Precious Metals & Gemstones

Precious Metals & Gemstones in AML/CFT - Brief Overview

Precious metals and gemstones are a sector that deals in valuable commodities such as gold, silver, and platinum.
PMGs are considered high-risk in AML/CFT because of their global reach and high-value transactions.
Common typologies include over-or under-valuation, false invoicing, cross-border movement, use of intermediaries, and informal dealers
RapidAML helps overcome challenges linked to PMGs with its advanced tool, such as onboarding, risk scoring, transaction monitoring, and screening.

What Are Precious Metals & Gemstones in the AML Context?

The PMGs (precious metals and gemstones) sector is a thriving industry that deals in diamonds, gold, silver, platinum, and other valuable commodities. It is often high-risk from an AML/CFT perspective, as criminals exploit it to launder illicit funds and present them as legitimate. Due to its high-value transactions, global reach, and liquidity, it becomes a primary conduit for money laundering and terrorist financing.

PMGs play a vital role in value transfers, wealth storage, and trade-based money laundering, as they can be easily transferred across borders, and due to their high value, criminals can move large amounts of illicit funds.

Perpetrators convert illegal funds into legitimate ones by buying high-value commodities such as gold, silver, and diamonds, and use them as a means of storing wealth to avoid detection. In TBML, criminals use global trade in gold, diamonds, and gemstones to hide the illicit money by misusing trade practices such as invoice manipulations, phantom shipments, and using free trade zones.

The FATF classifies PMG dealers as DNFBPs (Designated Non-Financial Businesses and Professions) and requires them to implement strong AML/CFT controls, customer due diligence, and suspicious transaction reporting.

How Precious Metals & Gemstones Are Used in Money Laundering Schemes

Precious metals and gemstones are used in money laundering schemes in the following ways:

Some of the common typologies that are involved in precious metals and gemstones include smuggling of the precious metals and stones to hide the origin of illicit activity and transporting them in various forms like bullion, artefacts, and jewellery.
Criminals often manipulate trade documents and generate false invoices to hide their original and true value in front of the eyes of the financial system by declaring a higher value than the actual price.
Intermediaries, shell companies, and informal dealers also play a noteworthy role in money laundering schemes for PMGs, as they make transactions harder to trace and help in hiding the true source and ownership of illicit funds.

Key AML Risks and Red Flags Linked to Precious Metals & Gemstones

The Key AML risks and red flags associated with precious metals and gemstones are as follows:

Inconsistent behavioural red flags, such as buying high-value commodities, unusual urgency, or not providing transaction or identification details, indicate suspicion.
Transactional red flags include a sudden large purchase of precious metals, cash transactions, and transactions from third or unknown parties, which are signs indicating risks linked to PMGs.
Risk indicators based on geographic factors arise when transactions involve high-risk jurisdictions, customer risk arises with the involvement of informal dealers, shell companies, or PEPs, and product-based risk occurs from high-value and easily transferable precious items such as gold.
Source of funds verification and price transparency are often challenging due to subjective pricing and unclear supply chains, making it more vulnerable to money laundering.

Regulatory Expectations for Businesses Dealing in Precious Metals & Gemstones

Regulators expect businesses dealing in precious metals and gemstones to follow AML/CFT rules to prevent money laundering and terrorist financing.

Dealers must also implement customer due diligence, keep proper records of the transactions, watch out for all suspicious activity, and report the suspicion to regulatory authorities.

Different jurisdictions may have different rules and ways of treating the regulations of PMGs; dealers and businesses must follow local rules to comply with AML rules and ensure that they are not used for illegal purposes.

RapidAML Solutions for Compliance Challenges Linked to Precious Metals & Gemstones

RapidAML Software helps in overcoming compliance challenges associated with precious metals and gemstones with its onboarding and risk-scoring solutions, enabling risk assessment of dealers and clients with high net worth, who can easily transfer large amounts of illicit funds in exchange for PMGs.

RapidAML supports Transaction Monitoring and detects suspicious transactions and risks such as large cash purchases, rapid resale, and inconsistent trade activities related to precious metals and gemstones. RapidAML integrated Screening against sanctions and adverse media detects risks related to commodities, helping businesses to ensure regulatory compliance and transparency.

Precious Metals & Gemstones Frequently Asked Questions

1. Why are Precious Metals & Gemstones considered high-risk in AML?

Precious metals and gemstones are considered high-risk in AML due to their high-value transactions, global reach, and liquidity.

2. How are Precious Metals & Gemstones used in trade-based money laundering?

Precious metals and gemstones are used in trade-based money laundering through various methods such as over-/under valuation, false invoicing and the use of intermediaries, shell companies, and informal dealers.

3. What are the most common red flags regulators expect firms to detect?

The common red flags that are expected to be detected include transactional and behavioural red flags, trade-based risks, and risk based on geographic, customer, and product.