Dubai Can’t Shake Off the Stain of Smuggled African Gold
Simon Marks, Michael Kavanagh and Verity Ratcliffe
Mon, December 27, 2021
Simon Marks, Michael Kavanagh and Verity Ratcliffe
Mon, December 27, 2021
LONG READ
(Bloomberg) -- In the moon-like landscape of northern Sudan, informal gold miners toil with spades and pickaxes to extract their prize from shallow pits that pockmark the terrain.
Mining ore in the sweltering heat of the Nubian desert is the first stage of an illicit network that has exploded in the past 18 months following a pandemic-induced spike in the gold price. African governments desperate to recoup lost revenue are looking to Dubai to help stop the trade.
Interviews with government officials across Africa reveal smuggling operations that span at least nine countries and involve tons of gold spirited over borders. That’s a cause for international concern because the funds from contraband minerals dealing in Africa fuel conflict, finance criminal and terrorist networks, undermine democracy and facilitate money laundering, according to the Organisation for Economic Cooperation and Development.
While it’s impossible to say precisely how much is lost to smugglers each year, United Nations trade data for 2020 show a discrepancy of at least $4 billion between the United Arab Emirates’ declared gold imports from Africa and what African countries say they exported to the UAE.
The UN and NGOs have long questioned the apparent role of one of the Emirates — Dubai — in facilitating the trade by closing its eyes to imports from dubious sources. The UAE strenuously denies any involvement in illegal practices. But as global scrutiny over corporate governance intensifies, the extent of the smuggling now under way poses increasingly uncomfortable questions for Dubai and its reputation as a gold trading hub.
Allegations that it’s not doing enough to stamp out questionable flows of the precious metal have led to public slanging matches with London, home to the world’s largest gold market, and with Switzerland, the top refiner. Deputy U.S. Treasury Secretary Wally Adeyemo discussed concerns about gold smuggling with Emirati officials during a visit to Dubai and Abu Dhabi in mid-November, according to two people with direct knowledge of the matter who asked not to be identified because they’re not permitted to speak publicly about it.
That same week, the head of Dubai’s commodities exchange, Ahmed bin Sulayem, answered the accusations head on.
“I want to address the elephant in the room: namely, the consistent and unsubstantiated attacks launched on Dubai by other trading centers and institutions,” he said at a conference in the Emirates. They are, he said, “lies.”
African governments are adding to the pressure. Besides Sudan, authorities in Nigeria, the Democratic Republic of Congo, Zimbabwe, Mali, Ghana, Burkina Faso, Central African Republic and Niger complain that tons of gold leaks across their borders each year, and they allege most of it heads to Dubai.
“It’s a huge loss,” Nigerian Mines Minister Olamilekan Adegbite said in an interview in his office in Abuja, the capital, where glass cabinets display rock samples that illustrate the nation’s mining potential, so far largely untapped.
The bulk of Africa’s illegally mined gold is channeled to Dubai through refineries in countries like Uganda and Rwanda, or is flown there directly in hand luggage, often with false papers, according to government and industry officials, UN experts and civil rights groups. Once there, it can be further melted down to obscure the source before being turned into jewelry, electronics or gold bars, they say.
“Most European countries will ask you for your certificates of export from the country of origin,” said Adegbite. “If you do not have that, the gold is confiscated and returned back to source.”
On paper, the UAE requires the same. “But, you see,” Adegbite added, “in Dubai they look the other way.”
The UAE’s foreign trade ministry declined to answer questions on gold from Africa. Bin Sulayem said in an interview that a global ban on gold hand-carried on airlines — a traditional means of smuggling — would fix the problem. “We have a better track record than any of the major cities,” he said. “The main complaint we’re getting is ‘you’re too tough.’”
Gold smuggling is an age-old practice, but it became all the more rewarding as the price of bullion soared to a record $2,075 an ounce in August 2020. The illicit trade has since taken off like never before in Africa and authorities there have made scant headway in reining it in, an analysis of publicly available data from governments and other sources show.
Sudan’s Finance Ministry, for example, estimates that 80% of gold production goes unregistered. Rwanda is set to ship $732 million worth of the metal this year, more than two-and-a-half times the value of its 2019 exports, according to International Monetary Fund figures. That’s despite Rwanda barely mining any gold of its own, prompting accusations from the government in neighboring Congo that the precious metal originates from its territory.
