DPMS AML Red Flags for Precious Metals and Jewelry Dealers

1. What is a DPMS?

DPMS stands for "Dealer in Precious Metals, Stones, and Jewels", a defined category of "financial institution" under the Bank Secrecy Act (BSA). The term covers businesses engaged in the purchase and sale of "covered goods," which FinCEN defines as jewels, precious metals, and precious stones above specified thresholds.

Precious metals, stones, and jewelry are attractive to criminals because they combine very high value in a physically small, portable form with near-universal recognition and convertibility. A single bar, stone, or high-value piece of jewelry can store hundreds of thousands of dollars, be moved across borders with relative ease, and later be resold, or, in some cases, melted or recut to destroy its traceability.

This portability and liquidity is precisely what makes the sector a money laundering and sanctions risk. The indicators on this page describe that risk and the best practices for managing it, they are not a statement that every jewelry or metals business is regulated identically.

2. Who may be subject to FinCEN requirements?

The AML program requirement is narrower than many people assume. Under 31 CFR § 1027.100, a "dealer" is a person engaged in the business of both purchasing and selling covered goods who, during the prior calendar or tax year, purchased more than $50,000 in covered goods and received more than $50,000 in gross proceeds from selling them. A retailer is excluded unless it purchased more than $50,000 from sources other than dealers or other retailers, such as the public or foreign suppliers.

Both the purchase and the sale thresholds must be met. A jewelry retailer that only sells, that is, buys its inventory from wholesalers rather than from the public, is generally not a "dealer" and is not required to establish an AML program under 31 CFR § 1027.210. Businesses that only buy from the public, or only sell, do not meet the definition.

FinCEN has also held the AML program requirement in abeyance with respect to dealers in silver (FinCEN Ruling 2006-1), so a dealer whose covered goods are exclusively silver is generally not currently required to establish an AML program. What applies to every U.S. person regardless of these definitions is the obligation to comply with OFAC sanctions and, for cash received over $10,000, the IRS Form 8300 filing duty.

3. Precious metal transaction red flags

Bullion and other precious metals are the most liquid form of covered goods, which makes metal transactions a common channel for converting illicit cash into a portable, resellable asset. Watch for patterns that suggest the customer values anonymity or liquidity over the investment itself.

• Cash purchases in amounts just below the $10,000 Form 8300 threshold, especially repeated across days or dealers
• A customer who pays a premium well above spot price while showing no interest in the investment value
• Requests to melt purchased coins or bars into granules or dust with no manufacturing or industrial purpose
• Repeated buy-and-sell of the same metal at a loss, suggesting the trades exist to create a paper trail
• Large volumes purchased by a business with no legitimate commercial need for precious metals

4. Jewelry transaction red flags

Jewelry carries elevated risk because it can be resold, dismantled, or recut to obscure its origin. A customer who treats a jewelry purchase as a transfer of value rather than a personal or business acquisition warrants closer review.

• A customer who shows little interest in design, quality, or price and asks only about resale value and anonymity
• Purchases of loose stones or high-value pieces with payment from sources unrelated to the buyer
• Rapid purchase and resale of jewelry with no legitimate explanation or meaningful appreciation
• Requests to recut or dismantle stones shortly after purchase, destroying identifying characteristics
• Multiple related transactions structured to appear as unrelated small purchases

5. Cash transaction concerns

Cash is the highest-risk payment method in the precious metals and jewelry sector. While a cash purchase is not inherently suspicious, large or unusual cash activity, especially when combined with attempts to avoid reporting, is a meaningful warning sign.

• Large cash payments in small-denomination bills, including currency wrapped in rubber bands or transported in non-bank containers
• Splitting a single purchase into multiple cash transactions to stay below the $10,000 Form 8300 threshold
• Customers who ask about reporting thresholds or how to avoid Form 8300 filing
• Cash received over $10,000 in a single or related transaction, this triggers a mandatory IRS Form 8300 filing
• Cash payments inconsistent with the customer's known profile or stated source of funds

6. Third-party transaction risks

Third parties are frequently used to distance the true buyer from a transaction. When someone other than the customer funds a purchase, controls the instructions, or takes delivery, the dealer should understand who they are and why they are involved.

• Payments from a third party with no documented relationship to the buyer
• A nominal buyer who remains silent while an intermediary provides all funds and instructions
• Requests to ship or transfer ownership to a party different from the one who paid
• Repeated purchases by the same individual on behalf of different, unrelated parties
• Use of an intermediary to obscure who ultimately controls the transaction

7. International trade concerns

Cross-border movement of precious metals and stones introduces geographic risk and is a common feature of trade-based money laundering. The concern is not the buyer's nationality but the jurisdiction of the funds and the transparency of the shipment.

