Anti-money-laundering (AML) regulation as applied to the gem and jewellery trade refers to the body of legal obligations, international standards, and compliance frameworks designed to prevent dealers in precious metals, gemstones, and finished jewellery from being used — wittingly or otherwise — as conduits for the placement, layering, or integration of illicit funds. High-value, portable, and relatively liquid, gemstones and jewellery have long been recognised by financial intelligence authorities as attractive vehicles for money laundering and, in some documented cases, for sanctions evasion and terrorist financing. The sector's historically informal commercial culture, its reliance on cash transactions, and the complexity of valuing individual pieces have made it a persistent concern for regulators worldwide. In the United States, the Financial Crimes Enforcement Network (FinCEN) proposed landmark rules in 2024 that would, for the first time, bring a broad segment of the gem and jewellery trade within the formal scope of the Bank Secrecy Act. Internationally, the Financial Action Task Force (FATF) has for more than a decade urged member jurisdictions to extend AML obligations to dealers in precious metals and stones. The result is a period of significant regulatory transition that is reshaping compliance expectations, due-diligence practices, and record-keeping requirements across the trade.

Why Gemstones and Jewellery Are Attractive to Money Launderers

The properties that make gemstones commercially desirable — high value-to-weight ratio, durability, relative anonymity of ownership, and international portability — are precisely the characteristics that make them useful to those seeking to move or conceal illicit wealth. A parcel of fine rubies or a single important diamond can represent millions of dollars in a package small enough to cross borders undetected. Unlike real estate or financial instruments, gemstones do not carry registered titles or serial numbers in most jurisdictions. A stone purchased with criminal proceeds in one country can be sold through a legitimate dealer in another, with the resulting funds appearing entirely clean.

The trade's structural characteristics compound this vulnerability. A significant proportion of global gemstone transactions — particularly at the rough-stone and wholesale levels — have historically been conducted in cash, often between parties who know each other through long-standing relationships rather than formal documentation. Valuations are inherently subjective: two qualified gemmologists may assess the same stone differently, creating room for deliberate over- or under-invoicing. The supply chain is long and often opaque, running from artisanal mining communities in Myanmar, Colombia, or Mozambique through multiple intermediaries before reaching a retail counter in Geneva, Hong Kong, or New York.

FATF has documented specific typologies in which gemstones feature in money-laundering schemes, including the use of diamond parcels to transfer value across borders, the purchase of high-jewellery pieces at auction using structured cash payments, and the exploitation of free-trade zones where documentation requirements are reduced. The 2020 FATF report on money laundering and terrorist financing risks in the diamond sector remains one of the most detailed public analyses of these vulnerabilities.

The Financial Action Task Force and International Standards

The Financial Action Task Force, established in 1989 and now comprising 39 member jurisdictions plus observer organisations, sets the global benchmark for AML and counter-terrorist-financing (CTF) policy. Its Forty Recommendations — most recently revised in 2012 and updated periodically since — include Recommendation 22, which explicitly addresses Designated Non-Financial Businesses and Professions (DNFBPs). Dealers in precious metals and dealers in precious stones are named DNFBPs under the FATF framework, meaning that member jurisdictions are expected to apply AML and CTF obligations to them equivalent to those applied to financial institutions, scaled appropriately to the risks involved.

These obligations, as defined by FATF, include:

• Customer due diligence (CDD): Identifying and verifying the identity of customers, understanding the nature of the business relationship, and — for higher-risk customers — conducting enhanced due diligence.
• Beneficial ownership: Identifying the natural persons who ultimately own or control a corporate customer, rather than accepting a company name at face value.
• Record-keeping: Maintaining records of transactions and customer identification for a minimum of five years.
• Suspicious transaction reporting: Filing reports with the relevant financial intelligence unit when a transaction raises grounds for suspicion of money laundering or terrorist financing, regardless of transaction size.
• Risk-based approach: Calibrating the intensity of controls to the assessed risk level of particular customers, geographies, and transaction types.

FATF conducts mutual evaluations of member jurisdictions, assessing both the technical compliance of their legislation and the effectiveness of implementation. Countries that fail to adequately regulate their DNFBP sectors — including jewellery dealers — can face public identification as jurisdictions with strategic deficiencies, with consequent reputational and correspondent-banking implications. This mechanism has been a significant driver of legislative action in jurisdictions that might otherwise have been slow to act.

