Page 578 - IOM Law Society Rules Book

Gold and diamond markets

Gold

Precious metals, and in particular gold, offer the advantage of having a high intrinsic
value in a relatively compact form. Gold can be bought and sold for currency with
little difficulty in most areas of the world. Furthermore, it holds its value regardless
of the form it takes – whether, for example, in bullion or as a finished piece of
jewellery – it is thus often sought after as a way of facilitating the transfer of wealth.
For some societies, gold carries an important cultural or religious significance that
adds to the demand for the metal in certain regions of the world. The advantages that
gold provides are also attractive to the money launderer, that is, the high intrinsic
value, convertibility, and potential anonymity in transfers. It is used both as a source
of illegal funds to be laundered (through smuggling or illegal trade in gold) and as an
actual vehicle for laundering (through the outright purchase of gold with illegal
funds).

Most laundering involving gold are linked to illegal narcotics trafficking, organised
crime activities and illegal trade in goods and merchandise.

TYPOLOGIES

Typology 1: Purchase of gold with illicitly obtained funds

In the first and simplest typology, the money launderer or often someone acting on his
behalf simply purchases gold from a retail merchant with funds that were generated
directly by an illegal activity.

Typology 2: Gold as the proceeds of crime

The gold itself may be the “proceeds” of crime that needs to be laundered. In this
case, the launderer may attempt to hide the illicit nature of the gold – for example, if it
has been stolen or smuggled – by creating a system of false invoicing.

Typology 3: Purchases and sales as a cover

Another still more complex typology uses the gold or precious metal purchases and
sales as a cover for the laundering operation. In certain instances, some of the
supposed transactions of a particular scheme do not take place at all but are
represented with false invoicing. The paperwork is then used to justify the transfer of
funds to pay for these shipments. The false invoicing scheme is also common to the
various value added tax fraud schemes, which are associated with certain gold
trafficking operations.

Diamonds

Diamonds and other precious gems afford some of the advantages as those provided
by gold – high intrinsic value in a compact form. Diamonds in particular can also be
traded with little difficulty world-wide, although there is far more concentration for
some aspects of the trade to certain regions.