To help prevent, mitigate, and manage risks that undermine responsible sourcing, companies should collect, verify and archive information on their customers, suppliers, contractors and other third parties with they conduct business regularly. These measures, called Know Your Customer/Counterparty (KYC), are considered a first step for conducting due diligence.
Members of the jewellery and gemstone industries should apply KYC to their supply chains, establishing wherever possible the identity of all organisations with which they deal, having a clear understanding of their business relationships, and having a reasonable ability to identify and react to transaction patterns appearing out of the ordinary or suspicious.
A key objective of KYC is for the company to demonstrate that it has carried out checks on its counterparties, even if to rule out their association with any money laundering or illicit activities. The expectation is that reasonable effort should be taken to complete these checks, commensurate with the size and nature of the business.
Money laundering is the illegal process of concealing the origins of money that is generated by criminal activity. “Dirty” money is “laundered” by passing it through a complex sequence of bank transfers or commercial transactions in order to hide its origins. The laundering process aims to make “dirty money,” generated by criminal activities, look “clean,” as if it comes from a legitimate source. Gold, silver, diamonds and coloured gemstones have at different times all been associated with money laundering.
Anti-money laundering (AML) procedures, which include KYC, help mitigate the incidence of money laundering in the supply chain.
Even if a business is small, but is involved in business relationships and trading of material that could be perceived as having links with money laundering or the funding of terrorism (by virtue of its country of origin, for example), then a greater effort should be AML due diligence. If a counterparty is considered to be a “high risk,” additional information should be collected about the counterparty to provide a deeper understanding of its activity, in order to mitigate associated risks.
These KYC principles should also apply to existing or “grandfathered” stocks of precious metals or gem materials, which may otherwise not be included in due diligence of current active supply chains.