Understanding Money Laundering Risks in the Conflict Gold Trade

Advisory by The Sentry:
Conflict Gold Flooding Into Dubai Linked to Money Laundering, Mass Violence

  • 95% of East and Central Africa’s gold makes its way to Dubai, UAE, where policy loopholes allow for the conflict gold trade to flourish
  • Armed groups, criminal networks, and army units responsible for rights abuses, atrocities, and corruption are profiting from the gold trade
  • Countries neighboring conflict zones are increasingly hubs for conflict gold: Uganda, Rwanda, Cameroon, Kenya, Chad, and Burundi
  • This Sentry advisory highlights money laundering red flags, risk indicators, and urgent policy actions to counter illicit financial flows

November 10, 2020 (Washington, D.C.) – Conflict and high-risk gold flooding largely unchecked into Dubai, United Arab Emirates (UAE) from Central and East Africa carries grave risks for money laundering, smuggling, and embezzlement in the billions of dollars, warns a new advisory published today by The Sentry.

The Sentry’s advisory, "Understanding Money Laundering Risks in the Conflict Gold Trade From East and Central Africa to Dubai and Onward,” is modeled after those issued by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Conflict gold continues to fuel armed conflict, human rights violations, and corruption in the Democratic Republic of Congo (DRC), South Sudan, Sudan, and the Central African Republic (CAR), and over $3 billion per year in gold from these countries reaches Dubai, UAE annually.

The advisory details red flags, risk factors, and indicators of criminal activity, including large cash payments, weak customs controls, and smuggling to neighboring countries to conceal the gold’s connection to armed groups or army units. The advisory presents recommendations for financial institutions, governments, refiners, and others in the private sector to shore up the gold trade currently posing grave threats to the international financial system while fueling conflict.

Megha Swamy, advisory co-author and Deputy Director of Illicit Finance Policy at The Sentry, said: “Almost all of the high-risk gold mined in East and Central Africa makes its way to Dubai, where policy and regulatory loopholes allow for this trade to flourish. Financial institutions, companies, and others with exposure to Dubai's gold trade face myriad money laundering risks. Understanding and urgently addressing these risks is crucial to disrupting the gold-related illicit financial flows fueling violence and corruption.”

The advisory identifies four key factors in the UAE that allow for the smuggling and trade of conflict and high-risk gold:

  1. Weak customs controls
  2. Inadequate oversight of the gold souk
  3. Continued allowance of large cash transactions
  4. Inadequate oversight of refiners

The advisory reinforces that understanding the trade and its associated predicate offenses and financial crime risks, particularly in the UAE, will help financial institutions, governments, and others in the gold trade to more effectively address risks and disrupt the illicit flows fueling violence and corruption in East and Central Africa.

Sasha Lezhnev, advisory co-author and Deputy Director of Policy at The Sentry, said: “This is a wake-up call for Dubai on conflict gold. The UAE government urgently needs to close its policy loopholes that allow conflict gold to enter the country en masse, for instance by banning cash for gold transactions, or risk getting cut off from global gold markets.”

John Prendergast, Co-Founder of The Sentry, said: “Jewelry, electronics, and other companies buying gold should understand that conflict gold is entering mainstream supply chains via Dubai. Unless companies involved in the gold trade increase their vigilance and due diligence when sourcing gold from Dubai, they will increasingly be contributing to the violence and destruction of human life in this vulnerable region of Africa.”

According to the report, over $3 billion in gold mined in four conflict-affected countries in East and Central Africa, a sizeable portion of which is conflict gold, reaches international markets in the United States, Europe, Asia, and the Middle East via Dubai.

Brad Brooks-Rubin, Managing Director of The Sentry, said: “The responsible, conflict-free gold sector that benefits artisanal mining communities in the region is still small, but its development is both important and encouraging. However, miners face exploitation due to corrupt officials, criminal traders, armed units, and poor government policies. The artisanal gold sector requires much greater support, both in policy changes and funding, to help formalize and incentivize responsible artisanal mining.”

While Sudan’s gold is mainly exported directly to Dubai, gold from South Sudan, the DRC, and CAR is smuggled or exported to neighboring countries, particularly Uganda, Rwanda, Cameroon, Kenya, Chad, and Burundi, and then exported to Dubai. The advisory identifies three risk factors for potential trade-based money laundering in these neighboring countries:

  • Major gold tax discrepancies between the producing countries and their neighbors
  • New high-risk refineries that have not undergone or passed conflict minerals audits
  • Corruption and weak controls at borders and airports

The Sentry’s investigations on the trade in conflict and high-risk gold from East and Central Africa to the UAE have identified a number of red flags specific to this supply chain, including predicate crime activity indicators, trading behavior, product characteristics, and company behavior. These risk indicators build on and complement the Financial Action Task Force (FATF)-issued comprehensive red flags in the wider gold trade.  

Advisory recommendations:

  • For the UAE government: The UAE government should address regulatory loopholes by requiring proof of payment for imported gold, requiring all gold refiners with a presence in the UAE to undergo independent audits, and banning cash transactions for gold above small amounts. The authorities should also address the shortcomings laid out in the FATF’s 2020 mutual evaluation report.
  • For financial institutions: Banks and financial institutions should carry out enhanced due diligence on customers who deal in gold, including miners, refiners, jewelry shops, and gold traders. This should include enhanced transaction monitoring in line with a risk-based approach.
  • For the US and EU: US and EU authorities should engage the UAE’s authorities to implement measures to close loopholes that allow for the trade in conflict gold and to address the shortcomings laid out in the UAE’s FATF report.
  • For the private sector: Gold refiners and electronics, jewelry, and automotive companies should conduct enhanced due diligence on their suppliers and refer to the red flags in the FATF gold typology report, as well as those listed in this advisory, to assess risks when purchasing gold from the UAE.

Read complete advisory: https://thesentry.org/reports/conflict-gold-trade/


For media inquiries or interview requests, please contact: Greg Hittelman, Director of Communications, +1 310 717 0606, This email address is being protected from spambots. You need JavaScript enabled to view it.
 

ABOUT THE SENTRY

The Sentry is an investigative and policy team that follows the dirty money connected to African war criminals and transnational war profiteers and seeks to shut those benefiting from violence out of the international financial system. By disrupting the cost-benefit calculations of those who hijack governments for self-enrichment in East and Central Africa, the deadliest war zone globally since World War II, we seek to counter the main drivers of conflict and create new leverage for peace, human rights, and good governance. The Sentry is composed of financial investigators, international human rights lawyers, and regional experts, as well as former law enforcement agents, intelligence officers, policymakers, investigative journalists, and banking professionals. Co-founded by George Clooney and John Prendergast, The Sentry is a strategic partner of the Clooney Foundation for Justice.

Learn more at www.TheSentry.org.

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