Criminal syndicates and transnational laundering networks have long used precious metals and gemstones as high-value vehicles to disguise, move, and legitimize illicit proceeds. Gold, silver, platinum, diamonds, and jade have an intrinsic advantage for criminals, they are highly portable, globally tradable, and difficult to trace once refined or cut. By converting illicit cash into these commodities, laundering operations bypass conventional financial surveillance and exploit trade channels that historically lacked the same reporting rigor as banks.
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Precious Metals Money Laundering At Scale
In large-scale schemes, cash is exchanged for bullion or high-grade stones through dealers with minimal due diligence. Transactions are often broken into smaller amounts to avoid detection, or channeled through intermediaries acting as straw buyers. The purchased assets are then transported to another jurisdiction, either declared at a falsely low value or smuggled outright. Once across the border, they are sold into legitimate markets, generating bankable funds with a clean paper trail.
The use of refineries adds a critical layer of laundering. Criminal groups mix illicitly sourced material with legitimate feedstock, melting and recasting it into bars that bear recognized marks of quality. This process erases the origin trail, making it virtually impossible to distinguish clean assets from those tied to crime. In the gemstone market, value manipulation is even easier. Diamonds and jade can carry millions in value in a small pouch, and their grading and pricing are subjective, enabling criminals to inflate or deflate declared values to suit their laundering strategy.
These techniques are often intertwined with other crimes. Drug trafficking proceeds, corruption payments, and tax evasion profits are frequently converted into gold or gems to cross borders without triggering banking alerts. Once integrated into the formal trade, the commodities are sold or used as collateral, allowing the illicit funds to re-enter the financial system under the guise of legitimate commercial activity.
China’s vast domestic market for precious metals and gemstones, combined with high retail demand and an active international trading position, has made it an attractive hub for these schemes. Recognizing the scale of the threat, Chinese authorities have now implemented targeted anti-money laundering measures aimed squarely at this sector.
China’s Rule To Close The Cash-To-Metal Laundering Gap
Starting August 1, all dealers engaged in spot trading of gold, silver, platinum, diamonds, jade, and similar high-value commodities in China must comply with strict cash transaction reporting requirements. Any single cash purchase, or cumulative daily purchases by the same customer, at or above 100000 yuan — or the foreign currency equivalent — must be reported to the national anti-money laundering analysis center within five working days.
This measure directly targets one of the most exploited vulnerabilities in the laundering cycle, the initial conversion of bulk illicit cash into easily transportable commodities. By mandating that every large cash-to-commodity transaction is logged, authorities gain a near real-time view into one of the preferred entry points for criminal funds.
Dealers must not only report qualifying cash transactions but also conduct due diligence on their customers. That includes verifying identity, assessing the legitimacy of the transaction, and escalating suspicious behavior even when the transaction falls below the reporting threshold. Structured purchases designed to skirt the 100000 yuan limit are still subject to reporting if indicators of laundering risk are present.
The obligation applies to all legally registered dealers, from small retail jewelers to large bullion traders. This closes a gap where unmonitored dealers, especially those in smaller markets or operating on the margins of formal oversight, could previously conduct high-value trades without generating a regulatory alert.
By aligning these requirements with global anti-money laundering standards for designated non-financial businesses, China is increasing the operational cost for launderers who previously relied on the anonymity and fluidity of cash purchases in this sector.
Criminal Case Patterns Driving The Reform
Several major laundering cases in recent years illustrate why this rule was necessary. In one pattern, networks sourced gold from jurisdictions with minimal oversight, often from artisanal mining areas where extraction is linked to organized crime. The gold was smuggled into intermediary countries, given falsified origin certificates, and sold to refineries as legitimate scrap or recycled metal. The proceeds from the sales, now ostensibly clean, were wired to accounts worldwide to finance additional criminal activity.
In another pattern, sanctioned regimes converted state-held gold reserves into cash by selling through intermediaries who routed the metal to permissive markets. Payment was disguised through barter arrangements, with gold exchanged for goods or services at inflated invoice values. The laundering worked because the commodity moved physically in one direction while the financial settlement occurred in another, breaking the audit trail.
