As Gold Prices Surge, Criminal Networks Embrace Bullion as a Preferred Asset

Illegal Gold Flows Exceed $120 Billion a Year as Prices Climb

Gold prices have nearly doubled over the past two years

Demand grows as a tool for money laundering and sanctions evasion

A sharp rise in gold prices is heightening concerns over illegal gold smuggling and the spread of criminal finance. Governments and gold-market bodies are under growing pressure to respond as bullion is used to fund wars, evade sanctions and launder money.

The Financial Times reported on June 19 that gold-industry executives view elevated prices as a “crisis” because they are fueling a surge in illicit activity and channeling money to wars and criminal organizations. David Tait, chief executive officer of the World Gold Council, said annual illegal gold flows are now worth well over $120 billion, with most of that metal coming from artisanal and small-scale miners.

Tait said illegal mining is often intertwined with conflict, sanctions evasion and illicit finance. Although gold prices have retreated somewhat in recent months, they have nearly doubled over the past two years, increasing the scale of the problem. The rally has also been cited as a source of funding for violent conflicts in Sudan and the Democratic Republic of Congo.

Once gold is refined, tracing its origin becomes difficult. Gold bars are chemically identical after refining, making it easier to conceal their source. That feature has made bullion a favored asset for money-laundering networks and criminal groups. As prices rise, the same amount of gold can carry more illicit value, increasing the risk.

Ruth Crowell, chief executive officer of the London Bullion Market Association, said higher gold prices, more than high interest rates, have made it more urgent to stop illicit flows. While the rise in prices may offer investors an opportunity for gains, it also makes illegal finance more efficient in areas where regulation is weak.

Governments are also reviewing potential responses. The US, the UK and the United Arab Emirates are weighing options to curb gold smuggling. Measures under consideration include installing metal detectors in airport arrival halls and tightening rules governing gold-sourcing standards. The moves reflect concerns that gold trading is vulnerable to cross-border transport and the masking of origin.

In the US, a bipartisan bill has been introduced in Congress. It would direct the State Department to develop a strategy to address illegal gold mining and launch a special investigation into illegal gold mining in Venezuela. The FT said that underscores how gold smuggling is no longer being treated simply as a commodities crime, but as a diplomatic and security issue.

The UK has also signaled tougher enforcement. David Lammy, the UK deputy prime minister, said Britain plans to take a harder line on illegal gold trading. He said the issue would be addressed through an illicit finance summit and the work of a joint money-laundering intelligence task force. Lammy also said gold is being misused in criminal transactions, and that its links with virtual assets are growing as illicit actors seek to better conceal their activities.

Kim Dong-hyun, Hankyung.com reporter 3code@hankyung.com