Dealers in Precious Metals, Stones and High-Value Goods

1. Why This Topic Matters for the CAMS Exam

Dealers in precious metals, precious stones and other high-value goods (jewellers, bullion dealers, diamond traders, gold refiners, auction houses, art and antiques dealers, luxury car, yacht and watch sellers) sit at the intersection of two things money launderers love: portable stores of value and cash-intensive commerce. The Financial Action Task Force (FATF) explicitly names Dealers in Precious Metals and Stones (DPMS) as a category of Designated Non-Financial Businesses and Professions (DNFBPs) under Recommendations 22 and 23, which means the sector is tested in the CAMS exam within the 'Risks and Methods of Money Laundering and Terrorist Financing' domain. Expect scenario questions in which a jeweller, gold dealer or auction house is used to place dirty cash, move value across borders, or disguise the proceeds of corruption. Understanding this sector helps you recognise non-bank laundering channels, apply the risk-based approach to a DNFBP, and identify the correct red flags and controls in a case study.

2. What the Sector Is

Precious metals include gold, silver, platinum and the platinum-group metals (palladium, rhodium, iridium, osmium, ruthenium). Precious stones include diamonds, rubies, sapphires, emeralds and, in many regulations, semi-precious stones and pearls. High-value goods is a broader concept used in the EU Anti-Money Laundering Directives and FATF typology reports and covers luxury items such as fine art, antiques, collectible cars, yachts, aircraft, high-end watches and designer goods. The 'dealers' are anyone who buys, sells, trades, refines, cuts, polishes, brokers or auctions these items, from a single-shop jeweller to a multinational bullion bank and from a rough-diamond trading bourse to an online marketplace.

Key regulatory classifications to memorise:
• FATF: DPMS are DNFBPs. CDD, record-keeping and suspicious transaction reporting obligations are triggered when they engage in a cash transaction with a customer equal to or above USD/EUR 15,000 (the threshold in the FATF Recommendations).
• European Union: Persons trading in goods are obliged entities when they make or receive cash payments of EUR 10,000 or more (whether in a single operation or linked operations); the EU AML package adopted in 2024 further introduces a union-wide cash limit and brings traders in precious metals, stones and luxury goods squarely into the obliged-entity regime.
• United States: Under the Bank Secrecy Act (31 CFR Part 1027) dealers in precious metals, stones or jewels must maintain a written, risk-based AML program if they purchased more than USD 50,000 and sold more than USD 50,000 in covered goods in the prior year. Any trade or business, including dealers, must file Form 8300 for cash received over USD 10,000. Dealers are not required to file SARs but may do so voluntarily.
• Industry initiatives: the Kimberley Process Certification Scheme (KPCS) for rough diamonds (aimed at conflict diamonds), the LBMA Responsible Gold Guidance, the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, and the Responsible Jewellery Council code of practices.

3. Why the Sector Is Vulnerable

The exam frequently asks you to identify why criminals favour precious metals, stones and luxury goods. The classic vulnerabilities are:

• High value-to-weight ratio and portability: a million dollars of gold or diamonds fits in a pocket and crosses borders without triggering the currency reporting that applies to banknotes.
• Alternative currency and store of value: gold in particular is universally accepted, retains value, is easily converted back to cash and is hard to trace once melted or refined.
• Subjective and volatile pricing: the value of a diamond or an artwork is a matter of expert opinion, making over- and under-invoicing, false appraisals and fictitious sales easy to disguise. This is the basis of many trade-based money laundering (TBML) schemes.
• Cash intensity: much of the retail trade and many trading hubs operate in cash, offering a natural placement point.
• Anonymity and lack of ownership registries: unlike real estate or securities, there is generally no public register of who owns a bar of gold or a painting; items can be held in free ports and private vaults for years.
• Complex, global supply chains: from mine or alluvial dig to refiner, bourse, cutter, wholesaler and retailer, a stone or metal may pass through many jurisdictions with uneven AML supervision, offering layering opportunities.
• Uneven regulation: many jurisdictions have only recently brought dealers into the AML regime, and compliance culture lags behind that of banks.
• Links to predicate crimes: conflict diamonds, illegal mining, smuggling, tax evasion (notably VAT carousel fraud with gold), corruption and terrorist financing (gold has been used by groups to store and move value where banking access is restricted).

4. How Laundering Works Through the Sector (Typologies)

Map each scheme to the three stages of money laundering, because exam questions often ask which stage is illustrated.