Gemstone-related laundering has been equally sophisticated. High-value diamonds have been sold through fronts to overseas buyers, under-invoiced to minimize customs scrutiny. Once outside the country, the stones were revalued at market rates and sold to legitimate retailers, effectively multiplying the paper value and laundering the embedded illicit funds. Jade has also been used for similar schemes, especially in cross-border trade with neighboring countries where verification standards differ.
In every case, the entry point was a high-value commodity purchase made with large amounts of cash. Without a reporting obligation, these transactions blended into the legitimate market. With the new Chinese rule, such deals will now trigger mandatory scrutiny, creating data trails that investigators can follow back through the supply chain.
Strengthening AML Defenses For Dealers And Financial Institutions
The new requirements will only succeed if dealers, banks, and payment platforms integrate them into robust AML frameworks. For dealers, the first step is to install point-of-sale systems capable of tracking cumulative daily purchases by customer ID to catch structuring attempts. Staff must be trained to spot red flags such as first-time buyers purchasing large quantities of high-purity metal, customers reluctant to provide identification, or requests to ship goods to unrelated third-party addresses.
Financial institutions should update customer due diligence protocols for accounts linked to the precious metals and gemstone sector. This includes identifying dealers as higher-risk customers, monitoring for unusual cash deposits, and reviewing wire transfers to or from known trading hubs with elevated laundering risks. Cross-referencing dealer-reported cash transactions with banking data can reveal patterns that neither party could detect alone.
Supply chain controls are equally important. Dealers should require documented proof of origin for all incoming stock and perform periodic supplier audits. Refineries must verify that any recycled material aligns with the supplier’s capacity and typical business activity. For gemstones, valuation checks against market benchmarks can expose attempts to manipulate invoice values.
Cooperation between regulators, dealers, and financial institutions is essential. While the reporting obligation is on dealers, banks can play a proactive role by flagging clients whose cash deposit patterns correlate with known high-value commodity trades. Over time, this cooperation can build a comprehensive intelligence picture of laundering typologies unique to the sector.
Raising The Cost Of Laundering Through Precious Metals
By imposing a clear reporting threshold and backing it with due diligence requirements, China is making it riskier and more expensive for criminal networks to launder through precious metals and gemstones. Every reported cash purchase becomes a potential lead for investigators, reducing the anonymity that makes this method so attractive.
For professional launderers, the new rule forces operational changes. They may attempt to switch to lower-value transactions, spread activity across multiple dealers, or move into alternative commodities — all of which increase complexity and exposure to detection. For legitimate dealers, the rules offer a clearer compliance framework and a means to distance themselves from illicit trade.
The broader impact is strategic. As one of the largest markets for gold and gemstones, China’s tightening of controls will influence laundering routes across Asia and beyond. Networks that once relied on its dealers as discreet cash conversion points will need to adapt, and those adaptations will be visible to authorities tracking shifts in illicit finance patterns.
If enforcement is consistent and data from these reports is actively analyzed, the cost-benefit equation for laundering through metals and stones could shift decisively in favor of detection. That is a win for the integrity of both the financial system and the legitimate commodity trade.
Related Links
- China tightens anti-money laundering rules for precious metals and gemstone dealers
- FATF Recommendations – International Standards on Combating Money Laundering
- FATF Guidance – Risk-based Approach for Dealers in Precious Metals and Stones
- IMF Guidance on AML/CFT in Precious Mineral Supply Chains
Other FinCrime Central Articles About Gold Used For Money Laundering
- Australian Woman Charged with Money Laundering: Luxury Watches, Gold Bullion, and Cash Seized
- Zimbabwe Gold Smuggling and Money Laundering Network Exposed by U.S. Sanctions
- Major Money Laundering Operation Exposed in Spain’s Jewelry Sector
Source: The State Council – People’s Republic of China
Some of FinCrime Central’s articles may have been enriched or edited with the help of AI tools. It may contain unintentional errors.
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