Thank you, Mr. Chair, for this opportunity to comment on your review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
My name is Phyllis Richard. I'm the former executive director of Jewellers Vigilance Canada, and now serve as chair of the Canadian Jewellers Association, government relations committee.
With my colleague's overview of the Canadian jewellery industry in mind, I would like to speak about the dealers in precious metals and stones sector and their requirements under the act.
Unlike other reporting entities, there is no licensing requirement specific to the part of the DPMS sector covered under the act, and very few specific regulations in general that pertain to jewellers. This is in sharp contrast to many other reporting entities, such as financial institutions, which have a very structured and regulated environment. The parts of the DPMS sector captured under the act are entrepreneurial in spirit and business practices, outside of the multi-line retailers such as Costco, Walmart, and The Bay.
As a general rule, the DPMS sector at the independent retail and wholesale levels lacks technological sophistication, with a limited communication channel. This is in contrast to the mining sector, which embraces new technologies and has a significant level of sophistication.
In reviewing the vulnerabilities to money laundering within the captured segment of the DPMS sector, various products present various risks. These risks need to be understood in order to develop measures to mitigate them. As an example, cut, polished, and/or finished gemstones may in some cases be used as a store of value. The available liquidity in is highly dependent on the type of stone, with diamonds generally having more available and stable markets than coloured stones. By “stable”, we are referring to the valuation of an item when assessed by different parties.
In the case of coloured stones, the assessed value of an item can vary significantly. Within the more liquid diamond trade, there are a number of controls in place to ensure the pedigree and authenticity of stones, particularly those of high value. These include processes to ensure that diamonds have points of origin outside of known conflict zones. While such processes are neither universal nor perfect, they are believed to have significantly impacted corruption in the diamond trade.
In addition, there is a trend toward more transparency about diamonds and gemstones. In the case of diamonds, we are seeing some major mining companies looking towards blockchain as a method to bring transparency to the product history.
Finished jewellery purchased at retail rates represents little money laundering or terrorist financing risk in the Canadian context, in particular when these items are bought and sold at retail rates. To the best of our knowledge, there are very few money laundering typologies that involve the actual purchase and/or sale of finished jewellery in a retail setting.
Unlike finished jewellery, precious metals in the form of bars, ingots and/or coins maybe used as a store of value. However, such items have limited liquidity, particularly in large quantities, at the jewellery retail level. The sale of high-value items would often require interaction with either a regulated entity or an auction house.
Many jewellers purchase and/or accept trades of broken, scrap, or resale jewellery. These items are most often melted down to extract the precious metals and either used to create new items or sold for the value of the metals. The risk posed in such cases is that these items themselves may be the proceeds of crime as stolen property. Insofar as we are aware, most jewellers collect identification and KYC information in the case of such transactions, and do not accept such transactions if the property in question is believed to be stolen. Where property is believed to be stolen, local law enforcement may also be contacted. As such, retail jewellers are not likely to be the path of least resistance for criminals who wish to dispose of stolen property. The exception here would be bad actors, who unfortunately exist.
My colleague mentioned the JVC crime prevention program. The many security steps taken by members to this program have inherent AML mitigating properties. These would include video cameras, staff training, and in the case of wholesalers and manufacturers, trade references as a requirement.
Within the DPMS sector there is a segment of industry that is not covered but would seem to be vulnerable to money laundering, and that is auction houses.
We hope this gives the committee some insight into the complexity of the DPMS sector, and I thank you.