Know your customer

Interesting experience by Market Skeptics with GoldMoney. Leaving aside the way it was handled or the time taken, but it does not surprise me with what happened.

The ability to transfer balances between GoldMoney accounts means that operation really is more akin to a bank than a custodian. As a result I can see that they are more diligent about knowing their customer and what the account will be used for, otherwise they could get shut down by regulators. Just see what happened to e-gold and the changes they have had to make in this DGC Magazine article.

The money laundering/terrorism rules these days puts the onus on the business to know their customer, make assessments about the potential for their customers to be engaging in illegal activities and if the risk is considered high, either declining the account, reporting it, or seeking further information from the customer to establish whether their use of the account appears legitimate.

There would be no doubt that GoldMoney would not want to go through the e-gold experience, hence the rigorous due diligence. This tells me they are serious about becoming a real "gold bank", which is something true gold money advocates would have to support. Yes, this means they become part of the regulatory "system" and will thus not appeal to those buying gold for privacy reasons, but I think GoldMoney's objectives are to target the wider market and it will be interesting to see how this develops.

AUSTRAC Identification Rules

Further to my post on AUSTRAC rules on identification for bullion transactions, I can report that the Perth Mint has just received an approval to set the limit above which some form of identification for a bullion transaction is required from $2,000 to $5,000. This now gives some more room for people to privately acquire gold and silver.

Looking at page 11 of the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2009 (No. 2), it appears this approval is for every bullion dealer, not just the Perth Mint. If you are having problems with bullion dealers wanting to ID you for deals under $5,000, maybe handy to show them this Amendment Instrument.

AUSTRAC update

It appears that advice from AUSTRAC was wrong (see post of 27 July), we have alternative adivce that only cash transactions of bullion above $10,000 will need to be reported. It is also possible that the limit above which identification is required will be above $1,000, but not sure what it will be at this stage. Will keep you informed.

Promised article on gold confiscation is coming, a bit more involved than I first expected so is taking some time to write.

Aussie Govt Bullion Snooping

Australia, like most countries, has money laundering legislation and a regulator to go with it. AUSTRAC (Australian Transaction Reports and Analysis Centre) administers the Financial Transaction Reports Act 1988 (FTR Act). They also now administer the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act). Similar legislation has been enacted in many other countries.

A lot of the new AML/CTF laws around the world are a result of the Financial Action Task Force (FATF). Created in 1989, it "is an inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing". Note that Australia's FTR Act came into being before FATF, and for a while Australia's AUSTRAC was "state of the art" in anti-money laundering in the world. It was admired for its data collection and matching system but in recent years had fallen behind.

One of FATF's self appointed roles is to report on the robustness of a country's money laundering systems and its noting that Australia's system had weaknesses is what prompted the Government to instigate a review of the FTR Act, resulting in the new AML/CTF Act. I suspect that FATF's assessments of other countries' system also resulted in similar changes to their legislation.

So if you are looking for someone to blame for new "know your customer" rules, FATF is up there. But you also have to blame 911, because this also revitalised FATF as Governments looked for expertise on how to tighten up on money flows. While I certainly think that there is a need to close off terrorism's money supply, I cannot help but think that Governments' new found interest in "fixing" their systems was more about the AML part rather than the CTF part. In other words, use terrorism to tighten up on tax evasion, and don't worry about privacy while you do it.

In Australia the old (although it is still in force) FTR Act basically had two key reporting mechanisms in respect of bullion: cash transactions report and suspicious transactions report. The first had to be filled out for any transaction involving more than $10,000 cash. Note that this $10,000 level has not changed in my understanding since the Act came into being in 1988. Funny how Government's never index anything to inflation, except maybe fines!

The second one had/has to be filled out if the business suspected the transaction was for or involved a criminal purpose. There is not real guidance given on this but in practise the rule is if in doubt, fill one out. This is because it acts sort of like a get out of jail card - if the transaction ended up being criminal and you hadn't filled out a suspect transaction report, the police may consider you in on the transaction (especially if is was really sus). Filling one out is then just a real cover your arse exercise.

The AML/CTF Act has given this reporting a makeover. Of particular interest to buyers of physical precious metal should be the changes to the cash transactions report. I understand this will now be called the transactions report, ie the word "cash" is dropped. I also understand that this means that anything that is a designated service (check out the link for a big list of what this covers, bullion gets its own special table #2) over $1,000 has to be reported. This is a big change because prior to this, only cash transactions above $10,000 had to be reported.

My advice to anyone who wishes to accumulate physical metal and as a result values their privacy should do so before the end of this year when the new report comes into play. I don't condone criminal activity, but I also believe that if you are buying physical precious metal you rightly don't want any records that you have done so as this opens you up for theft (either from your fellow man - eg criminal breaks into coin dealer and steals customer list - or from the Government itself at some future time when fiat currencies collapse). The ability to buy small amounts of metal from your local coin/bullion dealer in cash was the only way to do this and it looks like this door will soon close.

UPDATE 11 August - it appears that advice from AUSTRAC was wrong, we have alternative adivce that only cash transactions of bullion above $10,000 will need to be reported. It is also possible that the limit above which identification is required will be above $1,000, but not sure what it will be at this stage. Will keep you informed.

UPDATE 1 July 2009 - Perth Mint has received approval to set the limit above which some form of identification for a bullion transaction is required from $1,000 to $5,000.