Gold and Money Laundering: AML in the Gold Industry

Background

In 2020 in the United Arab Emirates (UAE) gold accounted for 29 percent of the nation’s overall non-oil foreign trade exports, and the UAE is presently the fourth biggest country in the world for gold imports, accounting for 11 percent of all worldwide gold exports.

Recently, The Financial Action Task Force (FATF), the Organization for Economic Cooperation and Development (OECD), and gold enterprise organizations such as the London Bullion Market Association (LBMA) have all highlighted the financial crime and supply chain risks associated with the trade-in gold from conflict and high-risk areas, as have media and civil society reports.

But what does this mean for the players acting in the gold industry? Is there really such a big risk for gold and money laundering? What can they do to reduce the risk of money laundering through gold?

Why is money laundering through gold tempting?

According to FAFT, there are two main features of gold and the gold market that make it enticing to criminal groups. The first is the nature and size of the market itself. This relies heavily on cash as a medium of exchange. The second is the anonymity that results from the characteristics of gold, which makes it very difficult to trace its origin. These factors make gold extremely attractive to crime syndicates seeking to hide, move, or invest their illicit proceeds.

In addition, there are other factors that make gold and money laundering an attractive combination for criminals. We have listed these below:

• Liquidity: the liquidity of gold is high compared to other forms of investment such as bank deposits or stocks and. You do not need a bank account to buy or sell gold. The redemption of gold is instant and we can get cash immediately.
• Over-the-counter: gold can be sold over-the-counter anywhere and is not controlled by an exchange. It is easier to find buyers or sellers for gold than for stocks.
• Taxes: There are no taxes associated with gold. You only pay sales tax or value added tax.
• Investment return: unlike stocks and bonds, gold offers a reliable return that depends on the market price.
• Efficient: Gold can be used at all 3 levels of money laundering.
• Global Currency: Gold is considered a world currency. One can buy or sell gold anywhere on the globe. There is no currency conversion or losses.Convertible: gold can be converted into many forms (jewelry) and denominations (coins/bars) without losing its face value.

Gold and money laundering in the UAE - A high-risk country?

The FATF published a study in 2020 that highlighted the growing gold trade in the UAE. According to the study, there is a significant risk of money laundering, terrorist financing and weapons of mass destruction financing in the UAE. The reasons for this include lax customs laws to monitor gold transactions. For example, gold traders in the Middle Eastern financial center are not required to provide any documentation on transactions or the origin of their gold. And illegally acquired gold for money laundering can be easily used as well, since it does not need to be verified when bought or sold, making gold trading an ideal way to cleanse black money.

Another problem is insufficient due diligence procedures. Gold dealers, for example, are not required to verify the origin or transactions of the gold they buy or sell. In addition, gold refiners are not required to conduct third-party audits, according to an advisory report by The Sentry, and instead source gold directly from jewelers and dealers in “souqs.” Further underpinning the vulnerability, according to FAFT, is the cash-intensive economy and illicit gold trading conducted by a large number of foreign residents.

How to protect from Money Laundering through Gold?

As a Gold Industry player, it is important to perform proper due diligence and KYC. This includes various activities, which we have compiled below.

PEP Screening

PEP (Politically exposed Person) is not in all jurisdictions defined in the same way. But in general, Politically exposed Persons (PEPs) are persons who hold or have held an important public function. This function may, for example, give them influence over the use of taxpayer funds or the awarding of contracts by state-owned enterprises. As such, they are considered by the Financial Action Task Force to be a category of individuals more vulnerable to bribery, corruption, and money laundering than most.

Sanction Screening

Within the sanction screening, you can check for targeted financial sanctions (TFS). Individual countries and multinational organizations (e.g., the EU and the United Nations) impose sanctions to pressure other countries or organizations to change their behavior. Sanctions can be directed against individuals, specific companies, or entire nations.

There are 2 main types of financial sanctions: Asset freezing and the prohibition to offer funds and services.

Risk Assessments

The aim of a client risk assessments is to identify and assess the money laundering (ML) and/or terror financial (TF) risks identified at individual client level.

Therefore, the Risk Based Approach is important to implement in your organization. As a core principle of AML compliance the so called risk-based approach (RBA) refers to adjusting the level and type of compliance work done (frequency, intensity and/or amount), to the risks present.

How DX Compliance can help with Gold and Money Laundering?

DX Compliance is an AML and Compliance firm helping our clients identify, prevent and report financial crime. DX Compliance help Banks, FinTech’s and Payments Providers to continually monitor their risk and detect the threat of money laundering to ensure compliance and reduce fines.

Auteurs of the gold industry are able to can screen people and businesses in seconds with CheckAML.

CheckAML is the most efficient and cost-effective way of carrying out money laundering checks. We offer the only instant AML solution with full PEP & sanctions screening, ongoing monitoring and customer risk assessment worldwide. This helps to ensure Client Due Diligence for legal practices.

Our data and coverage is global, real-time and reliable, all your checks are automatically saved, for audits and regulatory visits. So everything you need we’ve got you covered.

Curious? Please contact our experts!