UAE suspends 32 gold refineries in anti-money laundering crackdown

Enforcement seeks to protect industry’s reputation by fostering effective compliance culture, experts say

The UAE has urged gold refiners to follow due diligence regulations before supplying the precious metal. AFP

The UAE has suspended 32 local gold refineries for three months for failing to follow anti-money laundering laws, as the country intensifies its crackdown on financial crimes.

The Ministry of Economy carried out a series of inspections on activities related to the trade and manufacture of precious metals and gemstones to ensure compliance with anti-money laundering legislation in the gold sector.

Following this, the ministry charged the refineries with 256 violations, with eight violations for each, state news agency Wam reported.

The alleged violations include failing to take proper measures to identify money laundering risks, not making required notifications of suspicious transactions to the Financial Information Unit and not examining customer and transaction databases against names on terrorism watch lists.

The suspensions began on July 24 and will last until October 24. The 32 refineries account for 5 per cent of the country’s gold sector, the ministry said. However, the refineries were not named.

“The UAE is a major player in the global gold industry. Dubai has become one of the largest gold trading hubs in the world, where the Emirates is presently the fourth biggest country in the world for gold imports,” said James Willn, partner for the energy and natural resources group at law firm Reed Smith.

“This phenomenal growth has unfortunately brought risk, especially with respect to money laundering, given the gold industry has in the past been a pathway for ill-gotten funds to enter the financial system.

“No doubt live to this issue, the UAE Ministry of Economy has been both active and vocal for a number of years now, in terms of outlining to UAE-based gold refineries the need to tighten up their due diligence regulations (on both suppliers and customers) for the responsible supply of gold in the region, otherwise these refineries run the risk of sanctions and penalties. The suspensions imposed by the ministry this week are clearly in respect of those refineries who have failed to heed the warnings.”

The Financial Action Task Force, the global anti–money laundering watchdog, removed the UAE from its “grey list” earlier this year, noting it had made some “key reforms” to its laws.

The country has made considerable efforts to shore up its anti-money laundering regime and combat the financing of terrorism.

In 2021, it founded an Executive Office for Anti-Money Laundering and Counter-Terrorism Financing after passing an anti-money laundering and terrorism financing law in 2018.

The value of fines imposed by regulatory authorities in the field of AML/CFT between January and October last year reached Dh249.2 million ($67.9 million), compared with Dh76 million in 2022.

They collected more than Dh10 million in fines imposed as targeted financial sanctions between July and October 2023.

The UAE authorities recorded suspicious activity reports relating to the gold sector increased to 6,432 last year from 223 in 2021, according to Bloomberg, which quoted the Ministry of Foreign Affairs.

Referring to the suspension of refineries, Roberto d'Ambrosio, chief executive of multi-asset broker Axiory Global, said despite short-term concerns that suppliers and buyers might have, the gold market will not be impacted beyond measure.

“This action and others to come will create a fairly competitive marketplace for the whole industry,” he said.

“What we witness today is the consequence of a wide review of policies and procedures on anti-money laundering and finance of terrorism, which fully embeds the UAE within global efforts to combat these plagues.”

Mr d'Ambrosio said he does not agree with generally labelling gold trades in the UAE as dodgy.

“Some players might have cut corners, or not fully applied the new rules implemented by the UAE, but overall the industry is made up of fair, competitive and law-abiding players,” he said.

The suspension of gold refineries by UAE authorities may lead to a short-term shortage and a slight price increase, according to Niraj Jain, UAE practice lead at Indigenesis Consulting.

Importantly, it serves as a warning for other businesses to strengthen their AML and CFT practices, he warned.

While historical concerns about transparency exist, the UAE is committed to improving its regulatory framework, Mr Jain said.

Sunita Mathur, assistant professor at Heriot-Watt University Dubai, said: “Most of the UAE’s gold trade is largely legitimate and regulated. However, it's essential to note that there will always be a risk of illicit activities in any large and complex market, especially gold.”

“The government has recognised these risks and has made all efforts for due diligence, increased transparency and collaboration with international authorities. The recent suspension of 32 gold refineries is a live example by the government.”

Kayne Osbourne, head of compliance and money laundering reporting at Dubai-based FinTech platform baraka, said the UAE's gold market is robust, with prices typically responding to global economic forces rather than individual enforcement actions.

“National efforts to come off the FATF grey list were not a one-and-done exercise. We're witnessing continued efforts to enforce high standards both onshore and in the free zones from license revocations to suspensions and fines,” he added.

Last year, the UAE introduced a new set of regulations on gold imports in line with international rules that seek to thwart money laundering and the financing of terrorism and illegal organisations.

The new policy governs the responsible sourcing of gold by precious metal importers and refiners. Those found in breach of the regulations face fines in the range of Dh50,000 to Dh5 million.

Regulated businesses must comply and enforce the new provisions. These include companies operating refineries and involved in the recycling of gold products inside and outside the country.

The initiative includes the establishment of the Emirates Gold Bullion Committee to unify national efforts to enhance oversight of the sector, with the participation of private companies, and the setting up of a federal platform for gold trading.

The regulations specify the affected entities, which include companies involved in refining and recycling gold products inside and outside the country, businesses falling under the precious metals and gemstones trade sectors, and those labelled as designated non-financial businesses or professions.

The rules require these companies to take the necessary steps and adapt their policies and procedures to prevent the misuse of gold imports in money laundering or other financial crimes.

Last year, the UAE suspended the accreditation of Emirates Gold DMCC, one of the country’s biggest gold refineries, over concerns that its owners had ties to alleged money launderers.