Rwanda is working to become a regional mineral processing hub, which accounts for its increased exports, Rwanda Mines, Petroleum and Gas Board said in a statement. It has invested in new facilities which “source raw materials from local and regional operators in compliance with legal and regulatory requirements,” the board said.
Reports from the UN and other sources point to 95% of production from east and central Africa ending up in Dubai. That’s a potential problem because much of the region is designated by the OECD as a conflict or high-risk area, meaning companies are required to show that imported gold is responsibly sourced. The European Union brought in legislation this year aligning it with U.S. efforts to stem the trade. However, enforcement is notoriously difficult.
Uganda, one of Africa’s main refiners of informal, or artisanal gold, more than doubled its exports this financial year to some $2.25 billion, central bank statistics show. Again, the UAE was by far the top destination, according to UN trade data. The UN has accused Uganda and Rwanda of trading in gold smuggled from neighboring eastern Congo, a region mired in conflict.
In an unprecedented move, the London Bullion Market Association, which regulates the world’s biggest gold market, last year threatened to bar its accredited refineries from sourcing metal from countries that didn’t meet its responsible sourcing standards. While it didn’t name any state, Bin Sulayem issued a rebuke on behalf of Dubai, accusing the association of trying to undermine the UAE’s gold market.
The UAE signed up to LBMA’s recommendations and “has long been cooperative with all international regulations and best practices including anti-money laundering efforts and unethical sourcing of gold,” minister of state for foreign trade, Thani Al Zeyoudi, said in a statement to Bloomberg News. “The UAE is committed to embedding the very highest international gold standards.”
More than 12 months later, the LBMA has yet to follow through on its threat. Sakhila Mirza, its general counsel, said the association is still assessing what the UAE has done to combat smuggling. The LMBA does see the need for urgency, but has to act within the rules, and “disengaging is the last step,” Mirza said in an interview.
Dubai’s long association with the gold trade is evident in its main market in the oldest part of the city, where scores of shops with elaborate window displays of glittering necklaces, bodices and sunglasses line a pedestrian walkway. Trading operations are conducted in an adjacent rabbit-warren of a building, where men run between small offices, some with reinforced security doors.
“We welcome the world, we welcome anyone who wants to do trade”
Several traders who spoke on condition of anonymity because they feared repercussions said they risked having their supply cut off by Emirati refineries if they asked too many questions about where it came from. Still, controls have been tightened to tackle money laundering, with customers who spend more than $15,000 required to submit their identity documents and source of funds.
During his visit last month, the U.S. Treasury’s Adeyemo noted that stronger enforcement efforts targeting illicit finance could give the UAE a competitive advantage in the region, according to the two people with knowledge of the talks. The Treasury Department declined to comment through a spokesperson for the Office of Foreign Assets Control, who asked not to be named due to the sensitive nature of sanctions policy.
Thani Al Zeyoudi told reporters last month that Dubai will introduce a publicly accessible system for monitoring imports and exports of gold, and the Dubai Multi Commodities Centre’s “Good Delivery Standard,” will be rolled out nationwide — if only on a voluntary basis. All gold refineries in the UAE will be required to conduct audits that prove bullion deliveries are responsibly sourced, starting in February, the Economy Ministry said in a statement in December.
“We’re trying to be a real hub when it comes to gold trading,” Thani Al Zeyoudi said. “So we welcome the world, we welcome anyone who wants to do trade and we want to make sure that we adhere to the international standards through the delivery standards.”
In October, Switzerland’s State Secretariat for Economic Affairs instructed Swiss refineries to take steps to identify the true country of origin for all gold emanating from the UAE, saying that was necessary to ensure they weren’t being sent illicit supplies. Bin Sulayem again took to LinkedIn to say the Emirates enforced the OECD’s guidelines on sourcing minerals and accused the Swiss authorities of hypocrisy.
Michael Bartlett-Vanderpuye, the chairman of M&C Group Global, which mines and sources gold from Ghana that’s mainly sold to clients in the UAE, described the clashes with London and Switzerland as “an international gold power play” with each center protecting its turf.