Implementation across FATF member states has been uneven. The European Union has progressively tightened its Anti-Money-Laundering Directives — the Fifth AMLD (2018) and Sixth AMLD (2020) — extending obligations to dealers in high-value goods including art and jewellery, with cash-transaction reporting thresholds set at €10,000. The United Kingdom, post-Brexit, has maintained broadly equivalent requirements under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (as amended). Switzerland, home to major watch and jewellery trading centres, applies AML obligations to dealers in precious metals and stones through its Anti-Money Laundering Act. By contrast, the United States — despite being a FATF founding member — long maintained a significant gap in its coverage of the jewellery sector.

The United States: The FinCEN Proposed Rule of 2024

The Bank Secrecy Act (BSA) of 1970 is the foundational US AML statute, requiring financial institutions to assist government agencies in detecting and preventing money laundering. For decades, the BSA's definition of covered entities did not extend meaningfully to dealers in precious metals, stones, or jewellery. A 2003 FinCEN rule had proposed to bring such dealers within BSA scope, but the final rule was never issued, leaving the sector largely outside formal federal AML obligations — a gap that FATF mutual evaluations repeatedly flagged as a significant deficiency in the US AML framework.

In 2024, FinCEN issued a Notice of Proposed Rulemaking (NPRM) that would, if finalised, extend BSA obligations to dealers in precious metals, precious stones, and jewellery meeting specified turnover thresholds. The proposal drew on years of prior consultation, including FinCEN's 2021 advance notice of proposed rulemaking and the recommendations of the US government's 2022 Strategy on Countering Corruption. The proposed rule would require covered dealers to:

• Establish written AML programmes incorporating internal controls, designated compliance officers, employee training, and independent testing.
• Conduct customer due diligence, including collection and verification of customer identity information for transactions above defined thresholds.
• File Suspicious Activity Reports (SARs) with FinCEN when transactions involve funds that a dealer knows, suspects, or has reason to suspect derive from illegal activity or are designed to evade reporting requirements.
• File Currency Transaction Reports (CTRs) for cash transactions exceeding $10,000.
• Maintain records of transactions and customer identification for five years.

The proposed rule drew significant comment from industry associations, including Jewelers of America and the Jewelers Vigilance Committee, which broadly supported the goals of AML compliance while raising concerns about the compliance burden on small and mid-sized businesses, the practicality of customer due diligence in certain trading contexts, and the need for clear guidance on threshold definitions. The rule's final form, timing, and implementation details remained subject to the rulemaking process as of the time of writing.

The FinCEN proposal is significant not only for its direct regulatory effect but for the signal it sends about the direction of US policy. The jewellery trade has operated for generations with minimal federal AML oversight; the proposed rule represents a structural shift in the regulatory environment that dealers, auction houses, and importers will need to navigate.

Compliance in Practice: What the Trade Must Do

For jewellery businesses operating in jurisdictions where AML obligations already apply — or preparing for their introduction — compliance involves several interconnected disciplines that differ markedly from traditional gemstone trading practice.

Risk assessment is the foundation. A dealer must assess the money-laundering and terrorist-financing risks specific to its business model, customer base, geographic exposure, and product mix. A retailer selling silver jewellery to domestic consumers faces different risks than a dealer in investment-grade coloured stones sourcing from high-risk mining jurisdictions and selling to international private clients. The risk assessment should be documented and reviewed regularly.

Customer due diligence requires collecting and verifying customer identity — typically government-issued photographic identification for individuals, and corporate registration documents plus beneficial ownership information for legal entities. Enhanced due diligence is required for politically exposed persons (PEPs), customers from high-risk jurisdictions, and transactions that present elevated risk indicators. For the jewellery trade, this represents a cultural shift: relationships in the trade have often been built on personal trust and handshake dealings, and asking a long-standing client for a passport copy can feel incongruous. Regulators nonetheless require it.

Transaction monitoring involves watching for patterns that may indicate structuring (the deliberate breaking of transactions into smaller amounts to avoid reporting thresholds), unusual payment methods, or customers whose apparent wealth is inconsistent with the value of their purchases. In the jewellery context, relevant red flags identified by FATF and national guidance include: payment in cash for high-value items; use of multiple payment instruments for a single transaction; a customer who is unusually indifferent to price or quality; and transactions involving jurisdictions subject to international sanctions.

