All That Glitters is Gold
Growing up, I spent a lot of time with my grandmother — from shopping to walking all over the city. One of my grandmother’s favorite past times was to visit the goldsmiths in Little India. While she had her “go-to” gold jeweler, we also frequented other jewelers depending on designs she was interested in and what each goldsmith specialized in, sometimes just to window shop. My grandmother was a retired teacher, she received a pension every month and loved spending it on items she thought of as investments for the future. When buying gold, my grandmother only paid in cash — she never owned a credit card and definitely did not bank online. My many trips to the goldsmith with my grandmother helped me understand the unique gold industry in Singapore but also encouraged me to examine its susceptibility to money laundering.
Walking down Singapore’s Little India and Chinatown districts, you are immediately greeted by a host of jewelry stores specializing in various grades of gold jewelry 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 the 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.
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 jewelers moving to Singapore (then Malaya), with the trade gaining more popularity in the 1950s. Traditionally born into families that specialized in jewelry trade, these individuals moved to Singapore to expand the trade or take on an apprentice with another jeweler. 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 traveling to Singapore to build one’s gold trade skills may not be as common in modern day, the city-state’s favorable corporate laws and cultural interest in gold have attracted well-known gold jewelers 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, continuing 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 to identify what the source of the gold is or to trace the sale process.
In Singapore, as in many gold markets, given the cultural aspect of buying gold, many tend to frequent their favorite gold jewelers with whom they have built a strong relationship with over years or, in some cases, generations through their families. While familiarity may be good for creating a loyal customer base, it may also encourages 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 precious metals. This exemption applied to both the supply and importation of precious metals.
Further to that, Singapore is geographically located in a strategic global trade route and is home to a crucial transshipment port. Within the region, gold is a common commodity used in trade based money laundering schemes and has also been used to settle accounts in underground financial systems, making Singapore especially vulnerable to the effects of money laundering through gold.
Changes in Anti-Money Laundering Regulations in Singapore’s Precious Metals Industry
The Singaporean government has taken a multi-pronged approach which addresses some of the major risks associated with money laundering through gold — cash transactions, anonymity, high-risk customers as well as mapping out its supply chain in the industry. According to the enacted Precious Stones and Precious Metals (Prevention of Money Laundering and Terrorism Financing) Act in February 2019, precious stones and metals dealers (PSMDs) must register with the Singaporean Ministry of Law to continue their work in the industry. Further to that, minimum standards have been established, outlining that dealers in the PSMD industry are required to keep detailed records and carry out due diligence on high risk customers.
Previously, dealers only needed to take these measures on cash transactions exceeding SGD 20,000. However, these regulations are now mandated not only for large transactions but if the dealer were to suspect the customer were involved in money laundering activities which can be onerous for dealers. In addition, a set of enhanced due diligence rules have been rolled out for customers who have been classified as politically exposed or have a higher risk because of their ties to any sanctioned jurisdictions.
Lastly, measures have also been taken for dealers to ensure their suppliers are also compliant. One red flag for dealers would be if suppliers “route precious stones or metals through countries linked to money laundering or terrorism for no apparent economic reason.”
While these measures are better than taking no measures at all, it can be argued that they are also very subjective to the dealers understanding of their customer and supplier base. Instead of minimum standards and red flags, it would be crucial for all customer information to be recorded regardless of the transaction and to be screened through regulatory databases.
On the supply end, it would be crucial for due diligence to be conducted on all suppliers with a map of their sourcing route always provided and verified. This would ensure that anonymity the gold industry provides can be minimized, providing less incentive for laundering through gold. One possible fear jewellers and dealers have is that increased regulation may impede sales as customers and suppliers turn to other companies that do not scrutinize as much.
Singapore’s reputation for ease of doing business combined with its geographical location and corporate incentives make it highly susceptible to unsuspectingly support the laundering through gold. That said, the recent changes in regulations with the PSMD industry are indicative of steps taken to combat the transfer of illicit funds through gold, presenting an opportunity to continually improve and monitor regulations in this space.