Billions of dollars’ worth of gold are being smuggled out of Africa every year through the United Arab Emirates in the Middle East – a gateway to markets in Europe, the United States and beyond – a Reuters analysis has found.
Customs data shows that the UAE imported $15.1 billion worth of gold from Africa in 2016, more than any other country and up from $1.3 billion in 2006. The total weight was 446 tonnes, in varying degrees of purity – up from 67 tonnes in 2006.
Much of the gold was not recorded in the exports of African states. Five trade economists interviewed by Reuters said this indicates large amounts of gold are leaving Africa with no taxes being paid to the states that produce them.
Reuters assessed the volume of the illicit trade by comparing total imports into the UAE with the exports declared by African states. Industrial mining firms in Africa told Reuters they did not send their gold to the UAE – indicating that its gold imports from Africa come from other informal sources.
African governments such as Ghana, Tanzania, and Zambia have also complained that gold is now being illegally produced and smuggled out of their countries on a vast scale, sometimes by criminal operations, and often at a high human and environmental cost.
Not everyone in the chain is breaking the law. Miners, some of them working legally, typically sell the gold to middlemen. The middlemen either fly the gold out directly or trade it across Africa’s porous borders, obscuring its origins before couriers carry it out of the continent, often in hand luggage.
The customs data provided by governments to Comtrade, a United Nations database, shows the UAE has been a prime destination for gold from many African states for some years. In 2015, China – the world’s biggest gold consumer – imported more gold from Africa than the UAE. However, during 2016, the latest year for which data is available, the UAE imported almost double the value taken by China.
The UAE reported gold imports from 46 African countries for 2016. Of those countries, 25 did not provide Comtrade with data on their gold exports to the UAE, despite the UAE having said that it had imported a total of $7.4 billion worth of gold from them.
In addition, the UAE imported much more gold from most of the other 21 countries than those countries said they had exported. In all, it said it imported gold worth $3.9 billion – about 67 tonnes – more than those countries said they sent out.
“There is a lot of gold leaving Africa without being captured in our records,” said Frank Mugyenyi, a senior adviser on industrial development at the African Union who set up the organization’s minerals unit. “UAE is cashing in on the unregulated environment in Africa”.
Not all the discrepancies in the data analyzed by Reuters necessarily point to African-mined gold being smuggled out through the UAE. Small differences could result from shipping costs and taxes being declared differently, a time-lag between a cargo leaving and arriving, or simply mistakes.
Western investors want gold so they can diversify their portfolios; India and China want it for jewelry. But most Western companies – and the banks that finance them – avoid handling non-industrial African gold directly. They are unwilling to risk using metal that may have been mined to fund conflict or that may have involved human rights abuses in, for instance, DRC or Sudan. Various Uganda-based traders have been sanctioned for handling gold smuggled out of DRC.
In other states, including the UAE, these concerns have been less of a problem. Over the last decade, gold from Africa has become increasingly important for Dubai. From 2006 to 2016, the share of African gold in UAE’s reported gold imports increased from 18 percent to nearly 50 percent, Comtrade data showed.
While the big South African miners have local refining capacity, the main reason others gave is that no UAE refineries are accredited by the London Bullion Market Association (LBMA), the standard-setter for the industry in Western markets.
The LBMA is “not comfortable dealing with the region” because of concerns about weaknesses in customs, cash transactions and hand-carried gold, its chief technical officer Neil Harby told Reuters.
Investigators and people in the gold industry say the ease with which smugglers can carry gold in their hand luggage on planes leaving Africa helps gold flow out unrecorded.
That and limited regulation in UAE means informally mined, tax-free gold can be legally imported to Dubai with little documentation, African traders told Reuters.
SanjeevDutta, head of commodities at DMCC, said that the center is building strategic relationships with most gold-producing countries on the African continent, “and we are very confident of how that production is done and how responsible it is”.
The Polluted Side of Gold Mining
Over the past 12 months, he said, DMCC has firmed up a standard for refineries, called Dubai Good Delivery, which he said is very strict on responsible sourcing and sustainability. “We track right from responsible sourcing to sustainable development, things like human rights etc…” he said. “We demand export certificates.”
Over the past decade, high demand for gold has made it attractive for informal miners to use digging equipment and toxic chemicals to boost their yield. Contaminated water is returned to rivers, slowly poisoning the people who need the water to live.
Small-scale miners have long used mercury – easy to buy at around $10 for a thumb-sized vial – to extract flecks of gold from ore, before sluicing it away. Mercury’s toxic effects include damage to kidneys, heart, liver, spleen, and lungs, and neurological disorders such as tremors and muscle weakness.
Cyanide and nitric acid are also being used in the process, according to researchers and miners in Ghana.
Industrial mining companies have also been responsible for pollution, ranging from cyanide spills to respiratory problems linked to dust produced by mining operations.
Almost a dozen states including DRC, Uganda, Chad, Niger, Ghana, Tanzania, Zimbabwe, Malawi, Burkina Faso, Mali, and Sudan have complained in the past year about the harms of unauthorized mining.
Often, miners must surrender a cut of their output, as commission, to the people who control a pit, let out the equipment, or buy and sell the gold. NGOs such as Global Witness and Human Rights Watch have documented child labor, corruption and links to conflict at some of these mines.
Curbing the Phenomenon
Reuters presented its analysis to 14 African governments. Of them, five said it reflected an existing concern about gold being smuggled out of their countries that they are trying to address. One said they did not think gold smuggling was a problem for them. The rest declined to comment or did not respond.
Governments across Africa are trying to work out how to manage a sector that, whatever its risks, provides a livelihood for many of their citizens, and which could be harnessed as a source of revenues.
Some, including Ivory Coast, are taking gradual steps to regulate their informal mining operations. Ghana and Zambia have sent security forces into mining areas to halt operations so miners can be registered and regulations put in place.
In Sudan, one of the continent’s biggest producers, the government has unveiled a $3 billion plan for private banks to work with the central bank to buy gold from small-scale miners, offering prices that would make it less attractive to sell on the black market.
A Tanzanian parliamentary report estimated that 90 percent of the annual production of informally mined gold is smuggled out of the country; the government wants the central bank to buy this up. In March, President John Magufuli launched a plan to establish hubs where the trade would be formalized by offering access to financing and regulated markets.
Africa’s Illicit Gold Trade
The Dubai souk is famous for selling pure gold jewelry at the lowest prices, but partly because no tax or royalties are paid to the African countries from where it is mined.
“The gold business is changing, many of the bigger companies are changing their strategies,” says Richard Morgan, head of government relations at mining giant Anglo American. “We are doing much less in Africa and no gold at all. South Africa may still have massive gold reserves but for a big company it’s all about the business case,” he adds.
According to Africa Report Magazine, a common factor in Africa’s illicit gold trade is how much of the metal transits through Dubai. Figures from the UN’s Comtrade database show that Africa’s share of Dubai’s gold imports rose to 50% from 16% between 2006 and 2016.
Non-oil trade between Dubai and African states reached $252bn from between 2011-2018, making the Emirates one of the continent’s most important trading partners. The UAE is among the 10 biggest sources of investment in Africa, much of it in the mining sector.
The US-based Financial Action Task Force has put Dubai on its watch list, complaining about the limited number of prosecutions for money laundering.