The link between gold – used around the world for everything from fine jewellery to statues, mobile phones to dentistry – and conflict has come under increasing scrutiny in recent years. In particular, human rights groups have pointed to the way that gold is fuelling and financing ongoing conflict in the Democratic Republic of Congo (DRC), where armed groups and members of the Congolese army have made millions of dollars through illegal control of the minerals trade.
Sudan’s Darfur province has also witnessed outbreaks of conflict between rival militia over the control of artisanal gold mines. According to a 2013 report by Reuters, fighting over the Jebel Amer gold mines killed over 800 people and displaced up to 150,000 others in that year. Much of this gold is thought to make its way to refiners in Dubai. The UAE is by far the largest importer of Sudanese gold. Global trade data from 2018 showed that it imported 99.2 per cent of the country’s gold exports.
A new report by Global Witness has now revealed the high likelihood that prominent UAE-based refiner Kaloti purchased Sudanese gold linked to armed groups in Darfur in 2012 and was at high risk of doing so in subsequent years. The report goes on to state that in 2018 alone, over 270 international companies stated in reports to the US Securities and Exchange Commission that they possibly sourced gold from Kaloti. In addition, Global Witness report that the world’s largest gold refiner, the Swiss company Valcambi, has sourced gold from Kaloti. As a result, Sudanese conflict gold could be entering the products of major household brands such as Amazon, Starbucks, Sony, Disney, and HP.
‘Our explosive findings on the huge global reach of Kaloti’s gold and the company’s relationship with Valcambi starkly illustrate the systemic weaknesses of the gold trade, allowing gold from suppliers with questionable sourcing practices to enter supposedly reputable international supply chains,’ says Seema Joshi, director of campaigns at Global Witness.
This is not the first time similar claims have been made. A 2017 report by US investigative organisation The Sentry, claimed that hundreds of US companies could have possibly received Congolese gold mined in conflict areas within their supply chains in 2017.
Evidence for Kaloti’s potential link to conflict gold comes from data which shows that between 2012 and 2019, Kaloti repeatedly acquired large amounts of gold from the Central Bank of Sudan. According to the UN, the Central Bank has bought gold from the Jebel Amer mines.
The mines have repeatedly been linked to different armed groups. In 2015, a paramilitary group called the Abbala Armed Group (AAG) occupied 400 mines in the Jebel Amer area and made an annual income which the UN estimated to be at least US$54 million. The AAG was at the time controlled by Sheikh Musa Hilal Abdallah Alnsiem, previously a leader of a notorious militia, which had played a major role in violently displacing millions of people in the Darfur conflict. According to the UN, the Central Bank of Sudan bought a part of this conflict gold and a Sudanese government report from May 2015 mentioned Kaloti as the Bank’s major customer.
Since 2017, the mines have been controlled by the Rapid Support Forces (RSF), a paramilitary group linked to grave human right’s abuses in the country. In June 2019 the RSF were accused of attacking peaceful protesters in Khartoum who were calling for a handover to civilian rule. According to Human Rights Watch, protestors and observers witnessed the RSF shoot, stab, burn and crush the skulls of at least 104 civilians, dumping bodies in the Nile, and raping at least 70 men and women.
While Global Witness does not allege that Kaloti has knowingly and directly sourced conflict gold from Sudan, given the numbers involved it seems unlikely that all of the gold Kaloti sourced from Sudan is ‘clean’. The report reveals that Kaloti sourced over 57 tonnes of Sudanese gold in 2012 alone. The UN has estimated that at least 30 of the 65 tonnes of gold that Sudan exported to the UAE that year were connected to militias in Darfur. As a result, Kaloti has likely sourced at least 22 tonnes of gold connected to armed groups.
‘Looking at the numbers from 2012 we can’t see how Kaloti could have received so much gold from Sudan without major concerns that some of it was conflict gold,’ says Joshi. ‘On the one hand, audit data shows how much gold Kaloti has received. And on the other hand, a UN report states that 30 tonnes of the 65 tonnes from Sudan was conflict gold. Even if Kaloti received all of the “clean” gold, it’s difficult to explain where the other gold would have come from if it wasn’t conflict gold.
