All that glitters is not gold: "Red Alert" published on gold-based sanctions circumvention

A "Red Alert" has been published by a multi-agency working group including the National Economic Crime Centre, the Office of Financial Sanctions Implementation (OFSI) and the Foreign, Commonwealth and Development Office, highlighting how sanctioned individuals and entities, and their enablers, are evading UK sanctions in relation to Russian gold. 

The London Over the Counter market has historically been the centre of the gold trade and attracts participants from around the world. Gold is a significant income stream for Russia’s war effort – identified in the Red Alert as being one of the highest by value after oil and gas. The combination of these factors means that there are heightened risks in relation to the gold market in the UK.

Since July 2022, the import to the UK of gold, processed gold and gold jewellery which was exported from Russia on or after 21 July 2022 has been prohibited. As well as the specific prohibition on the import of gold, the usual “circumvention offence” also applies; meaning that it is an offence to intentionally participate in activities knowing that the object or effect of them (whether directly or indirectly) is to circumvent the sanctions prohibitions or to enable or facilitate the contravention of such prohibitions.

The Red Alert states that there is a concern that deliberate attempts are being made to launder sanctioned gold to mask its origin for circumvention purposes, so that it can be hidden in supply chains and sold in the UK. It lists various indicators which have been identified through open-source reporting, expert bodies and the private industry. These are split according to type of gold (e.g. mined gold, recycled gold, investment gold etc.) and include:

• suspicious cargo movements, including the use of dark fleet vessels and private jets;
• cash based transactions;
• new customers demanding high volumes;
• unrealistic pricing of gold for sale; and
• gold is claimed to originate from a country that has limited known reserves or stocks. 

The Red Alert describes what could amount to circumvention if enablers seek to obstruct other parties from carrying out necessary due diligence, by:

• misrepresenting entities that are owned or controlled by a designated (sanctioned) person; or
• adopting overtly aggressive strategies to deflect from the designated person’s underlying ownership or control. 

The Red Alert reminds traders, financial institutions and other gold market participants of their obligations in relation to conducting thorough due diligence to reduce the risk of sanctions breaches occurring. It also sign-posts the various reporting obligations which might exist in the event of a suspected breach of sanctions including the submission of a suspicious activity report, breach reporting to OFSI as well as voluntary reporting to the National Crime Agency or HM Revenue & Customs of any information likely to assist the agencies in tackling sanctions evasion.