AML in the Gold Sector /
All That Glitters is Gold
Walking down Singapore's Little India and Chinatown districts, you are immediately greeted by a host of jewellery stores specializing in various grades of gold and designs imported from other parts of the world. Most gold jewelry sold in Singapore is typically between 22 and 24 Karat, with 24 Karat being the most popular.
24 Karat gold refers to gold in its purest form and generally appreciates most in value over the years compared to other grades of gold. Therefore, besides being a beautiful piece to adorn at events, it is also seen as a good investment, boosting sales for 24 Karat jewelry in Singapore.
History and significance of gold in Singapore
To understand the significance of gold in Singapore, it is crucial to understand the city-state's history and the different cultures that make up Singaporean society. Modern-day Singapore was founded in the early 19th century by Sir Thomas Stamford Raffles. Singapore's geographical location made it an ideal trading post for the British empire who were looking to obstruct any advances made by the Dutch. The entrepreneurial Raffles quickly established Singapore as a trading post, attracting immigrants from China, India, the Malay Archipelago and from far off. Singapore continues to be located on a key global trade route and is a major transshipment port to this day.
Photo by Amish Thakkar/Unsplash
As Singapore became an independent nation, it was soon established that there would be four main races that made up the country - the Chinese, Malays, Indians, and Eurasians. Naturally, these different ethnic groups brought their cultures along with them.
Gold is especially significant in Chinese, Indian and Malay cultures. Beyond historically being used as a trading currency, gold is often adorned at weddings and gifted on special occasions such as birthing ceremonies or birthdays. According to the 2016 Thomson Reuters GFMS Gold Survey report, "India and China continue to retain the top two spots when it comes to buying gold jewelry."
The late 1940s saw a boom of Indian and Chinese jewellers moving to Singapore (then Malaya), with the trade gaining more popularity in the 1950s. Traditionally born into families that specialized in jewellery trade, these individuals moved to Singapore to expand the trade or take on an apprentice with another jeweller. Subsequently, many had gone on to launch their own jewelry ventures that are now seen as household brands such as Poh Heng Jewelry and On Cheong Jewelry.
While travelling to Singapore to build one's gold trade skills may not be as common in modern day, the city-state's favourable corporate laws and cultural interest in gold have attracted well-known gold jewellers such as Malabar Gold & Diamonds and Joyalukkas to expand their presence in the region by opening storefronts in Singapore.
Since the late 1960s, Singapore has grown into a regional gold market and gold distribution centre for countries across South East Asia, procuring most of its gold from London and Zurich.
Gold as a vehicle for money laundering
Gold is one of the oldest and most sought after physical assets which continues to be used as a common vehicle for money laundering. According to a 2015 report published by the Financial Action Task Force (FATF) on the Money Laundering and Terrorist Financing Risks and Vulnerabilities Associated with Gold, there are two main reasons distinctive of gold and the gold market that make it particularly vulnerable to money laundering:
- The gold market is cash intensive
- Gold can be traded anonymously and transactions are difficult to trace and verify
Along with the lack of regulation in the gold industry, it is also by and large anonymous. Citing the 2015 FATF report, "many transactions involving gold occur anonymously, with little to no record identifying the seller, or purchaser, of gold." This anonymity allows criminal groups to obfuscate their true identity and provides law enforcement agencies with little to work with when identifying the source of gold or attempting to trace the sale process.
As in many gold markets, due to the cultural aspect of gold-buying in Singapore, many tend to frequent their favourite gold jewellers with whom they have built strong relationships over the years or, in some cases, generations through their families. While familiarity may be good for creating a loyal customer base, it may also encourage business owners to let their guards down when maintaining minimum due diligence standards in the industry.
Singapore's susceptibility to money laundering in the gold market
In October 2012, in a bid to support and develop its bullion market, as well as attract a larger share of the trade in precious metals, the Singaporean government introduced a Goods and Services Tax (GST) exemption on the investment in precious metals. This exemption applied to both the supply and importation of precious metals.