DIRTY GOLD, CLEAN BOOKS: HOW LAUNDERERS EXPLOIT THE PRECIOUS METALS TRADE

• Jewellery shops, bullion dealers and refineries are becoming attractive channels for criminals seeking to convert illicit wealth into apparently legitimate assets

• Gold has always been valuable. For money launderers, its attraction goes beyond price.

It is portable, globally traded, relatively easy to store and can be converted into different forms without necessarily leaving the obvious financial trail associated with a bank transfer. Jewellery, bullion and precious stones can therefore provide criminals with something that conventional financial channels cannot always offer, a physical store of value that can cross borders while concealing the origins of the money used to acquire it.

The diamond, precious metals and stones sector has consequently become a persistent concern for anti-money laundering authorities. The combination of high value goods, cash intensive businesses, international trade, opaque supply chains and difficult to verify ownership structures creates multiple points at which illicit funds can enter legitimate commerce.

The danger is not confined to gold traders operating in distant markets. It reaches financial institutions that provide accounts, payment services and trade finance to businesses operating across the precious metals supply chain.

The compliance question is increasingly straightforward. Can a bank establish not only where a customer’s money came from, but where the metal came from, who supplied it, who ultimately owns the trading company and whether the transaction makes commercial sense?

JEWELLERY: WHEN LUXURY BECOMES A STORE OF VALUE

Retail jewellery businesses occupy one of the most visible points in the precious metals economy, but they can also present significant money laundering vulnerabilities.

A criminal does not necessarily need to conceal large quantities of cash indefinitely. Illicit funds can be converted into watches, diamonds, necklaces or other high value items that can later be resold.

The transaction can create the appearance of an ordinary commercial purchase while transforming cash or other illicit proceeds into an asset with resale value.

Several techniques can increase the risk. Purchases may be deliberately structured below reporting or identification thresholds. Third parties may be used to acquire goods on behalf of the real beneficiary. Payments can be split between cash, cards and bank transfers. Items may then be returned, exchanged or sold in another market.

Trade based manipulation presents another vulnerability. The value of jewellery or precious stones can be difficult to establish independently, creating opportunities to overstate or understate invoices and move illicit value under the cover of legitimate commerce.

For financial institutions, the warning signs can begin during onboarding.

A jewellery business that cannot explain its customer base, expected cash volumes, sourcing arrangements or international counterparties should attract greater scrutiny. So should unexplained nominee ownership, frequent changes in control or an account profile that bears little resemblance to the customer’s actual transaction activity.

A small retailer moving millions through international wires, for example, may warrant questions if its stated business model does not support that level of activity.

BULLION: THE CROSS-BORDER VALUE PIPELINE

Bullion trading introduces a different set of risks.

Gold bars and other bullion products are highly liquid and internationally tradeable. They can be bought, transported, refined and resold, creating multiple opportunities for criminals to move value across jurisdictions.

A laundering network may purchase gold using illicit proceeds, transfer it through intermediaries, sell or refine it and subsequently reintroduce the proceeds as apparently legitimate trading income.

Shell companies can be inserted into the trading chain. Invoices can be manipulated. Gold can be under or overvalued. Transactions can be routed through jurisdictions associated with corruption, smuggling, conflict or sanctions risks.

The complexity of the supply chain is particularly important.

A financial institution may know the immediate customer but have limited visibility into the mine, aggregator, trader, transporter or refinery sitting further upstream.

That makes source of funds only part of the equation.

Source of goods matters too.

Banks dealing with bullion traders should understand where the metal originates, who the counterparties are, which countries are involved and how the goods move from source to destination. Trade documentation, invoices, customs records, assay certificates and shipping information can become critical components of the compliance picture.

Unusual pricing, repeated round value transfers, newly established counterparties, rapid movement of funds between jurisdictions and transactions that do not match the customer’s stated business model can all warrant enhanced scrutiny.

REFINERIES: WHERE THE TRAIL CAN BE TRANSFORMED

Refineries occupy a particularly sensitive position.

