When Gold Makes You See Red
Gold, one of the oldest and most sought after physical asset, gold did not leave criminals indifferent to its use. Since antiquity, gold has been used as a medium for exchange and payment. Till date, gold remains extremely valuable and is recognized as a universally accepted currency. The highly lucrative gold market also presents proceed-generating opportunities for criminals at each stage, from mining to retailing. This article is a compilation of cases whereby gold has been exploited for money laundering (ML) and terrorist financing (TF) purposes, with emphasis on the red flag indicators to raise awareness vulnerabilities of gold and the gold market.
- United States v. Atilla, No. 18-1589 (2d Cir. 2020)
Mehmet Hakan Atilla is a Turkish national and former Deputy General Manager of Turkey’s state-owned bank, Türkiye Halk Bankaşi, A.S. (“Halkbank”). He faced charges relating to an alleged multibillion-dollar scheme to evade U.S. economic sanctions against Iran under which commercial transactions were prohibited. Atilla was accused of conspiring with gold trader Reza Zarrab to help Iran escape sanctions using fraudulent gold transactions. Gold worth billions of dollars was moved from Turkey to Iran through complex transactions and front companies. Moreover, Zarrab used funds deposited at Halkbank to buy gold which was smuggled to Dubai and sold for cash. Due to sanctions in place, the money was moved through fake food sale disguised as part of the humanitarian relief. Atilla was accused of helping in designing the transactions to make them appear as legitimate.
Red flags:
- Use of complex transactions and numerous corporate structures
- Commercial activities are not easy to track
- Gold is shipped to or from a jurisdiction designated as ‘high risk’ for money laundering activities or sensitive / non co-operative jurisdictions
- S. v. Elemetal LLC, Case No. 18-cr-20173
Elemetal, a precious metal dealer, was charged with failure to maintain an adequate anti-money laundering program, in violation of the Bank Secrecy Act. Elemetal purchased and refined billions of dollars of gold from countries around the world, including from Central America, South America, the Caribbean and Europe. The entity accepted gold from individuals and entities without identifying and verifying the identity of those persons and on the origin of the gold. Elemetal also accepted gold from customers subject to negative press whereby they were accused of dealing with illegally sourced gold.
Red flags:
- Not requesting information and documents on the source of the gold
- Transshipment of gold though a third country
- Reliance on third parties to provide the gold
- Kaloti Case (2012)
Kaloti Jewellery Group is one of the largest gold traders and refiners in the world. Kaloti has been the subject of doubts and criticisms as to the location of its gold sourcing. The entity has been accused of sourcing gold from countries involved in war crimes and human rights abuses which are high risk jurisdictions such as Suriname and Sudan. Kaloti is also accused of being a conduit for illicit activities. Renade International which was owned by an organized crime group has been selling black market gold to Kaloti in exchange for cash. The gang, in turn, was dealing with proceeds from drug dealers and laundered the money by buying and selling black market gold. This practice was ongoing for years. In 2012 alone, Renade International sold $146m worth of gold to Kaloti and was paid in cash. In 2013, an audit firm was contracted to conduct a review of Kaloti’s compliance with rules designed to keep gold from illegitimate sources out of the global supply chain. During the review, the auditors discovered that that the gold dealer frequently made payments in cash; with a total of $5.2bn for 2012 alone. They also discovered that gold bars were coated with silver bullion to avoid the export limit on gold. The FinCEN files revealed that several global banks reported what amounted to US$9.3 billion in suspicious transactions linked to Kaloti between 2007 and 2015 to the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
Red flags:
- High – value transactions conducted in cash
- Transactions being routed through shell companies
The case studies above are not only illustrative of how criminals exploit the precious metals and stones industry but also demonstrate how vulnerable the sector is. Dealers in gold and other precious metals and stones are becoming increasingly regulated and have to abide to anti-money laundering and counter terrorist-financing obligations. In Mauritius, the legislative requirements under the Financial Intelligence Anti-Money Laundering Act (FIAMLA) 2002 applies to dealers in the jewellery sector who engage in any cash transaction of at least 500,000 rupees in total, whether the transaction is executed in a single operation or in several operations which appear to be linked. The obligations that the dealers are required to comply with are laid down in FIAMLA 2002 and the Guidelines On The Measures For The Prevention Of Money Laundering And Countering The Financing Of Terrorism For Dealers Under The Financial Intelligence And Anti Money Laundering Act 2002 along with a Fact Sheet for ease of reference.
Sources:
http://www.fiumauritius.org/English/Seminars/Documents/DPMS%20Guidelines%20Final%20Nov%202020.pdf
http://www.fiumauritius.org/English/Seminars/Documents/8June20/FactSheetDPMS.pdf
If you are a dealer in gold and other precious metals and stones and need assistance in meeting your regulatory obligations, get in touch with us on +230 210 3588 or templeconsulting@templegroup.mu
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