“I always found it very difficult to believe that people are actually able to bring gold to the UAE without the documentation,” he said. “When I look at the system at the airport, I find it near to impossible.”
Swiss refiner Metalor Technologies SA remains skeptical.
“We don’t think everything coming from Dubai is illegal, but we have doubts about the legitimacy of some of the integrity of the supply chain,” Jose Camino, Metalor’s group general counsel, said in an interview. “We are happy to pass it by.”
Dubai’s supporters claim African customs data aren’t reliable and even the UN can’t accurately measure illicit trade flows. Behind closed doors, UAE officials point the finger at their counterparts in Africa and forgers who obscure the gold’s origins by issuing documents that are impossible to distinguish from the real thing.
That’s little comfort to the authorities in the Democratic Republic of Congo, a vast central African country that’s struggling to rebuild after more than two decades of conflict. It has some of the world’s richest reserves, including Kibali in the northeast of the country — Africa’s biggest gold mine — yet, perversely, the DRC is one of the biggest losers of the illicit gold trade.
An army of small-scale miners operate below the government’s radar, but data show the informal industry generated just $2.4 million in official gold exports last year. Statistics from the UN and IMF suggest the fruits of their labor slipped across the border instead: Uganda and Rwanda shipped bullion worth $1.8 billion and $648 million respectively in 2020, despite having little gold of their own.
“It’s ours,” Congolese Finance Minister Nicolas Kazadi said in an interview at his office in the capital, Kinshasa. “It’s gold from Congo.”
Under U.S. law, gold from Congo and its neighbors is considered a “conflict mineral,” meaning companies publicly traded in the U.S. are required to report to the Securities Exchange Commission if they might be using gold mined in conflict areas — but there’s no sanction for doing so. A June report by UN experts found that much of the illegal gold trade in Congo is overseen by armed groups or soldiers, who traffic it across the borders or fly it directly to Dubai using forged documents to obscure its origin.
Related Story: From Minerals to Beer, Congo Finance Minister Hunts for Cash
Sasha Lezhnev, policy consultant for Washington-based anti-corruption group The Sentry, said that refiners trading in conflict gold aren’t being held publicly accountable by the UAE. “Dubai is the linchpin for change in the gold trade in east and central Africa,” he said.
Smuggling is also troubling the government in Nigeria, where most minerals are extracted by at least 100,000 informal miners whose operations are difficult to regulate and tax. Formal gold production totaled just 1,288 kilograms last year, almost all of which went to Dubai, according to Nigerian government data.
Efforts are being made to formalize the industry. Fatima Shinkafi is head of the Presidential Artisanal Gold Mining Initiative, which has registered 10,000 informal miners and is developing a supply chain whereby their output will be sent to LBMA-certified refineries in Europe, processed and transferred to the central bank to boost Nigeria’s foreign reserves.
Adegbite, the mines minister, wants to work with the UAE to combat smuggling, and says he even proposed to his government that it split the proceeds “50-50” with the Emirati authorities of any undeclared Nigerian gold recovered. The UAE Ministry of Economy and the Ministry of Foreign Affairs and International Cooperation didn’t respond to emailed requests for comment on the minister’s proposal.
In Sudan, more than 2 million small-scale miners produce some 80% of the nation’s gold. They are paid about a quarter less for what they extract than it would fetch on international markets and are charged a $64 tax on each ounce of output, which encourages some to bypass official trading channels.
Some of Sudan’s internal trade happens in a dank six-story building in downtown Khartoum, the capital, where men melt rough nuggets into bars and dealers can be seen exiting the premises carrying piles of cash wrapped in cling film. Illicitly traded gold is flown to Dubai through the porous international airport or trafficked into neighboring Egypt, Ethiopia and Chad, according to industry experts.
Political upheaval has frustrated efforts to ensure Sudan’s people benefit from its mineral endowment. Dictator Omar al-Bashir was toppled in a popular uprising in 2019, then a transitional government was overthrown in an Oct. 25 coup as the military reasserted itself.
The security forces have set up road blocks between mining areas and Khartoum to combat smuggling. But controls remain woefully inadequate, according to Dafalla Idriss, the deputy chair of a panel in River Nile state set up to freeze assets plundered by the al-Bashir regime.
