The use of Precious stones and metals to launder money

Precious metals and stones have always been considered an alternate medium of payment due to their innate value and exchangeability factor. Despite fluctuations in the economy, precious metals remain globally accepted currency. Some of the reasons criminals consider Precious minerals a safe investment are; they are worth a lot in terms of value, are generally traded in cash and are used worldwide as a form of currency. They are difficult to trace and verify and can be traded anonymously. Also, not having to keep a record of owning precious metals and stones is what makes it easier to smuggle and use as a vehicle to launder money by criminals in order to fund terrorists. Gold has been prominently used in several parts of the word since ancient times as a form of payment. Countries like India and the middle East consider Gold an auspicious metal and often use it for gifting and exchange purposes with respect to religious and cultural values. It can also be melted into any desired form, which makes it easier to be untraceable. There is a tremendous amount of fear presented by money laundering and terrorist financing.

How precious minerals are used to launder money

There are several ways in which criminals misuse precious minerals in Money laundering:

• Precious minerals are usually purchased using criminal funds obtained by illegal measures such as drug or human trafficking. They seek out merchants to turn their illegitimate money into precious minerals and launder the funds.
• It is extremely convenient to pass off the illegal funds, which are a result of heinous crimes by buying, or selling diamonds and making it look legitimate and clean. Criminals use this as a cover by producing fictitious evidences such as fake bills or statements that conceal the crimes and show sale of precious minerals.
• There are several cases of embezzlement and tax evasion using diamonds. They understate the value in order to escape import and export taxes and evade them. There have been several such instances that have caused global economic disturbances due to such traders.
• Another method used my criminals to launder funds using precious minerals is by using them as a replacement currency. They use these minerals to purchase goods that are prohibited and restricted such as drugs and weapons.
• Use of precious minerals in order to fund terrorism has become increasingly common nowadays. Raising funds from illegitimate sources for helping terrorists conduct their attacks is an increasingly growing predicament that needs to be curbed. Terrorist organizations control the merchandising and dealing of precious minerals. Columbian regions that produced raw materials for cocaine have switched to mining gold in an attempt to fund rebels. The cash they generate is then used to buy equipment, arms and ammunitions required to carry out the terrorism.

Mechanisms used to combat Money Laundering and the challenges faced

In order to hamper criminal exploitation of the financial system there are relevant methods used to intercept the misuse of precious minerals by criminals. AML/CFT standard is completely relevant to combat and intercept these crimes. Their procedure plan stressed on crucial spheres such as; “stronger partnership with the private sector, improving the effectiveness of a supervisory regime, enhance the law enforcement response to tackle the most serious threat and increase our international reach.”

FATF has laid out six recommendations that are directly relevant to the precious minerals sector, which includes the following:

• Risk Based Approach, which permits national authorities to allocate more resources to the monitoring of the precious minerals sector in case, there is a high level of risk involved with regards to this sector in this country.
• Implementation of Customer Due Diligence.
• Precious minerals merchants shall send a Suspicious Transactions Report to the concerned authorities (Financial Intelligence Unit).
• Merchants or dealers of precious minerals shall be duly monitored and regulated for compliance with AML.
• Persons who carry precious minerals cross country, shall be subjected to a declaration or required to disclose the same.
• Precious mineral traders shall be given regular feedback and guidelines by authorities for AML requirements.

Procedures that would be useful to combat terrorist financing and money laundering

• The execution of AML/CFT structure should lead to the authorization and sanctioning registration of precious mineral traders and raise clarity and lucidity of undertakings, which, subsequently, would furnish taxation laws and statutes, more convenient to enforce.
• As stated earlier, embracing a risk-based measure in implementing AML system needs nations to identify, evaluate and estimate their money laundering and terrorist financing risks. It is the best way to utilize resources in a way that risks are alleviated. This approach shall take into account a merchant’s business model, and accommodate requirements to particular situations. It helps inquire into the collaboration between law and administration agencies.
• All cross-country travellers must declare and show the value of the precious minerals they are carrying and must do so whenever requested to. Another way would be identification of individuals by proving, identity cards and biometrics. This has a positive effect on AML regime. Kimberly Certification Scheme was introduced for this particular reason, although it is not a certificate of origin, due to which origin of purchase cannot be traced, making it a bit difficult to uncover the vulnerability. Know your customer policies are well known to keep terrorists at bay and is a rapidly evolving concept.
• Strengthening anti-corruption structures and measures by disclosure of assets, nurtures a more beneficial environment to tax and AML concession.
• Providing a list of suspected criminals with regard to terrorist activities, by competent authorities in each jurisdiction.
• Furthermore, notifying the authorities about the patterns, techniques etc. used while financing terrorism, would help oversee such situations better.
• Observing and regulating transactional activity and augmenting security measures for the same.

In conclusion, I’d like to state that the attributes and distinctions of precious minerals make it extremely convenient for vulnerability and exploitation by criminals and terrorists. The intrinsic value, anonymity, exchangeability and portability, makes it easier to validate illegal proceeds. Especially metals such as Gold, those are considered significant in several cultures and are easily moulded into any desired shape or size. There are several mechanism adopted in order to keep a check on money laundering and terrorist financing using precious minerals, but this dilemma still prevails and needs to be curbed in its entirety by heightening more security measures with regard to buying and selling of precious minerals and improving identification measures. Organisations such as the FATF have provided comprehensive analysis reports regarding the same.

Sources

1. Promoting an international strategy to combat illicit trafficking in precious metals, UNICRI. http://www.unicri.it/special_topics/metals_gemstones/Preliminary_Desk_Review.pdf
2. Gold Beats Cocaine as Colombia Rebel Money Maker: Police, BBC UK. https://www.bbc.co.uk/news/world-latin-america-18396920
3. National Risk Assessment of Money Laundering and Terrorist Financing 2017, HM Treasury. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/655198/National_risk_assessment_of_money_laundering_and_terrorist_financing_2017_pdf_web.pdf
4. Implementing AML/CFT Measures in the Precious Minerals Sector: Preventing Crime While Increasing Revenue, International Monetary Fund, Emmanuel Mathias and Bert Feys. https://www.imf.org/external/pubs/ft/tnm/2014/tnm1401a.pdf
5. Money Laundering and Terrorist Financing through Diamonds, FATF Report, Oct 2013. http://www.fatf-gafi.org/media/fatf/documents/reports/ML-TF-through-trade-in-diamonds.pdf
6. Wolfsberg Statement: on Suppression of the Financing of Terrorism, Wolfsberg Principles. https://www.wolfsberg-principles.com/sites/default/files/wb/pdfs/wolfsberg-standards/16.%20Wolfsberg_Statement_on_the_Suppression_of_the_Financing_of_Terrorism_%282002%29.pdf