Client identification rules have been changed for the sale and purchase of jewellery

Pepeliaev Group advises of the coming into force, starting from 30 January 2021, of Federal Law No. 536-FZ “On amendments to the Federal Law ‘On combating the legalisation (laundering) of the proceeds of crime and the financing of terrorism’” dated 30 December 2020 (“Law No. 536-FZ”).

These provisions have amended some of the Rules for identifying clients that are stipulated by Federal Law No. 115-FZ “On combating the legalisation (laundering) of the proceeds of crime and the financing of terrorism” (the "Federal Law On Combating Legalisation").

The amendments are applicable to, among others, companies trading in jewellery made from precious metals and precious stones (“jewellery”).

It should be noted that the Federal Law On Combating Legalisation imposes an obligation on sellers of jewellery to observe a number of requirements, including:
  • to develop and approve rules of internal control (article 7(2));
  • to provide the Federal Financial Monitoring Service (abbreviated in Russian as “Rosfinmonitoring”) with information about transactions that are subject to compulsory control (article 6(4));
  • to undertake the identification of clients (article 7(1)(1)).
Identification is a set of measures to establish information provided for by the Federal Law On Combating Legalisation about clients, their representatives, beneficiaries and beneficial owners, and to confirm the accuracy of this information with the use of original documents and/or duly certified copies and/or public or other information systems (article 3 of the Federal Law On Combating Legalisation).

The identification needs to be carried out in the following situations (article 7(1.4-2) of the Federal Law On Combating Legalization):
  • If an individual purchases jewellery made from precious metals and precious stones worth more than RUB 40,000 or an amount in foreign currency which is equivalent to more than RUB 40,000.
  • If an individual purchases by retail, using electronic personalised means of payment (such as a bank card or electronic wallet), jewellery made from precious metals and precious stones worth more than RUB 200,000 or an amount in foreign currency which is equivalent to more than RUB 200,000.
  • In the above situations, if the value of the purchase is equal to (or is lower than) RUB 40,000 and RUB 200,000, respectively, but employees of the company suspect that the transaction in question is aimed at legalising (laundering) the proceeds of crime or at financing terrorism (“LPC / FT”).
With respect to clients who are individuals, companies must establish the following information (article 7(1)(1)(2) of the Federal Law On Combating Legalisation):
  • Surname, forename, and patronymic name (if any);
  • Date of birth;
  • Nationality;
  • Details of the identification document: the series (if any) and number of the document, date of issue of the document, name of the authority that has issued the document and the subdivision code (if any);
  • Data of the migration card (for foreign nationals and stateless persons);
  • Details of the document confirming the right of the foreign citizen or stateless person to stay (reside) in the Russian Federation;
  • Address of residence (registration) or of place of stay;
  • Taxpayer’s identification number (if available).
The most convenient way to obtain recorded information about a client is to have the client fill in a questionnaire. At the same time, companies are entitled to demand that the client should submit all the documents required to identify the latter.

A specific corporate identification procedure is established by local regulations, including by rules of internal control.

Changes in the client identification rules in connection with Law No. 536-FZ coming into force

Before the coming into force of Law No. 536-FZ, organisations could refuse to consummate a transaction with a client on the following grounds (article 7(11) of the Federal Law On Combating Legalisation):
  • Employees suspected that the transaction was being performed for the purposes of LPC / FT
  • The client failed to provide documents required for identification.
Since 30 January 2021 the client’s failure to submit the documents required for identification has been excluded from the list of grounds for refusing to consummate the transaction (article 2(3)(f) of Law No. 563-FZ). At the same time, companies may still refuse to deal with a client if they suspect that the transaction is unlawful in nature: the client’s refusal to submit the requested documents and information is one of the signs of a non-standard transaction that may arouse suspicion[1].

However, starting from 1 September 2021, companies have a direct obligation to refuse to service a client (article 2(3)(c) of Law No. 536-FZ) if the identification procedure is not performed and the information envisaged in the law is not established, including if the client has not submitted the requested documents.

Moreover, a requirement has now appeared in the Federal Law On Counteracting Legalisation to inform a client who has been denied a transaction, within 5 days, of the date on which this decision was taken and of the reasoning behind it under the procedure set forth in the agreement with the client or in the public rules that apply in the company (article 1(3)(i) of Law No. 536-FZ). In addition, the timeframe for examining the documents received from a client regarding the absence (elimination) of grounds for a refusal to perform a transaction has been reduced from 10 to 7 business days (article 1(3)(k) of Law No. 536-FZ).

What to think about and what to do

The above amendments will directly affect the content of companies’ local regulations: rules of internal control and other documents governing the identification of clients. Organisations must bring these documents in line with the new requirements of the Federal Law On Counteracting Legalisation[2].

If the content of corporate regulations is at variance with the rules of law, this may be a ground for supervisory authorities including the State Inspectorate of Assay Supervision to hold companies liable.

Help from your adviser

The lawyers of Pepeliaev Group are ready to provide comprehensive legal support to companies involved in the production, as well as the sale and purchase, of jewellery.

Pepeliaev Group provides the following types of services:
  • Advising on legal risks.
  • Providing legal support at all stages of the circulation of precious metals, precious stones and jewellery on the market.
  • Providing support during audits carried out by state supervisory authorities.

[1] Order No. 103 of Rosfinmonitoring dated 8 May 2009 “On approving the Recommendations on developing the criteria for identifying and determining signs of non-standard transactions”.
[2] Rosfinmonitoring’s Information Letter No. 20 dated 3 September 2012 “Issues connected with the application of Requirements for the rules of internal control developed by companies performing transactions with funds or other property (save for credit institutions), approved by the Russian Government’s Resolution No. 667 dated 30 June 2012”.

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