2.1.3 Typologies

يسري تنفيذه من تاريخ 16/6/2021

Precious metals and stones may be involved in a wide variety of illicit finance schemes. The following are some of the most common.

	•	Illegal mining or mining supported by the proceeds of crime. In jurisdictions where precious metals or stones are mined, illicit actors may operate small-scale ‘artisanal' mines without receiving a license or paying taxes to the state. The products of these mines are then exported to a refining or cutting hub for processing into saleable goods, like gold bullion and cut stones.
		In many cases, criminal organizations control a mine or a network of small-scale miners. They may invest the proceeds of other illegal activities, such as drug trafficking, into the illegal mines and take the majority share of the resulting production as a return on investment. When the resulting precious metals or stones are processed, the criminal organization can sell them on world markets. The proceeds fund further illicit activities and may also support terrorism.

Example: Trading in gold to legitimise the proceeds of drug trafficking

A criminal organisation in Country X was buying gold from various precious metals retailers using illicit proceeds from narcotics sales. The gold was then sold to a precious metals broker who then sold it to other businesses. The proceeds of the sale were then wired to a third party outside of Country X with links to the drug trafficking organization, thus completing the money laundering cycle.

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Use of precious metals and stones in sanctions evasion. The tradable nature, liquidity, wide availability, and anonymity of precious metals and stones has made them popular with individuals, organizations, and governments seeking to evade sanctions imposed by the United Nations or other jurisdictions. This activity may involve mining precious metals or stones under the control of the sanctioned person; the resulting products are then injected into legal trade using front companies and complicit DPMS, earning money for the sanctioned group. Or sanctioned actors may use precious metals and stones to disrupt a transaction chain involving the formal financial system and thus hide their interest in a transaction.

Example: Large-scale sanctions evasion using precious metals

According to Country A's federal indictments, a government sanctioned by Country A used front companies and complicit financial institutions to buy large quantities of gold in Country B. The gold was supposedly exported to the purchasing country, but was in fact moved by courier to the UAE, where it was sold in exchange for cash (U.S. dollars and euros). The cash was deposited with LFIs in the UAE under the names of front companies, and was made available to the sanctioned government to use in proliferation activities.

•	Evasion of duties on precious metals and stones. Precious metals and stones are often the subject of heavy customs duties and other taxes. As a result, illicit actors will frequently seek to smuggle these goods from high-tax to low-tax jurisdictions, or may declare artificially low values for the goods by misrepresenting their quality or purity.
•	Trade-based money laundering (TBML). The value of precious metals and stones varies highly based on their quality and purity, features which may not be apparent to the naked eye. In addition, the value of certain precious stones, particularly diamonds, can differ for different non-industry customers based on their personal preferences. This makes precious metals and stones particularly vulnerable to TBML, in which illicit actors use supposedly or actually licit trade to hide illicit finance. This can take a variety of forms:
	o	Trading the same goods—often precious stones—repeatedly between co-conspirators to justify funds transfers between members of a criminal network, or between companies owned by the same individual(s). In these schemes, a single precious stone may be repeatedly sold between members of the network, or a single stone may be sold to multiple “purchasers” at the same time, each time with a different description.
	o	Inflation or deflation of the value of traded stones to provide justification for cross-border transfers. A merchant may sell low-value precious metals or stones to a purchaser, but invoice for higher-quality goods and thus a higher sum. The purchaser pays the full invoice price, justifying the transaction to financial institutions, and also receives illicit goods such as drugs or smuggled items.
•	Use of precious metals and stones as security for fraudulent loans. In a typology that is often related to TBML, precious metals or stones may be repeatedly sold or falsely valued between members of a network in order to justify loans and other forms of financing.

Example: Over-Valuation to Justify Illicit Transfers

Mr. A, a licensed DPMS, entered Country X numerous times, each time declaring that he was carrying valuable precious stones. He was in fact carrying gems that were lower value than the ones he declared. He then substituted the lower value gems for higher value gems that were already in Country X and presented them for inspection and clearance at an official diamond exchange. Through these methods, Mr. A obtained validated official importation statements for multiple importations of high-value stones which did not actually take place. He used these statements, together with fake invoices, to facilitate international foreign currency transfers to entities abroad in the guise of payment for the imported goods. He ordered these transactions both for himself and on behalf of other DPMS wanting to receive funds abroad without having to face scrutiny by financial institutions and public authorities.