• Wires from high-risk or weakly regulated jurisdictions with no prior relationship
• Requests to ship bullion or stones to offshore vaults or third-party storage with no stated purpose
• Export to jurisdictions with weak AML controls or active conflict, with no verifiable ties to the destination
• Use of freight forwarders or intermediaries to conceal the final destination of a shipment
• Invoices or declared values that do not match the actual goods or market value

8. Sanctions and OFAC risks

OFAC sanctions apply to all U.S. persons, including precious metals and jewelry dealers. Dealers should screen buyers, sellers, counterparties, and beneficial owners against the SDN List and watch for activity that suggests an attempt to evade sanctions through metals or jewelry transactions.

• Requests to ship purchased goods to a comprehensively sanctioned jurisdiction, possibly through a non-sanctioned intermediary
• Buyers or beneficial owners who appear on or are linked to the OFAC SDN List
• Funds wired from a sanctioned jurisdiction and routed through intermediaries
• Use of precious metals as collateral to obtain credit in a non-sanctioned country while funds originate from a sanctioned source
• Politically exposed persons purchasing large volumes with funds from government-linked accounts

9. Supplier due diligence

Money laundering risk does not begin and end with the customer. A dealer's supply chain, where metals and stones are sourced, can also introduce sanctions and conflict-financing risk. Knowing the provenance of covered goods is a core part of a sound AML program.

• Verify the identity and reputation of suppliers and understand the origin of metals and stones
• Be alert to suppliers offering goods at prices materially below market with no explanation
• Watch for stones or metals sourced from conflict-affected or high-risk areas
• Screen suppliers and their beneficial owners against OFAC sanctions lists
• Document the provenance of high-value stones and maintain a clear chain of custody

10. Customer due diligence

Customer due diligence means knowing who you are doing business with and understanding the expected nature and purpose of the transaction. For a dealer, this begins with identification but extends to the transaction's commercial logic.

• Verify the customer's identity with a government-issued photo ID for higher-value or cash transactions
• Understand the customer's profile, including their stated source of funds and purpose for the purchase
• Look for transactions that lack a reasonable economic purpose or are inconsistent with the customer's profile
• For legal entity customers, identify the beneficial owners rather than relying on a nominee or shell structure
• Be alert to customers who resist identification or seek to avoid recordkeeping requirements

11. AML program considerations

For businesses that meet the "dealer" definition, 31 CFR § 1027.210 requires a written anti-money laundering program that is reasonably designed to prevent the dealer from being used to facilitate money laundering or the financing of terrorism. FinCEN has not finalized a Suspicious Activity Report rule for dealers, so the program centers on policies, procedures, and training rather than mandatory SAR filing.

• A written program of policies, procedures, and internal controls, approved by senior management
• A designated compliance officer responsible for the program
• An ongoing employee training program
• Independent testing of the program to confirm it is functioning as intended
• Policies for identifying and, where appropriate, escalating suspicious activity internally

12. Employee training

Sales staff, appraisers, and cashiers are the employees most likely to observe the earliest warning signs, so training should focus on recognition and escalation rather than accusation. Staff should understand the difference between a legitimate cash purchase and one that warrants closer review.

• Provide role-specific training on cash, third-party, and international red flags
• Cover IRS Form 8300 requirements and OFAC screening obligations
• Reinforce the internal escalation path so staff know where to raise concerns
• Document training completion and refresh content as FinCEN guidance evolves

13. Documentation and recordkeeping

Consistent recordkeeping is what turns a red flag from an anecdote into a defensible, auditable decision. For cash transactions over $10,000, the IRS Form 8300 filing itself is a mandatory record; beyond that, a dealer should maintain clear records of identification, transactions, and any escalation decisions.

• Maintain records of customer identification for higher-value and cash transactions
• Retain transaction records, invoices, and shipping documentation
• File IRS Form 8300 for cash received over $10,000 and keep a copy on file
• Document the review and escalation of any unusual activity, including the outcome
• Retain records consistent with any applicable state or local licensing obligations

DPMS Red Flags at a Glance

A quick reference for evaluating and escalating potential suspicious activity involving precious metals, stones, and jewelry.

Individual indicators are not proof of criminal activity. Evaluate each transaction in context and against the customer\'s stated profile before escalating.