“There is corruption inside all government institutions,” he said. “The gold that leaves the country is getting past everyone.”
(Bloomberg) -- In the moon-like landscape of northern Sudan, informal gold miners toil with spades and pickaxes to extract their prize from shallow pits that pockmark the terrain.
Mining ore in the sweltering heat of the Nubian desert is the first stage of an illicit network that has exploded in the past 18 months following a pandemic-induced spike in the gold price. African governments desperate to recoup lost revenue are looking to Dubai to help stop the trade.
Interviews with government officials across Africa reveal smuggling operations that span at least nine countries and involve tons of gold spirited over borders. That’s a cause for international concern because the funds from contraband minerals dealing in Africa fuel conflict, finance criminal and terrorist networks, undermine democracy and facilitate money laundering, according to the Organisation for Economic Cooperation and Development.
While it’s impossible to say precisely how much is lost to smugglers each year, United Nations trade data for 2020 show a discrepancy of at least $4 billion between the United Arab Emirates’ declared gold imports from Africa and what African countries say they exported to the UAE.
The UN and NGOs have long questioned the apparent role of one of the Emirates — Dubai — in facilitating the trade by closing its eyes to imports from dubious sources. The UAE strenuously denies any involvement in illegal practices. But as global scrutiny over corporate governance intensifies, the extent of the smuggling now under way poses increasingly uncomfortable questions for Dubai and its reputation as a gold trading hub.
Allegations that it’s not doing enough to stamp out questionable flows of the precious metal have led to public slanging matches with London, home to the world’s largest gold market, and with Switzerland, the top refiner. Deputy U.S. Treasury Secretary Wally Adeyemo discussed concerns about gold smuggling with Emirati officials during a visit to Dubai and Abu Dhabi in mid-November, according to two people with direct knowledge of the matter who asked not to be identified because they’re not permitted to speak publicly about it.
That same week, the head of Dubai’s commodities exchange, Ahmed bin Sulayem, answered the accusations head on.
“I want to address the elephant in the room: namely, the consistent and unsubstantiated attacks launched on Dubai by other trading centers and institutions,” he said at a conference in the Emirates. They are, he said, “lies.”
African governments are adding to the pressure. Besides Sudan, authorities in Nigeria, the Democratic Republic of Congo, Zimbabwe, Mali, Ghana, Burkina Faso, Central African Republic and Niger complain that tons of gold leaks across their borders each year, and they allege most of it heads to Dubai.
“It’s a huge loss,” Nigerian Mines Minister Olamilekan Adegbite said in an interview in his office in Abuja, the capital, where glass cabinets display rock samples that illustrate the nation’s mining potential, so far largely untapped.
The bulk of Africa’s illegally mined gold is channeled to Dubai through refineries in countries like Uganda and Rwanda, or is flown there directly in hand luggage, often with false papers, according to government and industry officials, UN experts and civil rights groups. Once there, it can be further melted down to obscure the source before being turned into jewelry, electronics or gold bars, they say.
“Most European countries will ask you for your certificates of export from the country of origin,” said Adegbite. “If you do not have that, the gold is confiscated and returned back to source.”
On paper, the UAE requires the same. “But, you see,” Adegbite added, “in Dubai they look the other way.”
The UAE’s foreign trade ministry declined to answer questions on gold from Africa. Bin Sulayem said in an interview that a global ban on gold hand-carried on airlines — a traditional means of smuggling — would fix the problem. “We have a better track record than any of the major cities,” he said. “The main complaint we’re getting is ‘you’re too tough.’”
Gold smuggling is an age-old practice, but it became all the more rewarding as the price of bullion soared to a record $2,075 an ounce in August 2020. The illicit trade has since taken off like never before in Africa and authorities there have made scant headway in reining it in, an analysis of publicly available data from governments and other sources show.
Sudan’s Finance Ministry, for example, estimates that 80% of gold production goes unregistered. Rwanda is set to ship $732 million worth of the metal this year, more than two-and-a-half times the value of its 2019 exports, according to International Monetary Fund figures. That’s despite Rwanda barely mining any gold of its own, prompting accusations from the government in neighboring Congo that the precious metal originates from its territory.
