also need to develop effective AFC legislation and surveillance mechanisms , implementing the FATF Recommendations . As many of the issues linked to financial crime in the gold sector are cross-border challenges , regional cooperation is crucial . Tax harmonization between countries is often discussed as a means to prevent smuggling incentivized by differing export tax rates . Countries should also exchange information and intelligence to combat gold-related financial crime . miners or traders in exchange for protection , unofficial mining , buying permits or for officials to turn a blind eye to illicit activities . 10 Artisanal and small-scale miners are particularly vulnerable to being extorted . These practices can also be linked to bribery and corruption . For example , bribes are sometimes paid to border officials at the point of export so that they ignore the smuggling operation . 11
As has been highlighted by the Financial Action Task Force ( FATF ), gold is particularly at risk of being abused for money laundering and terrorist financing . 12 Its anonymity , stable value and the fact that it can be used as a currency make it an attractive means to launder dirty cash . Risk factors in producing countries are a lack of suspicious transaction reporting and the presence of cash-intensive economies with a low presence of formal banking channels . With the proceeds from other criminal activities such as drug , wildlife or human trafficking , criminals can buy gold and then sell the mineral on formal gold markets , hence washing off its criminal traces . Convergence is the term used to describe when illicit markets reinforce each other , which is sometimes the case with gold . 13
Prevention and mitigation measures
What can companies , governments and AFC professionals do to prevent and mitigate the above-mentioned risks linked to the gold trade ?
An important step that is increasingly being recognized by governments of gold-producing countries , international organizations and development agencies is the formalization of all actors along the gold supply chain . Formalization processes need to be simplified and made more attractive for miners , buyers and exporters alike . Only if they have incentives to enter the formal market will it be possible to cut out criminal actors . Given that miners and buyers already pay many informal fees or are subject to extortion , it is likely that many of them would prefer to work in a more regulated and stable environment , even if that comes with paying taxes . 14
As highlighted in a recent report , governments need to undertake a multiagency approach with coordination between the various government departments that have a role to play in combating illicit financial flows . 15 They
Companies along the gold supply chain should implement the Organisation for Economic Co-operation and Development ’ s ( OECD ) leading guidance on responsible mineral supply chain management : “ OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict- Affected and High-Risk Areas .” 16 The objective of this guidance is to help companies respect human rights and avoid contributing to conflict and financial crime through their mineral extraction and sourcing practices . The document provides concrete guidance on due diligence measures and has a specific supplement on gold .
Companies buying gold should put in place due diligence measures to check the practices of their suppliers and establish a chain of custody or supply chain traceability system to be able to trace minerals back to their origin . This is of particular importance for refineries , which serve as aggregators of gold from many different sources . To tackle money laundering , companies should identify and verify the identity of all their customers , suppliers and business partners according to know your customer principles . Enhanced due diligence should be conducted on sources and actors considered
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