Placement
• Purchasing gold coins, bullion, loose stones or jewellery with illicit cash, often in amounts just below the reporting threshold (structuring), sometimes using multiple shops, straw buyers or 'smurfs'.
• Selling stolen or smuggled gold and jewellery to a dealer for cash or a cheque, converting the physical proceeds of crime into apparently legitimate business income.

Layering
• Reselling the purchased items (often quickly, in another city or country) and receiving payment by cheque or wire, which produces a plausible paper trail.
• Melting jewellery into untraceable bars; mixing illegally mined gold with legitimately sourced metal at a refinery.
• TBML through invoice manipulation: shipping low-grade stones described on documents as high quality (over-invoicing) to justify large outbound payments, or under-invoicing to shift value to a buyer abroad; carousel or round-tripping transactions in which the same parcel of diamonds is traded repeatedly among related companies to generate false turnover.
• Physically carrying metals and stones across borders to avoid cash declaration rules, then selling in a jurisdiction with weaker controls.
• Using auction houses and art dealers: a criminal consigns an item to auction and a confederate buys it with dirty money, so the criminal receives 'clean' auction proceeds; or inflated prices are paid to move value between parties.
• Storing high-value goods in free ports or bonded warehouses where ownership can change hands without the goods ever moving or being taxed.

Integration
• Investing laundered funds in luxury assets (watches, cars, art, yachts) that can be enjoyed, displayed as legitimate wealth, used as collateral, or resold later.
• Setting up a front jewellery or bullion business whose books commingle criminal cash with genuine sales.

Terrorist financing angle: gold and gems have been used to store wealth, pay operatives and transfer value through informal networks (for example alongside hawala) because they bypass the formal financial system and are readily convertible worldwide.

5. Red Flags to Recognise

Customer behaviour:
• Insistence on paying in cash, especially in amounts just under the applicable threshold, or splitting a purchase across several days, stores or family members.
• Reluctance or refusal to provide identification or beneficial ownership information; use of nominees or third parties to pay or collect goods.
• Indifference to price, quality, certification or resale value; interest only in how quickly the transaction can be completed.
• Purchases inconsistent with the customer's apparent occupation, income or business profile.
• Rapid resale or return of goods and a request for a refund in a different form (cheque or wire) than the original cash payment.
• Repeated purchase of the same easily liquidated items (standard gold bars, coins, loose investment-grade stones) rather than jewellery for personal use.
• Requests to ship goods to an address, jurisdiction or party unrelated to the purchaser, or to high-risk or sanctioned countries.

Trade and documentation:
• Invoice values that differ markedly from market prices or from independent appraisals; vague descriptions ('assorted stones') that prevent valuation.
• Rough diamonds lacking a valid Kimberley Process certificate, or certificates that appear altered or do not match the parcel.
• Gold whose origin cannot be documented, or supplied from conflict-affected or artisanal mining areas without due diligence.
• Circular transactions among related companies, payments from unrelated third parties or from accounts in a different jurisdiction from the counterparty, and shipping routes that make no commercial sense.
• Business customers with turnover disproportionate to their premises, staff or history.

6. Controls and the Risk-Based Approach

For a dealer, an effective AML framework mirrors the pillars expected of any obliged entity, scaled to its size and risk:
• Risk assessment of customers, products (bullion and loose stones are higher risk than low-value fashion jewellery), geographies and delivery channels (online and remote sales raise identification challenges).
• Customer due diligence: identify and verify the customer and beneficial owner when the threshold is met or when suspicion arises; apply enhanced due diligence to politically exposed persons, high-risk jurisdictions and unusually large or complex deals.
• Policies, a designated compliance officer, training and independent testing (the classic programme pillars).
• Record keeping of transactions, identification documents and supply-chain provenance for at least five years.
• Reporting: suspicious transaction/activity reports where required or permitted, and cash transaction reports (for example Form 8300 in the US) when thresholds are exceeded.
• Supply-chain and provenance due diligence: Kimberley Process compliance, LBMA and OECD guidance, refusing goods of unknown origin.
• Cash policies: some firms cap or refuse cash above a set amount, but exam answers typically stress that the appropriate response to risk is a risk-based, documented programme, not simply refusing all cash or all foreign customers.
• Sanctions screening of customers, suppliers and shipping destinations, particularly for gold and diamonds originating in sanctioned regions.

Banks also carry risk here: financial institutions that bank jewellers, bullion dealers and auction houses should treat them as higher-risk, cash-intensive customers, understand their expected activity, monitor for structuring and unusual international wires, and verify that the dealer has its own AML controls.

