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Gold and Diamond Markets

Hundreds of billions of dollars in natural resources, particularly diamonds and gold, flow through Dubai’s economy en route to other destinations, much of it from Africa and Asia.

The emirate is the epicenter of the world’s gold market, accounting for about 25 percent of the global trade, and is home to Kaloti Precious Metals, one of the world’s largest refiners.

Much of the gold industry involves the Dubai Multi Commodity Center (DMCC) free zone, which experts say acts as a laundering hub for large quantities of the precious metal.

“Essentially no one with gold is turned away in Dubai,” said Douglas Farah, a national security consultant and senior visiting fellow at National Defense University’s Center for Complex Operations. “It is the easiest place in the world, with large refining facilities and [a large] market, to move and sell gold with no regard at all in a real sense about the origin.”

According to a 2017 report by Partnership Africa Canada, a non-profit that campaigns against conflict minerals, Dubai is a major destination for illicit gold shipments from West Africa, largely from Mali.

The UN Security Council and the Organization for Economic Cooperation and Development (OECD) have developed guidelines outlining what due diligence in the sourcing of minerals should look like, and Dubai’s multi-commodity free zone has officially adopted OECD-compliant rules.

Companies wanting to be accredited by the DMCC free zone as refiners of gold or other precious metals must submit their audits, which are carried out by international accounting firms such as Ernst & Young (E&Y) and Grant Thornton.

The outward appearance is of a regulatory fortress; but in reality, the parts are built on Dubai’s figuratively shifting sands.

As a tax haven, Dubai’s legislation is constructed in a “don’t ask, don’t tell” manner. According to the Tax Justice Network, an independent advocacy group, Dubai does not require gold industry operators to collect much information from other companies they deal with. Identifying their beneficial owners, much less making the information public, is not a requirement. This means that, even when audits are carried out to the letter of the law, they are often of poor quality.

Even when an audit does identify a serious issue, the company involved will not necessarily face consequences.

Amjad Rihan, a former partner at Ernst & Young Middle East Limited, claimed that the consultancy firm turned a blind eye in 2013 when the DMCC changed its audit guidelines after becoming aware of negative findings in E&Y’s report on Dubai’s largest gold refinery. As a result of the changes, the refinery’s failures initially went unreported.

A legal claim filed by Rihan described how E&Y itself was allegedly previously threatened by Dubai authorities after its Dubai audit team uncovered a serious issue. “The Central Bank was very angry that EY Dubai had reported the matter to the company’s US headquarters and had threatened to shut down the Dubai office if this happened again,” the claim states.

Rihan led the audit of Kaloti Jewellery International, which handled about 50 percent of Dubai’s gold  refining market at the time. The review was supposed to examine Kaloti’s adherence to DMCC guidelines and help ensure the company would obtain or retain London Bullion Market Association’s approved list of refiners.

What Rihan’s team found, however, was that Kaloti had failed to report more than $5.2 billion in cash transactions and received several tons of gold from war-torn or sanctioned countries such as  Sudan, Iran, and the Democratic Republic of Congo.

According to South Africa’s Mail & Guardian, Kaloti purchased about 44 tons of gold in 2012 from Sudan and then, in the same year, sold gold to buyers including Swiss refiner Valcambi, which at that time supplied major companies like Apple. The transactions were done on behalf of the Central Bank of Sudan.

At the time, Sudan was heavily sanctioned by the US government and the country’s gold was being produced by so-called artisanal miners, including 70,000 in North Darfur’s Jebel Amir mines, who were working in dire circumstances. The mines are allegedly overseen by the Janjaweed, a militia group perceived to be an arm of the Khartoum government (an association the government denies). Members of both the militia and the government are under investigation by the International Criminal Court for genocide in Darfur.

The “high risk” gold mined under extremely harsh conditions and lacking proper due diligence paperwork should have been kept out of the system. But after Rihan alerted his bosses to his auditors’ findings, he says they treated him as a “trouble-maker,” removed him from the audit team, and commissioned a fresh audit, according to court documents filed by Rihan’s lawyers.

Kaloti has denied any impropriety.

“In all the audits, Kaloti was found to be compliant with DMCC and OECD guidelines for responsible sourcing of precious metals and UAE Central Bank AML/CFT regulations,” the company wrote in a statement in January. “Never in any of our numerous audits has there been any evidence of conflict gold in our supply chain or any breach of AML/CFT regulations.”

“If you do the slightest veneer of making it look legitimate, everybody looks the other way,” said Jodi Vittori, an adjunct professor at Georgetown University who teaches a course about corruption.

This story is part of the Global Anti-Corruption Consortium, a collaboration started by OCCRP and Transparency International. For more information, click here.

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