Diamonds and Dirty Money: FINTRAC Hits Spence Diamonds with $264,000 AML Penalty

Spence Diamonds, one of Canada’s most recognizable jewelry retailers, has come under intense scrutiny after regulators uncovered widespread failures in its anti-money laundering (AML) program.

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) imposed an administrative monetary penalty of $264,000 after identifying repeated breaches of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. For a retailer dealing in high-value and highly portable goods, the findings highlight why the precious metals and stones sector remains a primary target in the global crackdown on dirty money.

Compliance Failures in the Diamond Trade

Dealers in precious stones are long recognized as prime channels for criminals seeking to legitimize illicit cash. Diamonds and gold, by their nature, can be discreetly transported, retain value, and be liquidated with minimal oversight if AML systems are weak. Regulators in Canada, Asia, and Europe have consistently flagged this risk. The Spence Diamonds case shows how even a mainstream brand with multiple showrooms across major Canadian cities can become a blind spot when compliance frameworks are poorly implemented.

FINTRAC’s examination revealed critical gaps: failures to file suspicious transaction reports, missing or outdated compliance policies, and an absence of training programs for staff.

Each of these weaknesses left the company unable to catch potential red flags. Whether in cases of high-value cash purchases, transactions made through third parties with unclear beneficial ownership, or unusual buying patterns inconsistent with customer profiles, the absence of timely reporting stripped away an essential safeguard against laundering.

Although the $264,000 penalty is not FINTRAC’s largest, it carries weight for the sector. It functions both as punishment and deterrent, a clear statement that the regulator will not tolerate complacency in industries especially vulnerable to money laundering.

Patterns of Non-Compliance and the Risks They Enable

The violations identified at Spence Diamonds cut across nearly all pillars of AML compliance. Chief among them was the failure to submit suspicious transaction reports, which serve as the primary channel for financial intelligence units to detect early signs of illicit activity. Without such reports, crucial links to organized crime, corruption, or even terrorism financing may remain obscured.

Another issue was the lack of updated compliance policies and procedures. This meant frontline employees had no clear guidance on how to handle risky transactions. In an industry where legitimate luxury spending often overlaps with covert laundering schemes, having policies that evolve with regulatory demands is critical.

Risk assessments, too, were found lacking. By not conducting or documenting proper evaluations, Spence Diamonds ignored the unique vulnerabilities tied to dealing in high-value portable assets. Without this risk-based foundation, the company could neither allocate resources appropriately nor design safeguards proportionate to the threats.

The absence of staff training compounded the failures. Employees who interact directly with customers are often the first to spot warning signs—a reluctance to provide identification, a sudden increase in cash payments, or a client whose behavior is inconsistent with their profile. Without training, these signals go unnoticed and unreported. Moreover, the lack of a review process ensured systemic gaps persisted unchallenged.

The result is a cascading compliance breakdown, where one unchecked weakness multiplies into systemic deficiencies. In the diamond and jewelry trade, such cracks provide fertile ground for laundering illicit cash into the legitimate economy.

The Global AML Challenge for Precious Stones

The Spence Diamonds case is part of a broader regulatory focus on the precious stones sector. Globally, the diamond trade remains attractive to money launderers precisely because it combines portability, opacity, and liquidity. Diamonds can be moved discreetly, valued subjectively, and liquidated across multiple jurisdictions with relative ease.

Canadian legislation places dealers in precious metals and stones under the same obligations as banks, casinos, and real estate companies. These requirements include identifying clients, keeping detailed records, reporting transactions, and establishing full compliance programs. Banks often invest heavily in compliance infrastructure, but smaller retailers frequently underestimate these obligations—leaving themselves vulnerable to penalties.

FINTRAC has emphasized that penalties serve corrective as well as punitive purposes.

However, the rising number of enforcement actions tells its own story. In the past year alone, FINTRAC issued 23 Notices of Violation—the highest number in its history—amounting to more than $25 million in penalties. Since 2008, the agency has imposed over 150 penalties across various sectors, underscoring the growing reputational and financial consequences of non-compliance.

Internationally, the Financial Action Task Force (FATF) has repeatedly called for tighter regulation of the diamond trade. FATF assessments frequently highlight weaknesses in beneficial ownership transparency and insufficient monitoring of cross-border trade.

Canada’s move against Spence Diamonds reflects this global push to ensure that diamonds are not exploited as vehicles for laundering proceeds of drug trafficking, corruption, or organized crime.

Lessons for Compliance Officers and Industry Stakeholders

For compliance officers, the Spence Diamonds case reads like a checklist of what not to do. Every major element of a sound AML program—reporting, policies, risk assessment, training, and oversight—was found deficient. The message is clear: piecemeal or outdated compliance efforts invite regulatory action.

Dealers in precious stones must adopt risk-based compliance frameworks that reflect the sector’s particular exposure. This means mapping customer behaviors, transaction flows, and geographic risk factors. It also requires investing in technology capable of detecting anomalies in real time—whether sudden spikes in transaction volumes or payment methods inconsistent with customer profiles.

Staff training cannot be underestimated. Employees in showrooms are the first line of defense. Equipping them with knowledge of laundering typologies—such as structuring payments to evade reporting thresholds or using intermediaries to obscure beneficial ownership—strengthens the firm’s overall defenses.

The reputational consequences of enforcement are also significant. Today’s consumers of high-value diamonds expect transparency and ethical practices. A penalty linked to money laundering failures risks eroding trust in a sector already under scrutiny for supply chain opacity and sourcing controversies.

For regulators, this enforcement action demonstrates supervisory determination. It signals to the market that Canada is committed to meeting global AML standards and will hold accountable not only banks and financial institutions but also industries outside the traditional financial system. 

By fLEXI tEAM