Rwanda is working to become a regional mineral processing hub, which accounts for its increased exports, Rwanda Mines, Petroleum and Gas Board said in a statement. It has invested in new facilities which “source raw materials from local and regional operators in compliance with legal and regulatory requirements,” the board said.
Reports from the UN and other sources point to 95% of production from east and central Africa ending up in Dubai. That’s a potential problem because much of the region is designated by the OECD as a conflict or high-risk area, meaning companies are required to show that imported gold is responsibly sourced. The European Union brought in legislation this year aligning it with U.S. efforts to stem the trade. However, enforcement is notoriously difficult.
Uganda, one of Africa’s main refiners of informal, or artisanal gold, more than doubled its exports this financial year to some $2.25 billion, central bank statistics show. Again, the UAE was by far the top destination, according to UN trade data. The UN has accused Uganda and Rwanda of trading in gold smuggled from neighboring eastern Congo, a region mired in conflict.
In an unprecedented move, the London Bullion Market Association, which regulates the world’s biggest gold market, last year threatened to bar its accredited refineries from sourcing metal from countries that didn’t meet its responsible sourcing standards. While it didn’t name any state, Bin Sulayem issued a rebuke on behalf of Dubai, accusing the association of trying to undermine the UAE’s gold market.
The UAE signed up to LBMA’s recommendations and “has long been cooperative with all international regulations and best practices including anti-money laundering efforts and unethical sourcing of gold,” minister of state for foreign trade, Thani Al Zeyoudi, said in a statement to Bloomberg News. “The UAE is committed to embedding the very highest international gold standards.”
More than 12 months later, the LBMA has yet to follow through on its threat. Sakhila Mirza, its general counsel, said the association is still assessing what the UAE has done to combat smuggling. The LMBA does see the need for urgency, but has to act within the rules, and “disengaging is the last step,” Mirza said in an interview.
Dubai’s long association with the gold trade is evident in its main market in the oldest part of the city, where scores of shops with elaborate window displays of glittering necklaces, bodices and sunglasses line a pedestrian walkway. Trading operations are conducted in an adjacent rabbit-warren of a building, where men run between small offices, some with reinforced security doors.
“We welcome the world, we welcome anyone who wants to do trade”
Several traders who spoke on condition of anonymity because they feared repercussions said they risked having their supply cut off by Emirati refineries if they asked too many questions about where it came from. Still, controls have been tightened to tackle money laundering, with customers who spend more than $15,000 required to submit their identity documents and source of funds.
During his visit last month, the U.S. Treasury’s Adeyemo noted that stronger enforcement efforts targeting illicit finance could give the UAE a competitive advantage in the region, according to the two people with knowledge of the talks. The Treasury Department declined to comment through a spokesperson for the Office of Foreign Assets Control, who asked not to be named due to the sensitive nature of sanctions policy.
Thani Al Zeyoudi told reporters last month that Dubai will introduce a publicly accessible system for monitoring imports and exports of gold, and the Dubai Multi Commodities Centre’s “Good Delivery Standard,” will be rolled out nationwide — if only on a voluntary basis. All gold refineries in the UAE will be required to conduct audits that prove bullion deliveries are responsibly sourced, starting in February, the Economy Ministry said in a statement in December.
“We’re trying to be a real hub when it comes to gold trading,” Thani Al Zeyoudi said. “So we welcome the world, we welcome anyone who wants to do trade and we want to make sure that we adhere to the international standards through the delivery standards.”
In October, Switzerland’s State Secretariat for Economic Affairs instructed Swiss refineries to take steps to identify the true country of origin for all gold emanating from the UAE, saying that was necessary to ensure they weren’t being sent illicit supplies. Bin Sulayem again took to LinkedIn to say the Emirates enforced the OECD’s guidelines on sourcing minerals and accused the Swiss authorities of hypocrisy.
Michael Bartlett-Vanderpuye, the chairman of M&C Group Global, which mines and sources gold from Ghana that’s mainly sold to clients in the UAE, described the clashes with London and Switzerland as “an international gold power play” with each center protecting its turf.
“I always found it very difficult to believe that people are actually able to bring gold to the UAE without the documentation,” he said. “When I look at the system at the airport, I find it near to impossible.”