Suspicious activity reporting is a legal obligation in most AML regimes, and carries a tipping-off prohibition: a dealer who files a SAR must not disclose to the customer that a report has been made. This creates a practical and sometimes ethically uncomfortable situation for dealers who have longstanding relationships with clients about whom they have developed concerns.

Record-keeping requirements typically mandate retention of transaction records and customer identification documents for five years, in a form accessible to regulatory examination.

Sanctions, Provenance, and the Broader Compliance Landscape

AML compliance in the jewellery trade does not exist in isolation. It intersects with a broader set of obligations that have grown substantially in recent years. Sanctions compliance — ensuring that transactions do not involve parties listed by the US Office of Foreign Assets Control (OFAC), the UN Security Council, or equivalent bodies — is a parallel requirement that shares many of the same due-diligence mechanisms. The Uyghur Forced Labor Prevention Act (2021) and related legislation have introduced supply-chain due diligence obligations specifically relevant to gemstones sourced from or transiting through certain regions. The Kimberley Process Certification Scheme, while focused on conflict diamonds rather than money laundering per se, represents an earlier iteration of the principle that the gemstone trade must be able to document the provenance and legitimacy of its goods.

Gemstone provenance — the documented geographic and commercial origin of a stone — has thus acquired a compliance dimension that supplements its traditional role in valuation. A ruby with a credible chain of custody from a licensed Mozambican or Burmese mine through documented intermediaries to a reputable dealer is not only more commercially valuable; it is also more defensible from a compliance standpoint. Laboratory origin reports from institutions such as the Gübelin Gem Lab, Gemmological Institute of America (GIA), or SSEF Swiss Gemmological Institute provide scientific evidence of geographic origin, though they do not in themselves constitute proof of legal provenance.

Impact on the Trade and Market Dynamics

The extension of AML obligations to the jewellery sector has significant implications for market structure and commercial practice. Compliance costs — for staff training, technology, legal advice, and regulatory reporting — fall disproportionately on smaller businesses that lack the administrative infrastructure of large retail groups or auction houses. There is a reasonable concern that regulatory burden may accelerate consolidation in the trade, disadvantaging independent dealers and family businesses that have historically characterised the sector.

At the same time, many larger and more internationally oriented businesses have welcomed formalisation as a means of distinguishing themselves from less scrupulous operators and of accessing correspondent banking relationships that have become increasingly difficult to maintain as banks have de-risked their exposure to cash-intensive industries. Several major auction houses and high-jewellery maisons have had AML programmes in place for years, driven by their financial institution counterparts' requirements and by the reputational risks of association with illicit funds.

The secondary market for important gemstones — particularly at auction — has seen growing scrutiny of buyer and seller identity, with major houses including Christie's, Sotheby's, and Bonhams implementing know-your-customer procedures that would have been unusual a decade ago. This shift reflects both regulatory pressure and the reputational calculus of institutions whose brand value depends on the perceived integrity of their transactions.

Outlook

The trajectory of AML regulation in the gem and jewellery trade is clearly towards greater formalisation, broader coverage, and more intensive enforcement. FATF's ongoing mutual evaluation cycle continues to pressure jurisdictions to demonstrate effective implementation rather than merely technical legislative compliance. The FinCEN proposed rule, if finalised, will bring the world's largest jewellery market into formal AML coverage for the first time. The EU's proposed AML Authority (AMLA), expected to become operational in the mid-2020s, will bring centralised supervisory capacity to the European market.

For the trade, the period ahead requires investment in compliance infrastructure, cultural adaptation to due-diligence norms, and engagement with regulatory processes to ensure that rules are workable in the specific commercial contexts of gemstone and jewellery dealing. The alternative — a sector that remains a perceived weak link in the global AML framework — carries risks of reputational damage, enforcement action, and the loss of banking relationships that are essential to international commerce. The gem and jewellery trade's long history of operating on trust and personal relationship is not incompatible with formal compliance; the two must now coexist.

Further Reading

• FATF Forty Recommendations (fatf-gafi.org)
• FATF: Money Laundering and Terrorist Financing in the Diamond Sector (fatf-gafi.org)
• FinCEN: Anti-Money Laundering Programs for Dealers in Precious Metals, Stones, or Jewels (fincen.gov)
• GIA: Gemstone Supply Chain Transparency (gia.edu)