Spence Diamonds, one of Canada’s best-known retailers in the precious stones market, has been forced into the spotlight after a compliance examination revealed systemic failures in meeting its anti-money laundering obligations. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) levied an administrative monetary penalty of $264,000 following an investigation that exposed multiple breaches of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. For a company whose core product is high-value and highly portable, the findings underline why the precious metals and stones sector remains a central focus in the global fight against money laundering.
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Money laundering compliance failures in the precious stones sector
Dealers in precious stones are frequently exploited by criminal networks seeking to clean illicit profits. Diamonds and gold can move discreetly across borders, retain value, and be converted to cash with minimal oversight when AML frameworks are weak. Regulators in Canada, Europe, and Asia have repeatedly highlighted this vulnerability. The Spence Diamonds case demonstrates how even a mainstream retailer, with multiple showrooms across major Canadian cities, can become a blind spot when compliance regimes are inadequately implemented.
FINTRAC’s review uncovered a lack of suspicious transaction reporting, outdated or missing compliance policies, and absent training programs. Each of these failures meant that potential red flags could have gone unnoticed. Whether it involved high-value purchases made in cash, third-party transactions that lacked a clear beneficial owner, or unusual buying patterns inconsistent with a customer’s profile, the absence of timely reporting removed a key layer of protection against money laundering.
The $264,000 penalty is not the largest imposed by FINTRAC, but it is significant for the sector. It serves as both punishment and deterrent, reinforcing that the Canadian regulator will not tolerate complacency in industries vulnerable to financial crime.
Patterns of non-compliance and the risks they create
The violations committed by Spence Diamonds cover nearly every major pillar of an AML compliance program. First, the failure to submit suspicious transaction reports is a fundamental breakdown, as these reports are the primary channel through which financial intelligence units receive early indicators of illicit activity. Without them, links to criminal networks, corruption, or even terrorist financing may remain hidden.
Second, the absence of updated compliance policies and procedures means that frontline staff were left without clear guidance on how to handle risky transactions. In an industry that sees both legitimate luxury spending and covert laundering attempts, having procedures that evolve with regulatory expectations is essential.
Third, risk assessments are central to tailoring controls to specific threats. By failing to conduct and document a proper assessment, Spence Diamonds did not account for the unique vulnerabilities of dealing in high-value portable assets. This shortcoming left the firm unable to allocate resources or develop safeguards proportionate to the risks it faced.
Training failures compounded the problem. Staff who interact directly with clients are often the first to notice anomalies, such as a buyer reluctant to provide identification or a sudden surge in large cash purchases. Without formal training, these employees cannot recognize red flags or escalate them appropriately. A missing review process further ensured that systemic gaps persisted unchecked.
These failures highlight the cascading effect of weak compliance cultures. One gap left unresolved quickly multiplies into systemic deficiencies. In the diamond and jewelry trade, such weaknesses provide fertile ground for criminals seeking to integrate illicit cash into the legitimate economy.
The wider AML landscape for dealers in precious metals and stones
Spence Diamonds is not an isolated case. Globally, regulators have consistently raised concerns about vulnerabilities in the diamond trade. The sector is attractive to money launderers because it combines portability, opacity, and liquidity. Diamonds can be transferred discreetly, valued subjectively, and converted into currency in multiple markets.
Canadian law, through the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, places dealers in precious metals and stones under the same obligations as banks, casinos, and real estate firms. These obligations include client identification, record-keeping, transaction reporting, and the development of comprehensive compliance programs. While banks often invest heavily in compliance teams and technology, smaller retailers frequently underestimate the regulatory burden, leaving them exposed to sanctions.
FINTRAC has made clear that penalties are not meant to be punitive alone but corrective. Yet the cumulative effect of rising enforcement is clear. In the past year, FINTRAC issued 23 Notices of Violation, the highest annual number in its history, with penalties surpassing $25 million. Since 2008, more than 150 penalties have been imposed across sectors, creating a landscape where non-compliance carries escalating reputational and financial risks.
Internationally, the Financial Action Task Force has also pressured jurisdictions to close loopholes in the diamond trade. Its assessments often flag the sector as under-regulated, particularly in relation to beneficial ownership transparency and cross-border trade monitoring. Canada’s action against Spence Diamonds aligns with this global push to prevent diamonds from being used as a vehicle for laundering the proceeds of drug trafficking, corruption, and organized crime.
Lessons for compliance officers and industry actors
For compliance professionals, the Spence Diamonds case provides a roadmap of what not to do. Every core element of a compliance program was found wanting: reporting, policy management, risk assessment, training, and oversight. The lesson is clear: piecemeal or outdated compliance regimes invite regulatory action.
Retailers in the precious stones sector must invest in risk-based frameworks that reflect their unique exposure. This means mapping customer profiles, transaction flows, and geographic risk factors. It also means integrating technology that can flag anomalies in real time, such as sudden shifts in transaction volumes or inconsistent payment methods.
Training cannot be overlooked. Employees in showrooms are often the gatekeepers who interact directly with clients. Empowering them with knowledge about common laundering typologies, such as structuring transactions to avoid reporting thresholds or using third-party intermediaries, strengthens the first line of defense.
The reputational fallout of enforcement actions also warrants attention. Consumers purchasing high-value diamonds increasingly expect companies to uphold ethical and transparent practices. A penalty tied to money laundering failures can erode trust, especially in an industry already under scrutiny for sourcing issues and supply chain opacity.
For regulators, the Spence Diamonds case is a demonstration of supervisory assertiveness. It signals to the broader market that Canada is serious about aligning with global AML standards and will not exempt sectors outside traditional finance from scrutiny.
Related Links
- Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)
- Proceeds of Crime (Money Laundering) and Terrorist Financing Act – Justice Canada
- Financial Action Task Force (FATF)
- Department of Finance Canada – AML/ATF Policy
- Canada Border Services Agency – Enforcement and Trade
Other FinCrime Central Articles About Gold and Precious Metals Used For Money Laundering
- Dealers Worldwide Face New Heat As China Hits Money Laundering Through Gold
- Major Money Laundering Operation Exposed in Spain’s Jewelry Sector
- French and Italian Police Smash International Money Laundering Network Moving Millions in Gold
Source: FINTRAC
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