7. Exam Tips: Answering Questions on Dealers in Precious Metals, Stones and High-Value Goods

Tip 1 – Know the classification cold. DPMS are DNFBPs under FATF Recommendations 22 and 23. If a question asks which business is a DNFBP, dealers in precious metals and stones is a correct choice alongside casinos, real estate agents, lawyers, notaries, accountants and trust and company service providers.

Tip 2 – Memorise the thresholds and attach them to the right regime. FATF: cash transactions at or above USD/EUR 15,000 trigger CDD for DPMS. EU: cash payments of EUR 10,000 or more for traders in goods. US: Form 8300 for cash over USD 10,000; AML programme requirement for dealers above the USD 50,000 purchase and sales tests. A distractor will often swap these numbers or apply a bank threshold to a dealer.

Tip 3 – Identify the stage of laundering. Buying gold with cash is placement; reselling it abroad and wiring the proceeds is layering; buying a yacht with the resulting funds is integration. When a scenario spans several steps, answer the stage the question actually asks about.

Tip 4 – Choose the answer that explains the vulnerability, not just the fact. If asked why gold is attractive to launderers, the best answer combines high value in small volume, global acceptance, ease of conversion and difficulty of tracing once melted, rather than a single superficial feature.

Tip 5 – Spot the strongest red flag. When several facts are listed, the most suspicious is usually the one combining threshold avoidance (cash just under the limit), indifference to price or quality, third-party or offshore payment, and rapid resale or refund by a different payment method. A customer simply buying an expensive engagement ring with a credit card is not a red flag.

Tip 6 – Think TBML for diamonds and refinery risk for gold. Questions about over- or under-invoicing, carousel trades and vague product descriptions point to trade-based laundering, for which diamonds are a textbook vehicle because of their subjective value. Questions about mixing illicit metal with legitimate supply, or about conflict minerals, point to refinery and supply-chain due diligence (LBMA, OECD).

Tip 7 – Link certification schemes to the right commodity. Kimberley Process = rough diamonds (conflict diamonds). LBMA Responsible Gold Guidance = gold refiners. Responsible Jewellery Council = jewellery supply chain. Do not attach Kimberley to gold or polished-stone retail.

Tip 8 – Prefer risk-based, proportionate controls. If asked what a jeweller or auction house should do, the best answer is to implement a risk-based AML programme (risk assessment, CDD, training, record keeping, reporting, independent review), apply EDD to higher-risk customers and provenance checks to goods, and report suspicion. Avoid absolute answers such as 'never accept cash' or 'refuse all foreign customers', which are usually distractors.

Tip 9 – Remember the bank's perspective. Many questions are framed from a financial institution's view: a jeweller customer depositing large amounts of cash and sending wires to a diamond centre abroad should prompt the bank to review the customer's profile, expected activity and AML controls, and to consider a suspicious activity report, not to close the account immediately without analysis.

Tip 10 – Do not confuse high-value goods with real estate or casinos. All three are DNFBP-related topics, but the distinguishing features of this sector are portability, physical cross-border movement, subjective valuation and supply-chain provenance. If the scenario hinges on those features, you are in precious metals, stones and high-value goods territory.

8. Quick Revision Checklist

• DPMS = DNFBP (FATF R.22 and R.23); CDD at USD/EUR 15,000 cash.
• EU cash threshold for traders in goods: EUR 10,000.
• US: Form 8300 over USD 10,000; AML programme if more than USD 50,000 purchased and sold.
• Vulnerabilities: portability, store of value, subjective pricing, cash intensity, anonymity, global supply chains, weak regulation.
• Typologies: cash purchase and resale, structuring, melting and refining, TBML invoice manipulation, carousel trades, cross-border smuggling, auction and art schemes, free ports, luxury-asset integration, terrorist use of gold.
• Red flags: sub-threshold cash, indifference to price, third-party payments, rapid resale or refund by other means, missing provenance or Kimberley certificates, invoice/market mismatches.
• Controls: risk-based programme, CDD/EDD, records, reporting, supply-chain due diligence (Kimberley, LBMA, OECD, RJC), sanctions screening.

Master the 'why' (vulnerabilities), the 'how' (typologies mapped to stages), the 'what to look for' (red flags) and the 'what to do' (risk-based controls and the correct thresholds), and you will handle any CAMS question on dealers in precious metals, stones and high-value goods with confidence.