Mar. 21 2011 - 2:13 am

http://blogs.forbes.com/irswatch/2011/03/21/the-irs-targets-jewelers-for-compliance-with-anti-money-laundering-rules/

Background

The IRS is now in charge of compliance with the Anti-Money Laundering Rules.  The Anti-Money Laundering Rules are designed to ensure that businesses do not intentionally, or more importantly, unintentionally, conduct business with those elements of society engaged in money laundering.

One of the main mechanisms by which the IRS polices this area is through the requirement that a business file a Form 8300 for transactions involving greater than $10,000 in cash or cash equivalents.  This seemingly simple requirement is fraught with traps for the unwary, as installment sales and sellers of sales to the same customer, each less than $10,000 per occasion, can be perceived by the IRS as a single transaction triggering a Form 8300 filing requirement.

Historically, the IRS has been after drug dealers wishing to use jewelers to launder their illegal drug proceeds.  However, since 9/11, the government has expanded its scope of anti-money laundering activities to include terrorists.  The government now requires certain businesses to have a Anti-Money Laundering Program in place even though the particular business has never had a problem with money laundering.

In 2006, the government mandated that certain jewelry businesses implement Anti-Money Laundering Programs.  Currently, the IRS is sending out experienced IRS agents to proactively contact and test jewelers and their Anti-Money Laundering Programs.

Who is subject to the Anti-Money Laundering Program requirements?

Generally speaking, a jewelry business is subject to the Anti-Money Laundering Program requirement if two conditions are present (i) the business buys more than $50,000 of precious metals, jewels and stones (including finished goods) AND (ii) the business receives more than $50,000 from the sale of precious metal, jewels and stones.  Once these conditions are met, the business must implement a Anti-Money Laundering Program.

Included among the jewelry businesses subject to this rule are wholesalers, retailers, refiners, traders, importers and businesses who buy precious metals, jewels and stones from the general public.

These broad rules have only limited exceptions, such as (i) retailers who exclusively purchase from other dealers subject to the anti-money laundering program regime, (ii) businesses who purchase from the general public, and (iii) non-dealers subject to the anti-money laundering rules as long as purchases of precious metals, jewels and stones are less than $50,000; if purchases exceed $50,000 in a year, then the anti-money laundering regime does apply.

What is the IRS level of activity and what can the IRS do in these investigations?

The IRS is conducting Anti-Money Laundering examinations with experienced Bank Secrecy Act Fraud investigators.  The investigations include specific IRS Information Document Requests that range from cash sales to competitors to bank statements.  In addition to all of the requested documentation, the IRS Bank Secrecy Act fraud specialist is also requiring in-person interviews.  Obviously, any interview with an IRS agent that is trained in fraud is one to be approached most carefully.  The Bank Secrecy Act fraud specialist is tasked with compliance with the Bank Secrecy Act and the anti-money laundering rules.  Additionally, the Bank Secrecy Act fraud specialist has the power to make a referral to FinCen for Title 31 violations, the IRS civil division for violations of the federal tax laws, as well as the power to make referrals to the IRS Criminal Division.  In the latter referral, the Bank Secrecy Act fraud agent would be the referring and supporting agent in the criminal tax investigation.

The Bottom Line

A Anti-Money Laundering Title 31 examination by a Bank Secrecy Act fraud specialist is a delicate matter.  The government is taking its anti-money laundering efforts very seriously, especially in the post 9/11 universe.  As such, these examinations should be approached with caution and with an eye towards a short term resolution.  A full analysis of a client’s individual situation should be conducted prior to engaging in the examination.