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Jewelers buying secondhand jewelry need licenses
By Suzan R. Flamm, Esq.
May 28, 2009
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| Suzan R. Flamm, Esq.is assistant general counsel of the Jewelers Vigilance Committee, which provides general educational resources and jeweler-specific advice. |
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In a down economy, it is not surprising that consumers will sell used jewelry for cash or that retailers will buy it to augment their cash flow. It is alarming, though, that some jewelers seem unaware of the laws regulating secondhand purchases.
Two jewelers were recently arrested on misdemeanor charges in Watsonville, Calif., for allegedly purchasing jewelry from consumers without proper state and local licensing or crime-prevention procedures in place.
The jewelers were not accused of treating consumers unfairly or dealing in stolen property. The charges were based solely on their failure to obtain proper secondhand-dealer licenses and to follow required procedures to identify potentially stolen property.
While it is too late to help the two California jewelers, other retailers should know how to avoid the same fate.
Becoming a secondhand dealer
Before buying jewelry from consumers, retailers should be both familiar and compliant with at least three important regulation areas: secondhand-licensing requirements, anti-fencing laws and anti-money-laundering obligations.
Secondhand-dealer licenses: Many, if not all, jurisdictions in the United States require vendors who purchase jewelry from consumers to have a locally issued license. Designed to protect consumers, these laws might be imposed at a state level, as they are in California, or at the city level, as in New York City. Your local consumer-protection agency or state attorney general's office should be able to provide you with information on licensing requirements.
In New York City, for example, secondhand dealers must apply for a license through the city's Department of Consumer Affairs. Applicants must provide an appropriate certificate regarding their business. A corporation, for example, would need to provide a stamped certificate of incorporation or filing receipt. The department also requires photo identification from the applicant, fingerprinting of business principals and a $1,000 compliance bond.
Anti-fencing laws: One risk inherent in buying jewelry from consumers is that they might be trying to fence stolen goods. Most, if not all, states have stringent laws governing secondhand transactions, and it is important to know what your state requires. To find out, contact your local consumer-protection agency or state attorney general's office.
As a general rule, the following apply to secondhand transactions:
--No purchases from minors.
--No purchases from midnight to 6:00 a.m.
--Dealers must keep a log with detailed descriptions of the items purchased.
--Property must be kept on the secondhand dealer's premises.
--Business transactions are restricted to the location designated on the secondhand license.
--Dealers must obtain and copy identification from sellers.
--Dealers may not sell or dispose of the property for a designated period of time after purchase; in New York City, it's 15 days.
Complying with anti-fencing laws ensures that you will have answers if police arrive to investigate a jewelry heist in the vicinity.
Anti-money-laundering programs: The U.S. Patriot Act requires jewelers who buy and sell more than $50,000 in precious metals and stones in a year to have an anti-money-laundering (AML) program.
Even if the jeweler "knows" that his customers or suppliers would never launder money through his company, the U.S. Treasury Department, which enforces the AML laws, will declare jewelers who do not have a program in place in violation of the Patriot Act.
Jewelers who buy jewelry from the public and then sell precious metals to a refiner should expect that the refiner has an AML program and that the refiner will ask for identification. This is a sign that the jeweler is dealing with a reputable company.
Fortunately for the California jewelers, they were not charged with breaking AML laws, which carry federal (not state) penalties that are stiff.
The Jewelers Vigilance Committee (JVC) offers a USA Patriot Act Compliance Kit to help jewelers set up a program if they are covered by the Act but are not yet in compliance. The basic elements of an AML program include the following: risk assessment; appointment of a compliance officer; a written AML program and policy, which includes a requirement that identification be obtained from customers and suppliers; employee education on money-laundering risks and your program; and periodic testing of the program.
Failing to have an AML program is a separate crime from money laundering itself.
Buying from the public
Retailers should also be aware that consumers often expect that their jewelry is worth more than it actually is.
Let sellers know that the price they paid for the jewelry included the value of the precious metal and non-precious-metal substances used, plus labor and packaging--not to mention the retail markup for the item. The seller will be paid for the gold only, so the price offered for the object will likely be substantially less than the price the seller paid.
Sellers should also be informed that they will be paid for precious metal only, not for base-metal alloys in the product. Inform sellers that tests will be performed to determine karat fineness and that the result will be an important factor in determining price.
Lastly, explain that the price offered might not be the market price of gold that day. Gold prices are not regulated, so the parties are free to negotiate a price that is acceptable to both sides.
Addressing what might be mistaken expectations at the beginning of the transaction should ensure that consumers feel they have been fairly treated.
This advice is strictly the opinion of the JVC. Visit JVCLegal.org for important legal-compliance information pertaining to the manufacture, sale and marketing of fine jewelry and to find out how to comply with secondhand-purchasing laws and the U.S. Patriot Act.
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