As the government prepares to enforce anti-money laundering provision on bullion trade, gold traders will soon have to ask their customers to fill up a form or submit a photocopy of their identity card for transaction of gold and other precious metals.

The Inland Revenue Department (IRD), which has recently been designated as the regulator of the domestic bullion market, is coming up with the directive that makes it mandatory for bullion traders to enforce the Know Your Customer (KYC) provision, to report suspicious transactions and those above Rs1 million to the regulator.

The Money Laundering Prevention Act categorises bullion traders as reporting entities that need to keep record of customers as well as report suspicious transactions to the designated authority. But, this provision was not been enforced earlier, mainly due to the absence of a strong regulator of the sector.

With the IRD effectively becoming the regulator of bullion trade, these provisions will soon come into effect, said officials. “We have prepared an initial draft of the directive which states that gold traders should assign a compliance officer to keep record of the buyers and sellers of precious metals worth above Rs1 million and any suspicious transactions,” said Yagya Prasad Dhungel, deputy director general of the department.

Dhungel said they have not yet specified the modality of how the bullion traders should keep records of their customers. “Options such as asking the customers to fill the Know Your Customer form or asking them to submit photocopies of their citizenship card or any other valid identity cards are being discussed,” he added. “We are also holding discussions on whether to require customers to provide information about the three generations of the family.”

The KYC provision is currently practised in the bank and financial institutions, insurance companies and stock market to verify the identity of clients and to assess potential risks.

The government had decided to appoint the regulator and enforce the legal provision on Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) in the bullion market following a report by the law secretary on Nepal’s compliance with the international standard on AML/CFT pointed gold market as one of the most vulnerable sectors.

As the Asia Pacific Group on Money Laundering (APG), a regional anti-money laundering watchdog, is set to conduct mutual evaluation of Nepal’s compliance with AML/CFT standards, the government is taking steps to improve the compliance rate of identified vulnerable sectors. Implementing the

KYC system is one of the measures being taken to increase the AML/CFT compliance in all sectors, according to IRD officials.

They, however, admit that implementing the KYC in bullion market could be complicated compared to sectors such as banking, insurance and stock markets because gold business is mostly privately owned. “We are also discussing whether to bring all the bullion traders under the KYC norms or to implement it among the traders who meet certain criteria such as the minimum threshold of transactions,” said Dhungel.

There is also the concern over possible misuse of information about the customers by bullion traders as they are not institutionalised like banks and financial institutions. For example, the banks don’t provide information about individual customers to any other person except the law enforcing agencies and the court. Gold traders also don’t have permanent customers like banks where a person is a regular customer until he or she closes their account.

Dhungel admitted that this concern should be taken into account while issuing the directive. “We can introduce a provision prohibiting bullion traders from sharing personal information with any other party,” he said.

The IRD is also holding discussions with the stakeholders including gold traders on the initial draft of the directive. Ramesh Maharjan, president of the Federation of Nepal Gold Silver Gem and Jewellery Association, told the Post that they were ready to cooperate with the government on implementing the KYC rule.

“We have suggested that the government introduce directives that are practical and easy to comply with,” he said. “There should not be a situation where customers refrain from doing business with us due to the requirement of submitting their detailed personal information.”

In a study conducted in 2015, the Financial Action Task Force, a global anti-money laundering watchdog, said gold is an alternative means for criminals to store or move their assets as regulators implement stronger anti-money laundering and counter terrorist financing measures to protect the formal financial sector from abuse.