In My Legal Opinion….By Leonard M. Weiner, Esq., PhD.

(This is the seventh in a series of columns that deals with contemporary legal and commercial issues that are currently facing the diamond and jewelry industry and I invite reader email responses and dialogue regarding the issues raised. Please see the previous article).

These articles for information and discussion purposes only and should not be construed as legal advice, which advice shall be provided only after entering into a written retainer agreement.)

Definition Of “Defined Dealer”

The interim regulation-of the Treasury Department implementing Section 352 of the USA PATRIOT Act defines a “dealer” as any person within the United States who has purchased and sold at least $50,000 worth of “covered goods” during the preceding year (“Defined Dealer”). “Covered goods” include jewels (2),precious metals (3), stones (4),or finished goods (5).The interim regulation covers entities including manufacturers, refiners, wholesalers, and some retailers.

In addition to the minimum dollar threshold, the definition of “dealer” contains two exceptions:

1. Under the first exception, a “retailer” (i.e., a person engaged within the U.S. in sales of covered goods primarily to the public) is a dealer only if it purchased more than $50,000 in covered goods from persons other than from other “dealers” or other retailers (such as members of the general public or foreign sources of supply) during the prior calendar or tax year. Therefore, a retailer that purchases jewels from a dealer would not be deemed a “dealer” – and therefore not be subject to the Anti-Money Laundering (“AML”) program requirement – even if its gross sales of jewels exceeded $50,000 in the prior calendar or tax year.

2. Under the second exception, businesses licensed or registered as pawnbrokers under state or municipal law are specifically exempted from the definition of “dealer.” Therefore, pawnbrokers are not required to establish anti-money laundering programs under this exception as long as they are properly licensed or registered with the appropriate state or local government and engaged in pawn transactions.

A link to the rule may be found on Fin-CEN’s Web site at: www.fincen.gov/wn_ main.html.

Now that you know what the patriot act requires of you, are you really ready for a thorough audit?

(In a forthcoming article we will reveal the details of what to expect.)

1 31 U.S.C. § 5312 (a)(2)(N)

2 “Jewel” means organic substances that have a market-recognized gem level of quality, beauty and rarity. 31 C.F.R.
§103.140(a)(2).

3 “Precious metal” means gold, silver, and the platinum group of metals, when it is at a level of purity of 0.500 (50 percent) or greater, singly or in any combination. 31 C.F.R. §103.140(a)(3).

4 “Precious stone” means inorganic substances that have a market-recognized gem level of quality, beauty and rarity. 31 C.F.R. §103.140(a)(4).

5 “Finished goods” means goods (including, but not limited to, jewelry, numismatic items, and antiques) that derive 50 percent or more of their value from jewels, precious metals or precious stones contained in or attached to such goods. 31 C.F.R. §103.140(a)(1)(i).

MY EMAIL ADDRESS: lenlaw@verizon.net