Big Bucks, Big Risks

One day recently a longtime customer walked into the JC Sipe jewelry store in Indianapolis to buy a $20,000 piece of jewelry—with an envelope full of cash he had saved. Owner Sam Sipe was taken aback. “I’m used to people using credit cards or checks to buy expensive jewelry” said the 30-year veteran retailer. “It’s the first time anyone’s offered me that much in cash.”

Such an incident, though, says Cecilia Garner, executive director and general counsel of the Jewelers Vigilance Committee (JVC), is more common than one might think. “It isn’t all that unusual for people to buy expensive jewelry with cash,” she told JCK. That makes it especially important in this post-9/11 era, she says, for a jeweler to know how to handle such a sale to comply with government requirements designed to thwart money-laundering criminals and terrorists.

Tracking big sales. There are two things jewelers must do regarding large cash sales. First, any such sale—or series of related sales—totaling $10,000 or more must be reported to the Internal Revenue Service on IRS Form 8300. The form is available from the IRS, its Web site (www.irs.gov), or the U.S. Treasury Web site (www.treas.gov). Not reporting the sales can bring a maximum fine of $250,000 and five years in jail.

Also, keep a “paper trail” of big cash sales, especially sales to customers you don’t know and those from outside the country, adds Ulla Wolfe, JVC assistant executive director. Documentation should include photocopies of photo IDs (e.g., passport or driver’s license) and their bank contacts. “You want to be sure people can’t disappear without a trace after the sale,” says Wolfe.

Second, the reporting of big cash sales “should be incorporated into the jeweler’s anti-money-laundering policy,” says Gardner. Under the USA PATRIOT Act, passed after the Sept. 11, 2001, terrorist attacks, almost all jewelry businesses—from mom-and-pop shops to big manufacturers, designers to gem suppliers—”must have a policy that prevents laundering large amounts of money through them,” she notes. The policy must be in writing, and the store must designate an employee as “compliance officer” to oversee the program and help other employees. The policy also must provide for employee training and be tested for compliance and effectiveness. (There are very few exemptions, such as those who annually buy or sell less than $50,000 in gems and/or jewelry or provide a place for others to buy and sell jewelry and gems but don’t do so themselves.)

The PATRIOT Act’s jewelry trade rules were to be finalized this spring, after which jewelers have about three months to bring their stores into compliance. The government’s intent, says Gardner, is to “make U.S. companies ask questions, if they don’t already, and get detailed, clearly documented information so they know who they’re dealing with and remain alert to the possibility of money-laundering.”

Help from JVC. The best place to go with questions about big cash sales is JVC. Retailers can call the organization at (212) 997-2002 or visit its Web site at www.jvclegal.org. Sipe, luckily, was very alert and called JVC immediately after his bank’s compliance officer told him that he had to do “nothing” about the large cash transaction. “As long as it’s okay with you, it’s okay with the government,” he was erroneously told.

JVC, however, “had better information and all the right paperwork,” says Sipe. He found out what he needed do, which form he needed to submit (IRS form 8300), directions to the IRS Web site, and how to download the form.

JVC also has created a USA PATRIOT Act Compliance Kit for the jewelry trade. (JVC members get a significant discount on the cost.) It includes tips on risk assessment, employee training, examples of policies and programs, and all the information a jewelry business needs to comply.

The kit “isn’t one-size-fits-all,” says Gardner. Rather, it’s designed to help a business “tailor a policy and program appropriate to its specific risks in being exploited by money-laundering criminals.” If requested, JVC also will test and evaluate a business’s anti-money-laundering plan.

The JVC Web site, www.jvclegal.org, also has a special section on USA PATRIOT Act requirements, including what jewelers must do to comply and lists to review when doing business with foreign entities and customers from abroad.