They can transform scrap, mixed or semi processed material into refined metal that appears to have a conventional commercial identity. That creates a potential laundering vulnerability if the refinery cannot establish the provenance of the material it receives.

The central risk is not necessarily the refining process itself. It is the possibility that questionable material enters the supply chain with inadequate documentation and emerges as a legitimate commercial commodity.

Misrepresented origin, weak supplier due diligence, false invoicing and opaque beneficial ownership can all complicate the process of determining where the gold originated and who ultimately benefited from the transaction.

For financial institutions, refinery customers therefore require a deeper examination of their supply chains.

Questions should extend to responsible sourcing policies, supplier screening, beneficial ownership, sanctions exposure, independent audits and procedures for rejecting material whose provenance cannot be established.

A refinery receiving large quantities of precious metals through intermediaries in high-risk jurisdictions, while providing little information about upstream suppliers, presents a very different risk profile from a business with transparent sourcing and independently tested controls.

ENFORCEMENT IS CLOSING THE GAP

Regulators and law enforcement agencies have repeatedly demonstrated that precious metals businesses are not outside the AML perimeter.

In the United States, Elemetal LLC, operating as Elemetal and NTR Metals, pleaded guilty in 2017 to failing to maintain an adequate AML programme. The case highlighted weaknesses involving gold linked to criminal proceeds and demonstrated that failures in sourcing and suspicious activity controls can produce serious enforcement consequences.

Republic Metals Corporation also entered into a non-prosecution agreement connected to investigations involving money laundering and Bank Secrecy Act violations in the gold importation and refining industry.

The UAE has taken an increasingly aggressive supervisory approach. Official reporting cited the suspension of 32 gold refineries in 2024 for AML related violations, with 256 violations identified.

The message from these cases is significant. Precious metals businesses are not merely commercial customers. Their activities can create exposure to money laundering, sanctions evasion, corruption proceeds, terrorist financing and trade based financial crime.

THE BANKING SYSTEM’S BLIND SPOT

The greatest compliance weakness may not be a lack of rules. It may be a lack of understanding of the customer’s actual business.

Generic customer due diligence is unlikely to detect sophisticated abuse if the institution does not understand how jewellery, bullion or refinery businesses operate.

A jewellery retailer, a wholesale bullion dealer and a gold refinery should not be subjected to identical risk assumptions. Their transaction patterns and counterparties are different. Their exposure to cash, international trade and supply chain risk is different. Their monitoring rules should therefore be different.

For jewellery businesses, financial institutions should pay particular attention to cash intensity, structured purchases, refunds, rapid resale activity and unexplained third-party payments.

For bullion traders, the emphasis should move towards cross border flows, trade documentation, pricing anomalies, counterparties and high risk jurisdictions.

For refineries, the focus should be on source of goods, supplier ownership, provenance, responsible sourcing and potential trade manipulation.

THE COMPLIANCE TEST

The precious metals sector demonstrates why modern AML compliance can no longer stop at knowing the immediate customer.

The real question is increasingly whether institutions understand the entire commercial chain surrounding that customer.

Who supplied the gold? Where did it originate? Who transported it? Who refined it? Who owns the companies involved? Why is the transaction taking place through a particular jurisdiction? Does the price make sense? Does the customer’s banking activity correspond with its stated business? And can the institution independently verify the answers?

These questions become especially important when transactions involve high risk jurisdictions, opaque intermediaries, unusual pricing or rapid movements of funds.

The objective is not to treat every jeweller, bullion trader or refinery as a criminal risk. It is to identify where legitimate commerce ends and financial crime risk begins.

Gold may be difficult to trace once it has been transformed, transported or resold. Money laundering controls cannot afford to make the same mistake.

For banks and other financial institutions, the emerging lesson is clear. Dirty money does not always arrive looking dirty. Sometimes it arrives as jewellery, bullion, an invoice or a perfectly legitimate looking trade payment.

The compliance challenge is to look beyond the shine.