Quest for gold with a pure pedigree

As Dubai becomes a major link in the global gold supply chain, the challenge is growing to ensure the metal trading in the emirate is from conflict free sources.
Gold bars and jewellery valued at about US$35 billion came through Dubai lin 2013, up by 73 per cent in volume from the year before. Jeffrey Biteng / The National
Gold bars and jewellery valued at about US$35 billion came through Dubai lin 2013, up by 73 per cent in volume from the year before. Jeffrey Biteng / The National

Amid the bustle in Dubai Gold Souk, Bernadette Rigaud is browsing for a gold necklace.

Design and price are the most crucial factors influencing her buying decision, says the 46-year-old Frenchwoman. But a third consideration is also important.

“Of course I want to know it [the gold] is from the right sources,” she says.

Ms Rigaud is not alone. Scrutiny from consumers and lawmakers is growing on all links in the precious metal’s supply chain to ensure gold is not drawn from illicit sources, primarily gold with links to the war zones of the Democratic Republic of Congo (DRC).

As much as 98 per cent of the gold produced in conflict areas of the DRC is smuggled out of the country, the UN Group of Experts estimated last year. Once outside it is difficult to know where it ends up, analysts concede.

But with Dubai capturing an ever-growing portion of global gold trade, refiners, traders and regulators are having to more strictly verify the origins of the precious metal coming through the emirate’s ports. Gold bars, jewellery and other gold goods valued at about US$75 billion came through Dubai last year, up by 73 per cent in volume from the year before, according to Dubai Multi Commodities Centre (DMCC). A sizeable chunk of that trade came from Africa, a continent with an expanding stream of metals exports Dubai is keen to service through its ports.

But such gold carries risks. In February, Kaloti Jewellery Group, Dubai’s biggest gold refiner, was accused by a former Ernst & Young (EY) employee of making about $5.2bn of transactions in cash, raising suspicions about the origins of the gold. Although no evidence was discovered of conflict gold entering the supply chain, the NGO Global Witness singled out both Kaloti and DMCC for blame. It said DMCC, which regulates the emirate’s gold trade, changed its rules on responsible sourcing after becoming aware of the negative findings in the EY audit.

Both Kaloti and DMCC have vigorously denied any wrongdoing.

Kaloti had “robust and comprehensive” measures in place to ensure the “responsible and ethical sourcing” of metals, said its chairman Munir Kaloti.

“We are committed to reviewing and enhancing our processes on an enduring basis, in line with global best practice and any regulatory requirements,” he added.

DMCC is also taking steps to bolster its regulatory framework.

“We want to take extra steps to only further strengthen what we’ve already done to give confidence to the industry and globally,” said Gautam Sashittal, the DMCC chief executive. “The extra steps involve us using an independent body that is looking at our processes and protocol to make sure they’re in line with international standards. We will also create an independent panel which will advise us in the future and interpret what actions we need to take on audits.”

Action is also being taken farther along the supply chain. Gold resellers – who sell scrap gold on to refiners and jewellers – can pay anywhere between US$5,000 and $10,000 to be audited, with the aim of showing they have taken steps to ensure their products are from conflict-free sources.

“There are 35 or 40 resellers who are willing to be audited so they can become more acceptable to the traders and refiners,” said Dhawal Nandedkar, a managing partner of Verico Auditing, an independent auditor based in Dubai.

Global lawmakers are also tightening rules to prevent conflict gold trade. From June 2, new legislation under the Dodd-Frank Wall Street Reform and Consumer Protection Act will require US companies to disclose if their products contain conflict minerals from the DRC. Mr Sashittal said DMCC’s measures already complied with the Dodd-Frank rules.

But despite all the steps, eradicating conflict gold completely from the global supply chain is likely to prove virtually impossible.

Pierre Kamaro, an official from the International Conference on the Great Lakes Region, an inter-governmental union of 12 African countries including the DRC, said the union was keen to meet Dubai Customs to ascertain whether export numbers from its member countries matched with import data Dubai customs recorded from those countries.

“Our borders are so porous it is difficult to keep track of trade flows, but cooperation can help fight the problem [of illicit trade],” he said.

Smuggling of gold can take many forms: sometimes concealed in clothing or disguised as other material or objects. The allegations in February, for example, also claimed Kaloti knowingly accepted four tonnes of gold plated in silver imported from Morocco by suppliers with fake paperwork.

Even when certification purports to be a gold bar exported from Uganda or Burundi, for example, it can sometimes be falsified, hiding its actual origin.

At the other end of the supply chain, there is also a challenge posed by educating gold suppliers. Few of the retailers The National asked in the Dubai Gold Souk were able to answer questions on from which country the gold was originally sourced. Their knowledge might have to improve as consumers, especially those from developed countries, begin to ask more searching questions about their products.

Not-for-profit groups like the Responsible Jewellery Council are raising awareness among traders and consumers about the risks attached to conflict gold.

Still, officials say taking action to combat conflict gold trade was an incremental process.

“It’s about making constant improvements in the supply chain,” said Tyler Gillard, the head of project and legal adviser at the Organisation for Economic Cooperation and Development (OECD), the intergovernmental agency. “It’s not about 100 per cent compliance or 100 per cent guarantee of comfort-free status. Undertaking due diligence means problems will be identified. That’s OK. As long as you fix those problems and remediate those issues that is important.”

tarnold@thenational.ae

Follow us on Twitter @Ind_Insights

Published: May 3, 2014 04:00 AM

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