De Grisogono’s bankruptcy earlier this year demonstrated that jewelers need to have a better sense of who the companies are that they’re dealing with. Under new legislation, they may no longer have a choice.
The National Defense Authorization Act (NDAA)—which seems certain to pass despite President Trump’s veto threat—includes a provision that hasn’t gotten a lot of attention, but could affect how many jewelers conduct their business.
The Corporate Transparency Act would require companies to report to the Department of the Treasury any ultimate beneficial owners. (An ultimate beneficial owner is generally defined as someone who owns 25% or more of a company.) Right now, it’s possible to hide a company’s real ownership behind webs of shell companies, which are often located offshore.
The act will not require that a company’s true beneficial owner be made public—so journalists and the general public still won’t have access to that information. (Transparency advocates had sought a rule requiring that, but ended up compromising on it to move the bill forward.) However, the U.S. government will make that information available to law enforcement and financial institutions—which the Patriot Act has defined to include jewelers.
“Right now, the U.S. is the easiest country in the world [in which] to set up an anonymous company,” says Clark Gascoigne, senior policy advisor for the Financial Accountability and Corporate Transparency (FACT) Coalition, a nonpartisan alliance of pro-transparency groups. “There are some states where you need more information to get a library card than you do to set up a company.”
The new act will be a major step forward in terms of stopping money laundering, drug dealing, tax avoidance, and other crimes generally cloaked by hidden ownership, he says.
“What you won’t be able to do is disguise your ownership behind a shell company,” he says. “You will have to show the true human being at the end of the chain.”
It’s not clear whether jewelers will be automatically required to obtain this information from their vendors and customers, but Gascoigne believes that doing so will eventually become part of “know your customer” protocols, which are required under the Patriot Act.
“A lot depends on what Treasury says,” says Gascoigne. “If I were a jeweler and this information is available, it would be in my interest to obtain it. It’s part of knowing your customer.”
The key questions around the act involve its enforcement and how it will be implemented. The new rule will not be enacted immediately; it will likely be implemented over a number of years.
Gascoigne hopes it will be made as “easy as possible” for jewelers to obtain beneficial ownership information. So if, for example, a jeweler and vendor strike a deal at a trade show, the jeweler will be able to quickly send a request to the Treasury Department to find out who owns that vendor—and the vendor might do the same to the jeweler. They can both then keep that information as part of their business records.
“You should be able to quickly determine who the listed beneficial owner is, and make sure it’s not a corrupt dictator, or sanctioned individual, or someone else you shouldn’t be dealing with,” Gascoigne says.
Obtaining this information will require the company’s consent—though if it doesn’t grant that permission, that’s a “red flag,” adds Gascoigne.
He says the new rule will give law enforcement the tools it needs to combat financial crime.
“This is the most significant anti–money laundering reform in a generation, certainly in 20 years,” he says. “The U.S. was behind a lot of countries, and this puts us ahead.”
The jewelry industry—which has seen its share of financial crime—may have to take notice.
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