The reforms aim to ensure that the department continues to effectively deter, detect, and disrupt money laundering and terrorism financing and meets international standards set by the Financial Action Task Force (FATF), the global financial crime watchdog.
A 16-page document addressing the jewellery industry specifically outlines when the proposed changes would take effect and how they will affect businesses.
Jewellers will need to enrol with AUSTRAC and develop and maintain an AML/CTF program tailored to the business. This includes conducting ongoing due diligence and reporting certain transactions and suspicious activity.
The ‘why’ is explained by the department using a case study on which Jeweller has extensively reported.
In August 2020, Chey Tenenboim, Alejandro Mendieta Blanco, and Julio Mendieta Blanco were sentenced for charges related to the purchase of stolen goods through a Melbourne-based gold-buying business.
The accused were brothers, and the third was an employee of their gold-buying business.
The stolen goods were jewellery acquired during armed robberies of Victorian jewellers committed by youth gang members. The jewellery was then sold to the gold-buying business through a criminal intermediary.
Following the Victoria Police interdiction, the syndicate expanded to Western Australia, establishing several companies linked to a common business address.
The relocation was believed to be an attempt to establish a presence in a new jurisdiction where they were unknown to law enforcement.
WA Police commenced Operation B in January 2023, investigating the syndicate’s suspected money laundering using several Perth-based businesses, including a registered pawnbroker and second-hand dealer specialising in precious metals and gemstones.
During a search warrant executed at a precious metals and gemstones business, police seized items of jewellery that were purchased under a license issued pursuant to WA’s Pawnbrokers and Second-hand Dealers Act 1994.
A portion of this jewellery was confirmed to be stolen property. Evidence seized identified jewellery purchased in WA had been sent to Victoria and smelted into bullion.
The requirement in WA to register for this license and report transactions simplified efforts to identify business staff and customers involved in suspect transactions.
These laws require businesses to undertake customer due diligence when purchasing second-hand goods (including jewellery) and report transactions, regardless of the value of the goods.
Other government departments
The Attorney General’s Department is not the only government department focusing on the jewellery industry.
Mendieta Blanco was also the subject of a significant investigation by the Australian Taxation Office (ATO) for his alleged participation in the goods and services tax (GST) fraud scheme involving the gold bullion and precious metals industries.
In October 2017, The Age reported that the ATO had been investigating Mendieta Blanco’s tax affairs for more than six months.
It was believed the audit came after a business activity statement was submitted for his Sell Your Gold business that requested a GST refund of approximately $1 million.
The ‘GST scam’ involves gold traders exploiting a loophole in the way GST was applied to scrap gold rather than gold bullion.
The ATO alleged that individuals and businesses were refining GST-free gold bullion into scrap gold, making it eligible for GST when sold to precious metal dealers and jewellers.
The 10 per cent tax was paid by the new buyer and pocketed by the seller, who did not make a declaration to the ATO.
GST gold fraud cases continue
In December, the ATO reported that the Supreme Court of NSW had convicted and sentenced two men to jail for conspiring to cause the Commonwealth a loss of approximately $40 million.
Cedric Adrian Millner and Jonatan Kelu were convicted of two offences of conspiring to dishonestly cause a loss to the Commonwealth contrary to the Criminal Code Act 1995.
The co-conspirators were each sentenced to eight years imprisonment.
The ATO-led investigation, known as Operation Nosean, found the men purchased GST-free gold bullion, refashioned it into scrap and then sold it inclusive of GST to a gold refiner.
Investrix Pty Ltd, of which Kelu was the sole director, then claimed GST input tax credits in business activity statements.
This was done by falsely stating that the GST-free gold bullion was purchased inclusive of GST under the second-hand dealers rules, resulting in approximately $40 million in lost revenue.
Reports indicate that the scheme began around 2012 when Kelu and Millner purchased millions of dollars of ‘pure’ gold, which is GST-exempt.
The duo then melted the gold and resold it to Focus Gold, a Melbourne company. They claimed they had paid GST on the initial purchase and requested a tax offset from the ATO.
Later that year, the pair roped in family and friends to be placed between themselves and the pure gold sellers to avoid suspicion. The aim was to make it appear as if they were buying secondhand/scrap - therefore being forced to pay tax on the gold.
The scheme took a different approach in 2013 when the pair recruited people they referred to as ‘Koreans’ or backpackers on working visas to be the middlemen between them and the sellers.
Kelu and Millner were then refunded more than $40 million in tax offsets before they were arrested and charged in 2018.
Serious Financial Crime Taskforce (SFCT) chief John Ford said investigators had been concerned about precious metal fraud for some time.
“In this case, these individuals thought they were clever and could get away with rorting Australians out of revenue that could ultimately have been put towards essential services such as health and education,” Mr Ford said.
“This outcome sends a clear message to the community that we have robust systems in place to stop all forms of financial crime, including those that involve gold bullion. Those who try to exploit the tax and super system will be brought to account for their actions by our dedicated team of experts.”
He continued: “Our message is clear to those who seek to evade or cheat the tax system; there is no place for you to hide, and we will not tolerate this behaviour.”
Rampant exploitation
Operation Nosean was established to combat fraud involving gold recycling arrangements, exploiting the GST rules regarding precious metals.
Identified participants in gold bullion fraud have included refiners, bullion dealers, gold kiosks, dealers, and buyers, including 'missing traders'.
The fraud sometimes involves multiple participants in the supply chain being complicit and benefiting to different degrees and other times; innocent parties are exploited without their knowledge.
While the gold GST fraud concerns the ATO, at least one previous case involved money laundering, which can have links to terrorism financing and which explains the Attorney General’s Department’s focus on the jewellery industry.
Editor's Note - Jeweller will publish a third article detailing how and why the ATO continues to fight a decade-long battle with Pallion Group and its directors.
Detailed reading
» Part I - New money laundering laws: What do jewellers need to know?
» Part II - New money laundering laws: Millions at stake in the jewellery industry
» Part III - New money laundering laws: Loopholes, lawyers, liquidation and Pallion
» Part IV - New money laundering laws: Pallion Group, the ATO, and the voidable transaction
» Part V - Pallion Group: Timeline of missing detail, controversy and legal dispute
Further reading: Attorney General’s Department - Further information for dealers in precious metals and precious stones
More reading
Presentation at Sydney Fair to detail counter-terrorism and money laundering legal reform
Anti-money laundering agency pursues audit of Perth Mint
Two more gold dealers sentenced over stolen goods
Gold dealer linked to jewellery store robberies sentenced to jail
Jail likely for gold buyers linked to 2017 store robberies
Police drop more than 400 charges against gold dealer linked to jewellery store robberies
‘Record-breaking’ armed robbery at gold dealer; colourful history revealed
Gold dealer connected to jewellery robberies fronts court
Gold dealer linked to jewellery robberies ordered to pay $200,000
Melbourne jewellery robberies linked to gold GST fraud
Breakthrough in Melbourne jewellery robberies