‘The links seem to be quite clear – not all conflict gold goes to the Central Bank, but several sources confirm that a part of it certainly went to the Central Bank at various times. And Kaloti has been confirmed to be the main customer of the Central Bank at various times,’ adds Joshi.
While it was not publicly known that Kaloti sourced gold from the Central Bank in 2018 and 2019, there were clear warning signs. In spite of this, Swiss-refiner Valcambi acquired around 20 tonnes of gold directly from Kaloti in those years. During that same period, Valcambi also sourced over 60 tonnes of gold from Trust One Financial Services Ltd, a UK-registered company whose directors include Kaloti Group founder Munir Kaloti’s son.
A further worrying trend is that such problematic sourcing practices have been largely sanctioned or ignored by gold industry bodies, some of the world’s biggest accountancy firms, and Swiss and Dubai authorities.
Regulation of the gold industry varies by region. In the US, the Dodd-Frank legislation, and in the EU the Conflict Free Minerals regulations, require due diligence within the supply chain in order to ensure that mining and production of gold does not fund conflict. The generally accepted international framework is the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High Risk Areas. When it comes to gold refining, the London Bullion Market Association (LBMA), the global authority for precious metals, operationalises the OECD guidance through its responsible sourcing scheme. Despise this, the LBMA has continued to include Valcambi on its ‘Good Delivery List’.
Valcambi says that its due diligence practices go above and beyond OECD standards, but Global Witness says it is contravening those very standards by failing to scrutinise Kaloti. ‘Valcambi’s due diligence system seems to focus on tracing the gold it sources,’ says Joshi. ‘It may be that the gold the company gets from Kaloti is not conflict gold, but still Valcambi contravenes the OECD due diligence guidance, which says that companies should not deal at all with a supplier which is at risk of being linked to conflict gold.’
Valcambi’s auditor, KPMG, also appears to have turned a blind eye to the company’s sourcing from a high-risk supplier. For 2018, when Valcambi sourced gold from Kaloti, KPMG’s audit report declared that Valcambi was compliant with the LBMA’s ‘Responsible Gold Guidance’ standard (a standard that is supposedly aligned with OECD guidance). ‘These failings by auditors are particularly worrying because of the central role audits are supposed to play as part of industry schemes on responsible sourcing,’ says Global Witnesses’ Joshi. ‘In the case of both Valcambi and Kaloti, it is clear that the gold industry’s inadequate attempts at self-policing haven’t worked.’
Nor is this the first time red flags have been raised about Kaloti. Global Witnesses’ 2014 report, based on information shared by a former partner turned whistleblower at global accountancy Ernst & Young (now EY), revealed that the firm turned a blind eye when the regulator of the audit changed its guidance, which enabled the refiner to keep serious failures unpublished. The initial audit report pointed to the fact that Kaloti sourced gold from high-risk areas for conflict gold without proper due diligence. Among other findings, the report stated that Kaloti failed to report suspicious cash transactions worth in total over US$ 5.2 billion in 2012 (the audit team found that Kaloti had paid out US$5.2 billion in cash-for-gold deals without carrying out adequate checks on the sellers).
The new Global Witness report also points to weak regulation and/or lack of enforcement in gold hubs such as Switzerland. Switzerland is home to four of the world’s largest gold refiners, which together process two-thirds of the world’s gold. The anti-money laundering legislation that could be used to govern the industry is deemed ineffective. Global Witness claims that the provisions ‘applicable to gold refiners are ineffective when it comes to requiring more responsible business conduct, to an almost farcical degree’.
‘Other countries like the US or the EU have passed specific due diligence legislation during the last ten years, but in Switzerland which is a major hub for gold there’s no noteworthy government oversight of responsible sourcing,’ says Joshi. ‘Industry schemes can play a role but I think you also need government oversight to accompany them, otherwise I don’t see how it can work.’
As a result of these findings, Global Witness has called on governments to ensure that they have due diligence and money-laundering legislation that is fit for purpose, and enforcement authorities with adequate powers and resources to monitor the origin of imported gold and act firmly against companies not carrying out appropriate due diligence. Until this happens, it is very hard to be sure that gold, even that from large companies, has no links to conflict.