Cardiff University LLM: Money Laundering in Precious Metals Report

This report critically examines money laundering vulnerabilities in the precious metals and stones sectors, specifically focusing on gold and diamonds. It references research from the Financial Action Task Force (FATF) and the International Monetary Fund (IMF) to identify risks associated with illicit financial flows, corruption, and terrorist financing. The report explores the susceptibility of precious metals and stones to money laundering, highlighting the role of trade-based money laundering and the challenges in tracing the origins of funds. It discusses specific vulnerabilities, such as the international nature of the trade, the difficulty in tracing diamonds, the high value of these commodities, and the limited awareness of money laundering risks among law enforcement agencies. Furthermore, the report addresses the FATF's findings on gold as an attractive vehicle for money laundering and terrorist financing, emphasizing the need for enhanced global focus and the importance of implementing robust anti-money laundering (AML) and counter-terrorist financing (CFT) measures. The report concludes by recommending the implementation of comprehensive compliance programs, regular risk assessments, and continuous AML training to combat money laundering effectively.

Running head: REPORT 0
money laundering
MARCH 7, 2019
STUDENT DETAILS:

REPORT 1
Introduction
The money laundering needs the fundamental, major, and profit-generating crimes like
deception, tax evasion, marketplace manipulation and scam, in consort with committed to
disguise the crime’s proceed or to further the criminal enterprises. The money laundering
refers to the procedure of making the presence that huge amount of money attained from the
illegal activities, like trafficking of drugs, extremist activities, raised from the authentic,
reasonable and legal sources. Moreover, the financing of terrorism includes rendering the
funds and economical help to the non-state actor or terrorist. There are certain nations, who
keep the lists of organisations of terrorists, and follow the laws, rules and regulations related
to money laundering that are utilised to contest rendering the finance for the organisation of
terrorist. In the following report money laundering susceptibilities recognised in the sector of
precious metals and stones involving gold and diamonds are discussed and critically
examined. This report states the threats in relation to money laundering and finance of
terrorism, reported by International Monetary Fund and Financial Action Task Force.
Money laundering in the sector of precious metals and stones including gold and diamond
The trading of precious stones and metals including gold and diamonds has been connected to
illegal economic flow, exploitation, trafficking, smuggling of drugs, trafficking of illegal
weapons including guns, and financing of terrorism. Additionally, the removal of valuable
minerals and the subsequent trading in the sources, in the case, it is managed in proper way,
present important revenue prospects, specifically for the nations facing the requirements
related to the developments. Creating the team proficiency to control the money laundering,
contending the finance of terrorism (International Monetary Fund and Financial Action Task

REPORT 2
Force), technological assistance and logical suggestion on the organisation of regular sources,
will help to stop money laundering1.
The suppliers of precious metals, jewels, and stones are particularly susceptible. The precious
stones are regularly trafficked, taken, imported, and exported in the black market in the
nations all over the globe and at that moment utilised in money laundering plans. In the case
where any person is employee of the supplier of precious metals and stones, then the needs
defined are the duties of the employers, excluding in relation to making report of doubtful
transactions and the properties related to terrorist that is applied on an individual as well as
the employer2.
The trade of diamond is subject to the significant risk and susceptibility. The impervious
nature and closed nature of the marketplace of diamond and the diamond’s highest value
united with the deficiency of the speciality in this field on the parts of powers have left the
sector vulnerable to misuse by the various offenders3. The Egmont Group of Financial
Intelligence Units and Financial Action Task Force on money laundering associated on the
research study to recognise the financing of terrorism and money laundering susceptibilities
and the risk related to the diamond pipeline. The diamond pipeline involves all the sectors
related to the trading of diamond such as manufacturing, trade of rough diamonds, cutting of
diamonds, polishing of diamonds, and production of jewellery and retailing of jewellery4.
The trading of diamond has presented for the eras. The trade of diamond has established the
exclusive approaches related to the trade and culture that have the personal features and
distinctions through the nations and areas. However, the trading of diamonds at the
1 Rafał Dreżewski and Filipkowski Wojciech ‘The application of social network analysis algorithms in a system
supporting money laundering detection’ [2015] Information Sciences 295.
2 Hsin Chih Chen, ‘Diamond heists in Africa: Political economy of manipulation and violence’ (St. John's
University 2017).
3 Peter Alldridge, ‘What went wrong with money laundering law’ (Springer 2016)
4 Doug Hopton, ‘Money laundering: a concise guide for all business’ (Gower 2016).

REPORT 3
international level have been reformed in the last few periods5. The changes include diversity
of distribution channels, entry of various small suppliers of the diamonds, shifting of
polishing and cutting of diamonds from United States of America to China and India and
decreasing cash’s usage, and replacing the internet as the commercial platform of diamonds6.
Following are the susceptibilities and risks of the trading of diamonds-
1. Trading at international level- the trading of diamonds is multinational and difficult.
In this way, expedient for the money laundering and financing of terrorism
transactions that are, mostly matters of global nature and multinational nature.
2. Difficulty in tracing the diamonds- the tracing of diamonds is very complex. The
diamonds may render concealment in the transaction.
3. Highest value of diamonds- the diamond’s trading may be the amount of billions and
millions in American dollars. It has bearing on the likely to legalise the huge amount
of money by the trading of diamonds and on the levels of risk of trading the
diamonds.
4. Levels of carefulness- Law enforcement and AML / CFT authorities, involving the
financial intelligence units, have restricted consciousness of possible policies related
to money laundering and financing through the terrorism by the trading in diamonds.
5. Money laundering based on trade- the particular features of the diamond as the
commodity and the relevant part of the global trading transactions make the trading of
diamond susceptible to the various legalising technologies of the Money laundering
based on trade in common and over-valuation or undervaluation in the particulars7.
5 John Cassara, ‘Trade-based money laundering: the next frontier in international money laundering
enforcement’ (John Wiley & Sons 2015).
6Steven Mark Levy, ‘Federal Money Laundering Regulation: Banking, Corporate, & Securities Compliance’
(Wolters Kluwer Law & Business 2015).
7Andrea Fronzetti Colladon and Remondi Elisa, ‘Using social network analysis to prevent money
laundering’ [2017] Expert Systems with Applications 67.

