Many buyers of gold can be worried about scams and fraud in the bullion market, making it imperative to find a reputable dealer with excellent credentials.
Although gold dealers are unregulated by federal agencies, some local authorities take action against fraudulent sellers – for instance the city of Santa Monica took legal action against Goldline International as one example.
Compliance
The precious metal industry faces distinct compliance requirements and challenges. These include identification and verification procedures, risk evaluation and due diligence processes, transaction monitoring, reporting requirements and anti-money laundering regulations that must be strictly observed. Having legal or compliance professionals help understand and fulfill these requirements effectively is also crucial.
Establishing policies with clearly laid-out compliance expectations and providing training materials to staff members are also vital components. Doing so can aid their understanding and compliance with such policies.
Dealers must prepare themselves for regular, thorough, and proactive regulatory inspections to maintain compliance with the law. While this may be costly and time consuming, it is crucial in maintaining legality of business operations. Dealers should seek reputable companies offering these services such as members of International Precious Metals Institute (IPMI). They must also be transparent with customers about their compliance practices – this helps build trust while upholding integrity in business operations.
Know Your Customer (KYC)
Although bullion dealers are generally unregulated like securities brokers or registered investment advisors (RIAs), they still must adhere to the rules of the financial industry, including KYC/AML regulations that mandate gold sellers verify customer identities before reporting any suspicious activities to authorities. Failure to adhere to such requirements can result in fines or even legal action for bullion dealers.
Bullion dealers who sell large amounts to individual customers must submit 1099B forms to the IRS for all sales transactions to ensure all customer sales are reported accurately – this prevents unscrupulous dealers from misguiding new investors by convincing them they’re buying non-reportable precious metals.
Many bullion dealers rely on endorsements and testimonials to market their products, even unregulated firms like Safeguard Metals which was charged with fraud by the SEC for using conservative radio shows such as Glenn Beck and Mark Levin to promote its precious metals sales, as well as using Fox News host Tomi Lahren in marketing videos to sell its wares.
Anti-Money Laundering (AML)
As precious metals do not trade on public stock markets, they are exempt from regulation by both the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). Nonetheless, bullion dealers still face fraud allegations; several local governments including Santa Monica have filed legal actions against precious metals dealers like Goldline International in recent decades; sometimes this was to target their marketing on conservative talk radio shows like Glenn Beck’s or Sean Hannity’s or by employing celebrity endorsers in ads like Safeguard Metals did with 30 state AGs all joining together in one case in 2020 against SEC, CFTC et al.
Dealers are required to comply with AML regulations and report customer sales over certain amounts to the IRS when necessary, to help prevent illegal activities and ensure transparency within the bullion trading market. Failure to abide by these requirements could incur severe fines for dealers; thus it is crucial that when selecting one you select one with proper compliance credentials.
Security and Insurance
Insurance protection for dealers is crucial against theft and loss, both to protect employees, premises, investments of their customers as well as potential theft by thieves. Reputable dealers should be able to provide documentation of their insurance policies upon request.
Coin dealers must report all large cash purchases to the IRS. They also must keep records of bank draft payments and related transactions made within 24 hours – such as multiple purchases within a 24 hour timeframe that constitute related transactions. Dishonest dealers may attempt to bypass this policy by breaking payments up over several days – this practice violates money laundering regulations and could result in both parties facing criminal prosecution for money laundering violations.
Physical gold may be considered a commodity, but it does not fall under the jurisdiction of either the Securities and Exchange Commission or Commodity Futures Trading Commission. Instead, enforcement against fraud in bullion trade markets has fallen on state attorneys general.