Follow the Golden Rules
By Robert Frimet, CMS
It’s no surprise announcement that the gold buying business has swept the nation. If you’re not on the gold buying band wagon, you probably should be by now.
But what about compliance?
Unknown to many, there is something called the U.S. Patriot Act (our old friend), and since 2006, laws have been in effect that require certain dealers in precious metals to be regulated under Chapter X, formerly CFR 103.140.
What this means is that as a purchaser of precious metals, you may have expanded responsibilities. Before you decide to take a liquid bath in nitric acid, there are exemptions that may apply.
Under the regulation, if you purchased less than $50,000 in precious metals from the general public in the previous year, you wouldn’t have to comply with this ruling.
If business was booming in 2010 and you did purchase in excess of $50,000 in precious metals and also sold those metals to a refiner or third party, you would be required to follow the regulation by June of 2011.
To get to the down and dirty, all precious metals including platinum, silver and palladium are covered under the regulation if the metal exceeds 500 parts per thousand, which equates to 50 percent pure.
That means that if all you did was purchase 10K gold all day long and no other karat, you wouldn’t be required to comply with the law as 10K is approx 39 percent pure, not 50 percent pure.
However, if you bought a combination of metals that exceed 50 percent in purity, then you must comply.
If you hit that 50 percent mark, you need a full compliance program under Title 31 which means:
• Incorporating policies and procedures based on the risk associated with purchases from customers.
• Creating a risk assessment
• Specifying types of products offered
• Specifying what countries you deal with if out of the U.S.
• Detailing how you spot and handle risk
• Conducting ongoing training for staff
• Providing for an independent review (unlike Title 31, for MSBs, a person who is involved with the operation of the program may not be the reviewer.) An outside person such as a consultant, CPA or bookkeeper could conduct the review if they are familiar with such review processes.
The kicker is that if you do fall under this regulation, you would then comply with 26 and file the 8300 form, not a CTR, which would force you to comply with Title 31 and Title 26 (Title 31 for the program and Title 26 for the 8300.)
You may also file an 8300 under suspicious activity transactions or file a form 109 to protect you under the safe harbor rule.
If you are processing metal through a broker, are they offering you a program or did they even make you aware of these requirements? These are questions business owners should ask themselves when dealing with outside companies.
Jim Colllachia of Hometown Cash Advance, with 24 locations in multiple states, was questioned about his compliance.
“We are a large gold buyer and we really could not have gotten as successful as we are without using Retail Gold Brokers, as they set us up from beginning to end and addressed all our compliance needs, both state and federal,” Colllachia says.
Feds Important, Too
Many in the industry are focused on state issues. While these are critically important, so are the federal requirements.
It also appears that the IRS, on behalf of FinCen, is stepping up its audits and looking closely at those companies that don’t have a compliance program in place despite meeting the requirement under Title 31. Fines can be steep for non-compliance.
Other things to consider on the state level are weights and measures, as well as hold times and reporting to local law enforcement. It pays to have someone involved in your business who can ensure that all regulations are being followed and, if necessary, process your metals as well.
Robert Frimet is the president of RMF Consulting Group, Inc and is a Certified Anti Money Laundering Specialist. He has served the pawn, check cashing, payday, title, and other industries since 1991. Frimet offers compliance programs and independent reviews and federal/state examination audit assistance nationwide. He may be reached at (702) 596-8370 (PST), at Bob@checkconsultants.com or via www.checkconsultants.com