Despite Western sanctions, Russia could continue to use its gold to buy foreign currency, circumventing sanctions, organized crime experts warn.
Western sanctions against Russia include gold trading as well as the Russian central bank's gold holdings. But the Global Initiative Against Organized Crime (GI-TOC), warns in a study that Russia could use the «well-oiled» wheels of the illegal gold market to circumvent the sanctions.
Because of its malleability and virtual untraceability, physical gold can be moved around the world outside of digital financial networks, making it difficult to track. The precious metal is also easily laundered in global markets because its origin is neither declared nor disguised, the report said.
Golden Compensation for Oligarchs?
The study's analysts warn that Moscow could use foreign exchange reserves amassed through illegal gold markets to pay for imports, finance Russian military operations, or compensate sanctioned Russian oligarchs for their losses. Russia is estimated to be sitting on a gold hoard of about $140 billion.
Russia may also gain access to gold markets in countries that have not imposed sanctions, the report adds. For example, Russia could still trade on the Shanghai Gold Exchange.
Even if Russia can officially sell gold on these markets, it will face challenges in building and accessing foreign exchange reserves. That's because the yuan accounts for only 3 percent of global payments through the Swift payment network and 2.7 percent of official foreign exchange reserves.
Increased Gold Laundering
Russia may therefore be forced to deal with criminal networks that launder gold and money, leading to increased demand for the services of transnational criminal networks which will, in turn, strengthen organized crime, the report predicts.
This would not be the first time gold or illicit gold markets have been used to circumvent sanctions. One such example is Venezuela. In 2014, the Latin American country was the target of several waves of sanctions from the U.S., U.K., and the European Union. In 2019, the U.S. even blacklisted Banco Central de Venezuela, almost completely cutting off Venezuela's financial system from the global economy.
It is believed that Russia, which had pledged its support to Venezuela, used aircraft to transport tons of Venezuelan gold to various foreign markets to circumvent sanctions, including Uganda, Turkey, and the United Arab Emirates. The gold was allegedly exchanged for foreign currency that was repatriated to Venezuela.
Is it time for Venezuela to return the favor?
