Officers carried out 259 raids in houses and cash-for-gold shops across Italy as part of an investigation into 118 people suspected of smuggling gold bars to Switzerland and cash back into Italy.

The gang is accused of money-laundering, recycling cash and stolen jewels through cash-for-gold shops and churning out ingots in foundries.

"The money came illegally into Italy from Switzerland, and was used to buy fraudulently obtained gold and silver, then sent back to Switzerland in the form of ingots," police officer Alessandro Langella told AFP.

Police seized a villa in Monte San Savino, a town near the city of Arezzo, the gold capital of Italy.

Nicknamed "Fort Knox", the villa was used by the criminal gang as a place to stash the cash and gold.

Police said they also blocked 500 bank accounts, seizing €163 million worth of profit earned by the gang in 2012 through the exchange of 4,500 kilograms of gold and 11,000 kilograms of silver.

In August, Italian police announced a 78-percent jump in the amount of gold, silver and cash they had prevented from leaving the country illegally in the first seven months of 2012.

The financial police said it had seized €41 million worth compared with €23.2 million in the same period last year.

Criminal organizations in Italy have been making billions from a boom in the poorly-regulated cash-for-gold sector, which is rife with tax evasion and serves as a quick and easy method of cleaning dirty money.

Out of an estimated 28,000 cash-for-gold stores in Italy, only a few hundred have registered with the Bank of Italy and professional associations say that some 80 percent of the gold sold there ultimately ends up in Switzerland.