines, he still may face prosecution for not complying.
The amount of legal liability a business may face “depends on the circumstances,” Dawson said. “That may be frustrating to those who want prescriptive rules. But we chose to be flexible and to not dictate which things you must do.”
Once the final rules are published, JVC will offer a “PATRIOT Act Compliance Kit.” Gardner also mentioned that the organization will provide advice and will test companies anti-money-laundering plans. For more information, call JVC at (212) 997-2002.