When the IRS Comes Calling
How to respond to an IRS request to review your AML Program
By:† Cecilia Gardner, Esq.
President and CEO
Jewelers Vigilance Committee
Over the past year, the IRS has contacted numerous jewelry industry companies asking to review their program for compliance with the USA PATRIOT Act.† This agency is assigned by law the task of enforcing the AML requirements, and is affirmatively reaching out to jewelers all over the country to ask about their compliance, and visiting businesses to check if the required AML program is in place.†
JVC receives many, many calls from these companies asking us to support them in their review by the IRS, and if the company is using the JVC PATRIOT Act Compliance Kit (PACK), we are happy to provide help.† Of course, we cannot represent any individual company before the IRS, but we can help these businesses assess whether they have fully complied, and provide insight on the expectations of the IRS.†
What can the IRS review?
The quick answer to this is: anything they want to review.† But, what they will want to see is your completed AML program and policy, which ought to include the following items:† an appointment letter for your Compliance Officer listing the duties, responsibilities and obligations; a written risk assessment; a written AML program and policy; evidence that you have adequately trained your employees; documentation that you fully identify your customers and suppliers; and documentation that you have periodically independently tested your program (the Compliance Officer cannot do this) to ensure that it is working as designed.† You must be able to show that you have actively investigated red flags, when appropriate, that you are engaged in fully identifying your vendors and customers, that you are monitoring transactions, etc.† The IRS will also ask to see your financial records for a specific period of time.† They will be looking to see if you have missed anything that could be considered a red flag for money laundering or terrorist financing.†
What are the possible consequences of the IRS review?
I have been repeatedly assured by the IRS executives with whom I communicate regularly that they are not interested in fines or penalties at this stage.† They are interested in compliance.† They want to see that dealers in precious metals, stones and jewels are affirmatively meeting their obligations under the law, and if not, the IRS will give you time to come into compliance.† If you continue to ignore this requirement, of course they will consider fines and penalties.† But the IRS considers this stage to be an educational one - they are encouraging our industry members to comply.† Of course, this will not last forever.†
Chief IRS "complaints"
The JVC is in touch with the IRS managers who provide feedback regarding the most common "failures" found by the IRS among dealers who are required to comply. Here are the most often mentioned:†
††††††††††† *Many dealers are simply taking the forms provided in the JVC PACK and, without customizing, printing them out and signing, and assuming that this is sufficient.† Of course, it is not.† You must read the guidance accompanying the forms, and tailor them to your individual business model.
††††††††††† *Many dealers are failing to check the list published by the Office of Foreign Assets Control (OFAC) of "specially designated nationals" suspected of engaging in money laundering or supporting terrorism.† This is a list that dealers should consult periodically to ensure that the entities with which they do business are not blocked in the US.† A link to this list is available on the JVC website - www.jvclegal.org.
††††††††††† *Dealers are not keeping records of actions taken pursuant to their AML programs.† A log ††† sheet is included with your PACK - print it out and make a notation of all steps you take regarding employee education, identification of your customers and suppliers,† investigating red flags, etc.††††††††††† *Dealers fail to periodically test the program as required.† ††
When the IRS comes to call, do not be over concerned.† If you have created all the elements required, and have performed the required periodic testing (you can contact JVC for this service) you will be fine.† But your AML program cannot be a program that you create, and then sits on the shelf untouched for months. You should be in a position to demonstrate to the IRS that you have actively engaged in this process, and that you are training your employees to remain alert to the possible exploitation of your company for the purposes of laundering money.† You will sleep better if you are ready for the IRS!††