Swiss refiner Metalor Technologies SA remains skeptical.
“We don’t think everything coming from Dubai is illegal, but we have doubts about the legitimacy of some of the integrity of the supply chain,” Jose Camino, Metalor’s group general counsel, said in an interview. “We are happy to pass it by.”
Dubai’s supporters claim African customs data aren’t reliable and even the UN can’t accurately measure illicit trade flows. Behind closed doors, UAE officials point the finger at their counterparts in Africa and forgers who obscure the gold’s origins by issuing documents that are impossible to distinguish from the real thing.
That’s little comfort to the authorities in the Democratic Republic of Congo, a vast central African country that’s struggling to rebuild after more than two decades of conflict. It has some of the world’s richest reserves, including Kibali in the northeast of the country — Africa’s biggest gold mine — yet, perversely, the DRC is one of the biggest losers of the illicit gold trade.
An army of small-scale miners operate below the government’s radar, but data show the informal industry generated just $2.4 million in official gold exports last year. Statistics from the UN and IMF suggest the fruits of their labor slipped across the border instead: Uganda and Rwanda shipped bullion worth $1.8 billion and $648 million respectively in 2020, despite having little gold of their own.
“It’s ours,” Congolese Finance Minister Nicolas Kazadi said in an interview at his office in the capital, Kinshasa. “It’s gold from Congo.”
Under U.S. law, gold from Congo and its neighbors is considered a “conflict mineral,” meaning companies publicly traded in the U.S. are required to report to the Securities Exchange Commission if they might be using gold mined in conflict areas — but there’s no sanction for doing so. A June report by UN experts found that much of the illegal gold trade in Congo is overseen by armed groups or soldiers, who traffic it across the borders or fly it directly to Dubai using forged documents to obscure its origin.
Related Story: From Minerals to Beer, Congo Finance Minister Hunts for Cash
Sasha Lezhnev, policy consultant for Washington-based anti-corruption group The Sentry, said that refiners trading in conflict gold aren’t being held publicly accountable by the UAE. “Dubai is the linchpin for change in the gold trade in east and central Africa,” he said.
Smuggling is also troubling the government in Nigeria, where most minerals are extracted by at least 100,000 informal miners whose operations are difficult to regulate and tax. Formal gold production totaled just 1,288 kilograms last year, almost all of which went to Dubai, according to Nigerian government data.
Efforts are being made to formalize the industry. Fatima Shinkafi is head of the Presidential Artisanal Gold Mining Initiative, which has registered 10,000 informal miners and is developing a supply chain whereby their output will be sent to LBMA-certified refineries in Europe, processed and transferred to the central bank to boost Nigeria’s foreign reserves.
Adegbite, the mines minister, wants to work with the UAE to combat smuggling, and says he even proposed to his government that it split the proceeds “50-50” with the Emirati authorities of any undeclared Nigerian gold recovered. The UAE Ministry of Economy and the Ministry of Foreign Affairs and International Cooperation didn’t respond to emailed requests for comment on the minister’s proposal.
In Sudan, more than 2 million small-scale miners produce some 80% of the nation’s gold. They are paid about a quarter less for what they extract than it would fetch on international markets and are charged a $64 tax on each ounce of output, which encourages some to bypass official trading channels.
Some of Sudan’s internal trade happens in a dank six-story building in downtown Khartoum, the capital, where men melt rough nuggets into bars and dealers can be seen exiting the premises carrying piles of cash wrapped in cling film. Illicitly traded gold is flown to Dubai through the porous international airport or trafficked into neighboring Egypt, Ethiopia and Chad, according to industry experts.
Political upheaval has frustrated efforts to ensure Sudan’s people benefit from its mineral endowment. Dictator Omar al-Bashir was toppled in a popular uprising in 2019, then a transitional government was overthrown in an Oct. 25 coup as the military reasserted itself.
The security forces have set up road blocks between mining areas and Khartoum to combat smuggling. But controls remain woefully inadequate, according to Dafalla Idriss, the deputy chair of a panel in River Nile state set up to freeze assets plundered by the al-Bashir regime.
“There is corruption inside all government institutions,” he said. “The gold that leaves the country is getting past everyone.”
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