On July 20, the Financial Action Task Force (or “FATF”) released a report highlighting the growing attractiveness of gold as a means to launder money and finance criminal and terrorist organizations. The FATF is an inter-governmental body established in 1989. Its mission is to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
The report examines the characteristics of the international gold market makes it such a hospitable environment for money laundering.
Criminals seeking to launder the proceeds of their illegal activities are first and foremost drawn to the cash intensive nature of the gold market. Largely unregulated cash-for-gold businesses offer criminals a dependable source of gold commodities in exchange for anonymous cash, meaning that the transactions are largely untraceable. Such businesses require very little start-up capital, meaning that they can open and close overnight. This makes it hard for law enforcement and regulatory authorities to monitor the businesses’ activities and client base beyond the short term. Furthermore, gold can easily be used as a form of currency without even having to convert it into cash. For instance, a crime syndicate leader may choose to pay her associates in gold. Such a transaction provides the employee with a reliably valuable remuneration without leaving any record.
Precious metals such as gold are also extremely easy to smuggle. Indeed, they can be melted and converted into a form that disguises their nature, such as the wrenches, nuts, bolts and belt buckles referred to in one of the report’s case studies.
Moreover, like many other high-valued commodities, gold is a perfect medium for “trade-based money laundering”. Indeed, the market does not expect for gold to be physically moved every time it is traded, because of the inherent risks posed by the transportation of such a precious product. Gold can thus easily be cited on a false invoice to justify large movements of funds without raising suspicions. Money laundering through the gold trade is further facilitated by the depository and certificate products available in the gold market. Such instruments give the holder legal title to gold bullion stored on their behalf, and can be acquired and exchanged by third parties.
Finally, gold is an unusually stable commodity, and investments in gold provide reliable returns. This makes it a dependable placement for proceeds of crime for the same reasons as it is favored by legitimate investors.
The FATF concludes the report by calling for a reexamination of regulatory practices in the gold market, in which government oversight is currently sorely lacking.