Are You a Dealer Under the BSA?

Before you write an AML program, answer the question that decides whether you need one. Under 31 CFR Part 1027, the answer turns on two numbers, one definition, and two exceptions.

The two-part test

You are a dealer if you are engaged in the United States in the business of buying and selling covered goods, and during the prior calendar or tax year you both:

purchased more than $50,000 in covered goods, and
received more than $50,000 in gross proceeds from sales of covered goods.

Both thresholds must be met. A business that sold $2 million of bullion but bought only $40,000 of it in the prior year, because it sells on consignment for example, does not meet the definition. A business that bought $60,000 from the public and sold $60,000 does.

The test looks back one year. If you crossed both thresholds last year, you are a dealer this year, and you have six months from becoming a dealer to put your program in place.

What counts as covered goods

Covered goods are jewels, precious metals, and precious stones, plus finished goods that derive 50 percent or more of their value from them. For metals, the definition is precise. Precious metal means gold, iridium, osmium, palladium, platinum, rhodium, ruthenium, or silver at a purity of 500 parts per thousand or more, and alloys containing 500 or more parts per thousand of those metals in the aggregate.

Bullion bars, rounds, and coins meet that test easily. Numismatic coins need more thought. A rare coin is a covered good only if at least half its value comes from the metal. A coin whose price is mostly collector premium may fall outside the definition, which matters when you calculate your thresholds.

The retailer exception

A retailer is a business that sells covered goods primarily to the public. Retailers get a narrower rule. A retailer is a dealer only if, in the prior year, it purchased more than $50,000 in covered goods from persons other than dealers and other retailers, such as members of the public or foreign suppliers, in addition to meeting the sales threshold.

When a retailer does cross that line, its program only needs to address those purchases. A jewelry store that buys gold from walk-in customers needs controls on those buys. It does not need a program covering every sale of a wedding ring.

Two transactions that do not count

Trade-ins. When you accept covered goods from a customer, credit their value toward the customer's purchase, and pay out no funds, the transaction is not counted as a purchase or a sale for the threshold.

Pawn transactions. A business licensed or authorized under state or local law to operate as a pawnbroker is excluded from the dealer definition, but only to the extent it is engaged in pawn transactions, including selling forfeited pawn collateral. Gold a pawnshop buys outright over the counter is not a pawn transaction, so those purchases can still count toward the thresholds.

What follows if you are a dealer

A dealer must have a written AML program with four parts: risk-based policies, procedures, and internal controls; a compliance officer; ongoing training; and independent testing. The program must be approved by senior management and made available to FinCEN on request.

Separately, and regardless of dealer status, every U.S. business must comply with OFAC sanctions, and every business that receives more than $10,000 in cash in a transaction or related transactions must file Form 8300. Falling outside the dealer definition removes the AML program requirement. It does not remove those two.

Document the answer either way

If you conclude you are not a dealer, write down the numbers and the reasoning, and revisit them every year. If you are a dealer, the same analysis becomes the first page of your program. Either way, an examiner, a bank, or a counterparty who asks will see a decision, not an assumption.