REPORT 4
Further, as per the report made by the FATF, the gold is greatly attracting vehicle for
financing of terrorism and money laundering. It is stated by the report made by Financial
Action Task Force that enhanced global focus on the money laundering has led to criminals
making more focus on the methods with low laws implementation perceptibility, like the
gold. It is said by the Financial Action Task Force that these elements create the gold greatly
attractive to the illegal organisations desiring to conceal, transfer and the investment of illegal
proceeds. The Financial Action Task Force addressed in the report that the people who have
the requirement to legalize cash, particularly who engaged in the planned crime, are very
desiring to take participation in cash for the exchange of gold business. The reason is that
there are highest tendency to generate the profits and in most of areas where is little
supremacy of these types of activities. In the addition of this, the individuals who have no
criminal past, are also ready for undertaking these activities even if they have doubt that the
underlying objective of the activities is money laundering8.
There were various red flags picked up by the various financial service firms in the relation of
doubtful payment in the sector of gold. These include payment made to explosive
corporations with more withdraws, permitting the loans to international corporations, transfer
of huge amount of funds at international level and withdrawal very fast. These also include
the global transfer to the nations in which corporation is not registered, non-establishment of
real sources of funding to purchase the gold or precious metal, and fund’s division in cheque
and small cash transaction to make payment for merchandise9.
Furthermore, it is stated by the Financial Action Task Force that many efforts are required to
be made to recognise the tendencies and the methods in the jurisdiction and globally in
respect of the financing of terrorism and money laundering the gold’s sector. The inspection
8 Doanto Masciandaro, ‘Global financial crime: terrorism, money laundering and offshore centres’ (Taylor &
Francis 2017)
9 John Madinger. ‘Money laundering: A guide for criminal investigators’ (CRC Press 2016).

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and more examination is required to map the administrative control of the gold marketplace
to render law application agencies with the initial stage for administrative data on the
manufacturing of gold and allocation of the gold10.
Conclusion
As per the above analysis, it can be concluded that there is no only one type of money
laundering and financing of terrorism. There can be involvement of various people,
corporations, and businesses. Though, one perpetual leftovers: The funds are required to be
washed. The suppliers of precious metals and stones are required to complete their particular
duties as per the Proceeds of Crime (Money Laundering) and Terrorist Financing Act11 and,
other rules and regulations to help contest financing of terrorism and money laundering. It is
recommended to the dealers to have the properly-created obedience programs created to the
businesses. The risk assessment should be conducted on the regular basis. The internal
control should be made effectively. There should be provisions of continuous anti-money
laundering training for the proper staffs. The money launderers have stated themselves from
the time to be tremendously creative in making the new schemes to avoid the specific
countermeasure of the government. The central system should be supple to be capable to
perceive and react to the new money laundering policies. Once more, the national system
should be flexible to capable to encompass the countermeasure to new parts of the economy.
Lastly, the central government requires to work with the different jurisdiction to make sure
that launderer is not capable to continue to run simply by moving to other place where money
laundering is beard.
10 Richard Charles Henry Alexander ‘Insider dealing and money laundering in the EU: law and regulation’
(Routledge 2016)
11 The Crime (Money Laundering) and Terrorist Financing Act

REPORT 6
Bibliography
Primary Sources
Statutes and statutory instruments
The Crime (Money Laundering) and Terrorist Financing Act
Secondary Sources
Books
Alexander, R, ‘Insider dealing and money laundering in the EU: law and regulation’
(Routledge 2016)
Alldridge, P,‘What went wrong with money laundering law’ (Springer 2016)
Cassara, J, ‘Trade-based money laundering: the next frontier in international money
laundering enforcement’ (John Wiley & Sons 2015).
Chen, HC, Diamond heists in Africa: Political economy of manipulation and violence’ (St.
John's University 2017). ‘
Deodhar, RP, ‘Black Money and Demonetisation’ (Routledge 2016).
Hopton, D, ‘Money laundering: a concise guide for all business’ (Gower 2016).
Levy, SM, ‘Federal Money Laundering Regulation: Banking, Corporate, & Securities
Compliance’ (Wolters Kluwer Law & Business 2015).
Madinger, J, ‘Money laundering: A guide for criminal investigators’ (CRC Press 2016).
Masciandaro, D, ‘Global financial crime: terrorism, money laundering and offshore centres’
(Taylor & Francis 2017)

REPORT 7
Journal Articles
Colladon, AF, and Elisa R, ‘Using social network analysis to prevent money
laundering’ [2017] Expert Systems with Applications 67.
Dreżewski, R, Jan S, and Wojciech F, ‘The application of social network analysis algorithms
in a system supporting money laundering detection’ [2015] Information Sciences 295.