China Targets Precious Metals and Gemstones in New Anti-Money Laundering Crackdown

For years, criminal syndicates and transnational laundering networks have exploited precious metals and gemstones as discreet, high-value vehicles to disguise, move, and legitimize illicit proceeds. Gold, silver, platinum, diamonds, and jade offer intrinsic advantages for criminals—they are highly portable, globally tradable, and once refined or cut, extremely difficult to trace. By converting illicit cash into these commodities, laundering operations bypass traditional financial surveillance and take advantage of trade channels that historically lacked the same reporting rigor applied to banks.

In large-scale schemes, cash is often swapped for bullion or high-grade stones through dealers who apply minimal due diligence. Transactions are sometimes broken into smaller amounts to avoid scrutiny, or routed through intermediaries acting as straw buyers. Once acquired, these assets are transported to other jurisdictions, either declared at falsely low values or smuggled outright. Across borders, they are sold into legitimate markets, producing bankable funds with an apparently clean paper trail.

Refineries add a critical laundering layer, with criminal groups mixing illicitly sourced materials with legitimate stock, melting and recasting it into bars stamped with recognized quality marks. This process erases any origin trail, making it virtually impossible to distinguish clean assets from those tied to crime. The gemstone market offers even greater value manipulation opportunities—diamonds and jade can carry millions in a pouch, and with grading and pricing being subjective, criminals can inflate or deflate declared values to match their laundering strategy.

These techniques often intertwine with other criminal enterprises. Proceeds from drug trafficking, corruption, and tax evasion are frequently converted into gold or gems to cross borders without triggering banking alerts. Once folded into the formal trade, the commodities are sold or used as collateral, allowing illicit funds to re-enter the financial system disguised as legitimate commercial revenue.

China’s vast domestic market for precious metals and gemstones, high consumer demand, and active role in international trade have made it an attractive hub for such schemes. Recognizing the scale of the threat, authorities have moved to introduce targeted anti-money laundering measures aimed directly at this sector.

As of August 1, all dealers involved in spot trading of gold, silver, platinum, diamonds, jade, and other high-value commodities in China must comply with strict cash transaction reporting requirements. Any single cash purchase—or cumulative daily purchases by the same customer—amounting to 100000 yuan or more, or the equivalent in foreign currency, must be reported to the national anti-money laundering analysis center within five working days. This new rule targets one of the most exploited vulnerabilities in the laundering cycle: the initial conversion of bulk illicit cash into easily transportable commodities. By logging every large cash-to-commodity transaction, authorities gain near real-time visibility into one of the preferred entry points for criminal funds.

Dealers are now obligated not only to report qualifying transactions but also to conduct due diligence on their customers. This means verifying identities, assessing transaction legitimacy, and escalating suspicious behavior even when the amount falls below the threshold. Structured purchases designed to skirt the 100000 yuan limit are still reportable if there are indicators of laundering risk. The requirement applies to all legally registered dealers, from small retail jewelers to large bullion traders, closing a gap where unmonitored dealers—especially in smaller markets or those operating on the fringes of formal oversight—could previously conduct high-value trades without alerting regulators. By aligning with global anti-money laundering standards for designated non-financial businesses, China is increasing the operational costs for launderers who once relied on anonymity and the fluidity of cash purchases in this trade.

Several high-profile laundering cases in recent years underscore why this reform was needed. In one recurring pattern, networks sourced gold from jurisdictions with minimal oversight, often artisanal mining zones linked to organized crime. Smuggled into intermediary countries, the gold was issued falsified origin certificates and sold to refineries as legitimate scrap or recycled metal. The proceeds, now seemingly clean, were wired globally to fund further criminal activity. Another scheme saw sanctioned regimes convert state-held gold reserves into cash by selling through intermediaries who moved the metal into permissive markets. Payments were disguised through barter, with gold exchanged for goods or services at inflated invoice values—physically moving the commodity one way while settling financially in another, breaking the audit trail.

Gemstone-related laundering has been equally sophisticated. High-value diamonds have been sold through fronts to overseas buyers, under-invoiced to dodge customs attention. Once abroad, they were revalued at market rates and sold to legitimate retailers, multiplying their paper value and laundering the embedded illicit funds. Jade has been used similarly, particularly in cross-border trade with neighboring countries where verification standards are inconsistent. In all these scenarios, the entry point was a high-value commodity purchase made in cash, blending into the legitimate market without mandatory reporting. Under China’s new rule, such deals will trigger automatic scrutiny, creating data trails investigators can follow back through the supply chain.

For the rule to succeed, dealers, banks, and payment platforms must integrate these obligations into strong AML frameworks. Dealers will need point-of-sale systems capable of tracking cumulative daily purchases by customer ID to detect structuring, along with trained staff to spot red flags—such as first-time buyers seeking large amounts of high-purity metal, reluctance to provide ID, or requests to ship goods to unrelated third parties. Financial institutions should enhance customer due diligence for accounts linked to the precious metals and gemstone trade, flagging dealers as higher-risk, monitoring unusual cash deposits, and scrutinizing transfers to or from known laundering hubs. Cross-referencing dealer-reported transactions with banking data could reveal patterns invisible to either party alone.

Supply chain controls are critical. Dealers should require documented proof of origin for all incoming stock and conduct supplier audits. Refineries must confirm that recycled material aligns with the supplier’s capacity and typical activity. For gemstones, valuations should be benchmarked against market norms to detect invoice manipulation. Cooperation between regulators, dealers, and financial institutions will be essential—banks can alert authorities to clients whose cash activity matches high-value commodity trades, building a broader intelligence picture of laundering typologies in the sector.

By setting a clear reporting threshold and coupling it with due diligence requirements, China is raising both the risk and cost for laundering operations dependent on precious metals and gemstones. Every reported cash purchase becomes a potential investigative lead, undermining the anonymity that has long made this method attractive. Professional launderers may now attempt lower-value trades, spread activity across multiple dealers, or shift to alternative commodities—all of which add complexity and heighten exposure to detection. For legitimate dealers, the new rules offer a more defined compliance framework and an opportunity to distance themselves from illicit flows.

The broader impact could be global. As one of the world’s largest markets for gold and gemstones, China’s tightening of controls is likely to influence laundering routes across Asia and beyond. Networks that once depended on its dealers for discreet cash conversion will be forced to adapt, and those adaptations will be visible to authorities monitoring illicit finance trends. If enforcement remains consistent and data from these reports is fully leveraged, the cost-benefit equation for laundering through metals and stones could tilt decisively toward detection—strengthening both the financial system’s integrity and the legitimacy of the commodity trade.

By fLEXI tEAM