AUSTRAC Regulatory Guide
return to index
return to chapter 11 - designated services
Chapter 11 - Designated services - Bullion
| Brief description of services
|
- purchasing or selling bullion
|
What is the definition of bullion for the purposes of the AML/CTF Act?
AUSTRAC considers that the following definition of 'bullion' is appropriate for the purposes of the AML/CTF Act. 'Bullion' means gold, silver, platinum or palladium authenticated to a specified fineness in the form of bars, ingots, plates, wafers or other similar mass form; or coins, that trade at a price determined by reference to the market value of the constituent metal and the authenticated fineness of the item.
'Authentication of fineness' means commercially acceptable hallmark or stamping, or by means of the base form of an item, such as in the case of coins.
AUSTRAC considers that 'collector', 'proof' or other coins which are traded on the basis of their numismatic, commemorative or rarity value are not bullion.
Granules have not been included, as by definition granules are incapable of bearing a means of authentication as to fineness.
Other platinum group metals (besides platinum and palladium) comprising iridium, rhodium, osmium and ruthenium have not been included in the definition, as these metals are predominantly used for industrial purposes, rather than for trade-based investments.
AUSTRAC considers that it is the authentication of fineness (also known in the industry as 'assaying') and not the level of that fineness that defines bullion, and does not consider that an ordinary meaning of bullion should specify a minimum fineness. This is both because to do so is to arbitrarily tie the meaning of bullion to that of a particular commodity exchange and because the level of fineness to which an item is authenticated is a commercial matter.
AUSTRAC considers it is unlikely that, whether by stamping or hallmarking, fineness of less than approximately .9166 (equal to 22 carat gold) will be authenticated or assayed, but this is a commercial matter which may vary over time.
top
What are platinum group metals?
Platinum group metals are platinum, palladium, iridium, rhodium, osmium and ruthenium.
What are bullion coins?
A bullion coin has a precious metal purity of at least .9166, and is traded at a value principally determined by reference to the market value of the constituent metal.
What are the designated services relating to bullion?
This section discusses bullion in the context of items 1 and 2 in table 2 of the AML/CTF Act, as shown in the following table.
|
|
buying bullion, where the buying is in the course of carrying on a business
|
the person from whom the bullion is bought
|
|
|
selling bullion, where the selling is in the course of carrying on a business
|
the person to whom the bullion is sold
|
top
What is 'carrying on a business'?
Under the FTR Act, obligations were conferred on 'a person who carries on a business of selling bullion' (52) . This wording is more restrictive than the words used in the AML/CTF Act.
Under the AML/CTF Act, the act of buying or selling bullion has to occur 'in the course of carrying on a business'. Accordingly, any person or entity which buys and sells bullion in the course of carrying on a business is providing a designated service under the AML/CTF Act, even where their business is not a bullion trading business, for example, mining companies or refiners who also sell or purchase bullion.
For further information about the meaning of the phrase 'carrying on a business', refer to AUSTRAC PLI 4. (53)
Exemptions
The Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2009 (No. 2) has added Chapter 33 into the AML/CTF Rules, providing an exemption for reporting entities from carrying out customer identification procedures for purchases or sales of bullion when the retail value of the transaction is less than $5,000.
Important |
|
The above exemption does not apply where a reporting entity determines, in accordance with its ongoing customer due diligence program, that it should obtain or verify any information about a customer. |
What are the risk indicators for trading in bullion?
A range of typologies indicate that trading in bullion can be used to facilitate money laundering and/or the financing of terrorism. The following circumstances may indicate a risk of money laundering or terrorism financing in connection with such services: (54)
- large amounts of bullion purchased using cash
- a previously unknown customer requesting a refiner to turn alluvial gold into bullion
- bullion transferred between family members and associates using metal accounts for no apparent commercial purpose
- the bullion has physical characteristics that are inconsistent with industry standards
- unusual pattern of bullion transactions
- the nature of the transactions is inconsistent with the customer profile.
top
Case studies
Case study 11 |
|
Smuggling of gold to evade tax
'Paul' was a well-known customer of a European bank. On a number of occasions he purchased gold bullion from the bank in ingots of 1 kilogram, with the explanation that he was buying the gold to export directly to a foreign company. Paul transported the gold out of the bank by himself after each transaction. In a single year he purchased more than 800 kilograms of gold with a value of more than USD7 million. The gold was paid for by funds drawn from his company account. The bank was also able to see that at regular intervals funds were transferred into the account from another company in a neighbouring country.
