Kenya’s Ex-Minister and the Gold Smuggling Saga
Gold Smuggling in East Africa: In recent news, the arrest of Kenya’s former Assistant Minister for Internal Security, Stephen Tarus, in Uganda on charges of smuggling gold into the country using counterfeit documents has shed light on the pervasive issue of gold smuggling in East Africa due to its porous borders. This incident has raised questions about the origins of the gold, its intended destination, and the compliance standards within the gold trade.
If found guilty he faces up to three years in prison or a $10,000 fine if found guilty of falsifying documents in an alleged gold deal. That is more than Michael Novak got in the DOJ Gold spoofing case! Go figure!
Gold Smuggling in East Africa
Gold smuggling in East Africa has been a persistent challenge, particularly from countries like the Democratic Republic of Congo (DRC), where vast mineral wealth coexists with political instability. The DRC, known for its abundant gold reserves, has often been at the center of illicit gold trade activities. Smugglers exploit the porosity of borders, taking advantage of weak regulatory controls and informal trade networks.
The Dubai Connection
One key aspect that deserves attention in the case of gold smuggling in East Africa is the role of Dubai as a global gold trading hub. Dubai’s strategic location and well-established gold refineries make it an attractive destination for gold traders. However, Dubai also maintains stringent compliance standards to ensure that the gold entering its refineries is of legitimate origin and meets ethical and environmental criteria.
In-Country Refining
To navigate the compliance requirements of Dubai’s gold refineries, a potential modus operandi for gold smugglers may involve in-country refining. This means that smuggled gold from the DRC or other source countries could be processed within East African nations with established refining facilities. This step allows smugglers to layer the gold and create a veneer of legitimacy before it reaches Dubai.
Compliance Challenges
The key challenge in this scenario is ensuring compliance at every step of the gold procurement and refining process. Compliance with international regulations, ethical sourcing standards, and environmental guidelines is paramount to avoid legal repercussions and tarnishing the reputation of refineries involved.
The best recognised is the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.
Summary Review: OECD Due Diligence Guidance for Responsible Mineral Supply Chains
The OECD Due Diligence Guidance is a comprehensive framework designed to assist companies in upholding human rights and preventing contributions to conflict through their mineral procurement practices. It is applicable to any company involved in sourcing minerals or metals from regions affected by conflict and high-risk areas. The guidance applies globally to all mineral supply chains.
The 3rd Edition of the OECD Due Diligence Guidance, published in April 2016, includes the OECD Council Recommendation, the text of the Guidance, the 3Ts Supplement, and the Gold Supplement. It emphasizes that the guidance offers a detailed due diligence framework to support responsible supply chain management of various minerals, including tin, tantalum, tungsten, gold, and others.
Notably, apart from the 37 OECD Member countries, 9 non-Member countries, including Argentina, Brazil, Costa Rica, Croatia, Kazakhstan, Morocco, Peru, Romania, and Ukraine, have also endorsed the Council Recommendation. The OECD Due Diligence Guidance is widely recognized as the leading international standard and is referenced in numerous international declarations, regulations, and initiatives.
One such declaration, the Mosi-oa-Tunya Declaration, adopted in September 2018, calls on the private sector at national, regional, and international levels to implement instruments like the OECD Due Diligence Guidance to ensure responsible mineral supply chains that do not contribute to human rights violations or conflict.
Furthermore, the European Union (EU) adopted Regulation (EU) 2017/821 in May 2017, which mandates supply chain due diligence requirements for EU importers of tin, tantalum, tungsten, their ores, and gold originating from conflict-affected and high-risk areas. The EU Regulation aligns with the OECD Guidance’s 5-step framework and is set to be enforced from January 2021.
In essence, the OECD Due Diligence Guidance serves as a critical tool in promoting ethical and responsible practices in mineral supply chains, benefiting both businesses and human rights protection on a global scale.
Industry Programs Aligned with Responsible Mineral Sourcing Guidance
| Guidance Group | Overview |
|---|---|
| Responsible Minerals Initiative / Responsible Minerals Assurance Process | RMI/RMAP provides a framework for responsible mineral sourcing and offers tools and resources to support due diligence in mineral supply chains. It focuses on conflict minerals and promotes transparency. |
| International Tin Supply Chain Initiative (ITSCI) | ITSCI is a program that addresses responsible tin sourcing. It establishes traceability and due diligence mechanisms in the tin supply chain to prevent the financing of armed conflict and human rights abuses. |
| Emirates Bullion Market Committee Rules for RBDG | These rules are specific to the gold trade and provide guidance for responsible sourcing and trading of gold in the Emirates Bullion Market. It emphasizes compliance with ethical standards in gold procurement. |
| London Bullion Market Association’s Program | The LBMA offers a program that sets standards for responsible and ethical gold sourcing. It includes guidance on responsible gold mining, refining, and trading practices in alignment with international standards. But the LBMA also allows its members to continue being members when they are guilty of manipulating the price of gold! |
| Responsible Jewellery Council’s Certification | RJC certification focuses on the jewelry sector, ensuring responsible and ethical practices in the jewelry supply chain. It covers various metals and gems, promoting sustainability, ethics, and transparency. |
| World Gold Council’s Conflict-Free Gold Standard | The Conflict-Free Gold Standard by the World Gold Council sets requirements for gold producers to demonstrate responsible sourcing practices, including conflict-free gold production and supply chain due diligence. |
Gold Smuggling in East Africa Conclusion
The case of Stephen Tarus and the broader issue of gold smuggling in East Africa highlight the need for a comprehensive approach to compliance in the gold trade. Precious metals consultants like SE Asia Consulting, play a crucial role in advising clients and refineries on how and where gold procurement can occur while meeting compliance standards.
As the region grapples with the complexities of gold smuggling, it becomes increasingly important for stakeholders to adopt transparent and ethical practices. Balancing the economic benefits of the gold trade with adherence to international regulations is the key to a sustainable and responsible gold industry in East Africa.
