Selections from the Financial Action Task Forces’ report concerning gold:

FINANCIAL ACTION TASK FORCE

ON MONEY LAUNDERING

FATF

1997-1998 REPORT on

MONEY LAUNDERING TYPOLOGIES

12 February 1998

FATF-IX REPORT on MONEY LAUNDERING TYPOLOGIES

I. Introduction

1. The group of experts met in Paris on 19-20 November 1997 under the chairmanship of
Mr. Pierre Fond, deputy Secretary-General of TRACFIN (Traitement du renseignement et
action contre les circuits financiers clandestins — Treatment of information and action against
illicit financial circuits). The meeting took place at the Conference Centre of the French Ministry of the Economy, Finance and Industry in Paris. The group comprised representatives of the following FATF members: Australia, Austria, Belgium, Canada, Denmark, European Commission, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. Experts from non-member international organisations with observer status, namely Interpol, the International Organization of Securities Commissions (IOSCO), the World Customs Organisation (WCO) and the United Nations International Drug Control Programme (UNDCP), also attended the meeting.

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d. The gold market

35. The FATF experts considered for the first time the posibilities of laundering in the gold market.
The scale of laundering in this sector, which is not a recent development, constitutes a real threat.
Gold is a very popular recourse for launderers because of the following characteristics:

— a universally accepted medium of exchange;

— a hedge in times of uncertainty;

— prices set daily, hence a reasonably foreseeable value;

— a material traded on world markets;

— anonymity;

— easy changeability of its forms;

— possibility for dealers of layering transactions in order to blur the audit trail;

— possibilities of double invoicing, false shipments and other fraudulent practices.

36. Gold is the only raw material comparable to money. Although other precious metals and
diamonds are used in cases of recycling, gold is preferred by launderers. Moreover, the drug routes, especially for heroin, coincide fairly clearly with the gold routes. The “hawala” alternative banking system, which is widespread in South Asia and the Middle East, is also connected with the gold circuits. The investigating services are having the greatest difficulty in piercing this system which facilitates both currency exchange and the purchase and sale of gold.

37. Two members instanced specific legislation to combat gold market laundering. In Australia, gold traders are subject to the requirements of client identification and disclosure of transactions in excess of A$ 10 000 (about US$ 6 700). In Italy, a procedure, similar to the US Geographic Targeting Order, requires all the financial institutions in a town where gold was refined to disclose all relevant ransactions.

38. The question of laundering in the gold market most certainly needs to be examined in greater
depth. It would be extremely useful to continue to study it in future typologies exercises as a specific subject, after collecting written submissions on the different regulations in force in member countries.

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