Paul's actions in transporting the gold himself seemed unusual to the bank, and the bank officials decided to disclose their concerns to the national FIU. The unit did some research on Paul and his company using various law enforcement intelligence databases, but no obvious link to criminality could be found. However, the scale of the gold purchases justified a formal investigation by the unit, and further enquiries were undertaken.
These enquiries revealed that Paul was not in fact selling the gold to a foreign company as claimed. Before buying the gold, Paul always met with a foreign citizen named 'Daniel'. Although they drove to the bank together in Paul's car, Daniel never entered the bank. After Paul purchased the gold, they drove to Daniel's car and hid the gold in the boot. Then Daniel drove back to his own country, crossing the border without declaring the bullion at customs and therefore avoiding paying import duties. Once in his own country, Daniel handed the gold over to 'Andrew', who delivered it to another company for sale on the open market. A proportion of the profits from the sale of the gold was transferred back to Daniel's company, from which he drew the next tranche of funds to purchase more gold. The amount of additional profit generated by this simple tax evasion scheme was substantial.
At the time of writing, criminal proceedings for money laundering in conjunction with tax evasion were being raised against Paul, Daniel and Andrew. The smuggling operation was estimated to have caused tax losses to the government of some USD1 million. Because the proceeds from selling the smuggled gold were obtained illegally, the judicial authorities in the FIU's country commenced criminal proceedings against the individuals involved. (55)
Indicators: repeated purchases of a substantial number of gold ingots; physical transfer of ingots by customer; purchases funded by transfer of funds into customer's account from third country. |
Case study 12 |
|
Retail gold purchases serve as direct method of laundering
A foreign national used the services of a bureau de change to buy 265 ingots of gold with a total value of about USD2 million, which he paid for in cash. These transactions took place over a period of 18 months. The buyer did not have a bank account and alternated temporary jobs with periods of unemployment, which suggested that he was acting on behalf of a third party, whether a natural or legal person, who was probably involved in drug trafficking.
The facts were forwarded to the prosecutor, and an investigation is ongoing. (56)
Indicators: repeated purchases of a substantial number of gold ingots; payments made in cash; purchaser did not have bank account and had unstable employment patterns. |
top
Additional resources
- AUSTRAC guidance note 09/01: Definition of 'bullion' under the AML/CTF Act
Frequently asked questions
Q. I sold some bullion to my sister. Did I provide a designated service?
A. A purchase or sale of bullion that is done in a personal capacity is not a designated service. However, if you operate a business and you sold bullion to your sister in the course of carrying on a business, the sale will be a designated service. AUSTRAC PLI 4 provides guidance on what constitutes 'carrying on a business'. If you have doubts about whether a service may be captured under the Act, you should seek independent legal advice.
Q. I have a business where I sell bullion, but it is usually in small quantities. Do I have to report all sales and purchases of bullion to AUSTRAC?
A. No, sales of bullion need be reported to AUSTRAC only if they meet the definition of a 'threshold transaction' under the AML/CTF Act, that is, if they involve the transfer of physical currency or e-currency of $10,000 or more. However, if a bullion seller forms a suspicion on reasonable grounds about the customer or transaction, they are also required to submit a suspicious matter report to AUSTRAC. Chapter 9 of this Guide provides detailed guidance on a reporting entity's reporting obligations.
Q. Will the sale of collector coins generate obligations under the AML/CTF Act?
A. Generally, AUSTRAC considers that a 'collector' or 'proof coin' is not bullion, as its value is determined based on qualities, such as rarity and condition, rather than its precious metal content. However, if a coin that would ordinarily be considered a collector or proof coin is treated as a bullion coin and the price is determined by reference to the value of the precious metal content, then it may be a sale of bullion. Where there are doubts about whether the sale of collector coins is a designated service under the Act, independent legal advice should be sought.
top
148 Definition of 'bullion seller' in section 3 of the FTR Act.
149 PLI 4 at www.austrac.gov.au/files/pli_4_reporting_entity.pdf.
150 This list is not exhaustive and reporting entities, through risk-based processes, may identify additional indicators within their systems. AUSTRAC, through its research on typologies, will continue to release additional case information and indicators (red flags) as identified.
151 AUSTRAC Case Studies and Typologies Report 2007 at www.austrac.gov.au/files/typologies_report.pdf.
152 AUSTRAC Case Studies and Typologies Report 2007 at www.austrac.gov.au/files/typologies_report.pdf.
top
Designated services (home)| Financial services | Gambling services (next)
