Despite international laws stipulating disclosure of the origins of gold, a tranche of leaked documents points to unsavoury behaviour by tax havens trading in commodities, writes KHADIJA SHARIFE.
The law was hailed as the first step toward ending the trade of so-called "blood minerals" in the Democratic Republic of Congo (DRC). Section 1502 of the Dodd-Frank Act does not require divestment from potential conflict areas, but it does compel companies to disclose the origins of gold and the 3Ts (tin, tantalum and tungsten). The reputational risk of being identified financing "blood minerals" was supposed to be enough to sway multinationals into extensive due diligence. But the process has only led to new strategies of deniability, especially in the gold industry, and has created opportunities for banks and refineries to wash clean the histories of conflict minerals.
In 2014, for instance, the United Nations' Panel of Experts Report found that gold continued to be a major source of funding for the Congolese army as well as armed rebel groups. An estimated 70% of DRC gold left the continent via Uganda for Dubai, where it was sold "with no trouble", according to the report.
Yet frequently there is the regulatory exclusion of banks accepting gold payments in countries like the DRC where gold remains a de facto currency. Against this gap is placed the hidden role of the refiners' horizontal trade with one another from operational steps in the supply chain. The result is the lack of scrutiny that ignores a key component of the industry and, in the process, makes the provenance of gold unknown. This renders other systems ineffective, and means that any end-user of gold could be using "blood" minerals.
Leaked data from Mossack Fonseca, a Panama-based offshore fiduciary agent, obtained by Germany's Suddeutsche Zeitung newspaper and shared with the International Consortium of Investigative Journalists (ICIJ), show that secrecy has become the rule for corporate trade and that where secrecy is allowed to govern, the process of differentiating the legal from the illicit becomes impossible. This is especially true of tax havens specialising in commodities - such as Dubai and Switzerland - where gold is without nationality or origin.
Rawbank and the Rawji family
With over 40 branches across the DRC, Rawbank has become a leading financial institution in a country that desperately needs it. Leaked data shows that the Rawji family, the shareholders of the family-owned Rawbank, make extensive use of tax havens and shell companies. The purposes of these companies remain unclear. The bank itself was previously owned by Rawholding, an entity based in Luxembourg, a secrecy jurisdiction, and owned by the Rawji family before being shifted in 2015 to Mauritius under the same ownership.
A source in the audit committee at Rawbank spoke anonymously about the role of gold in Katanga, a resource-rich province in southern DRC: "Almost the whole economy is based on these metals, much more than on cash currencies. We are accepting payments in gold and diamonds from all our clients, if they are able to prove that they are the legitimate beneficial owners of these precious metals."
It is not unusual for banks in the DRC, or globally, to buy or sell gold. The role of institutions such as Rawbank is invaluable in providing critical financial infrastructure. But the presence of banks in countries such as the DRC is fraught with politics.
According to sources, Rawbank's role is to ensure that due diligence for important state-related projects, referred to as "Kabila projects", can take place through a private sector actor and that the bar leans towards political, not regulatory standards.
The African Network of Centers for Investigative Reporting (ANCIR) formally put questions to Rawbank, including: how the legitimacy of beneficial owners is verified; whether gold is registered in the accounts or converted to money; whether they buy gold or simply store it; and if the latter, where the gold is stored, which jurisdictions are involved, and so forth. These procedures are particularly important in light of the UN report's conclusion that gold from the DRC is essentially untraceable. After initially requesting information about why certain questions were being asked, Rawbank's communication officer ceased responding.
Leaked data from Mossack Fonseca show details of the Rawji family offices based in Dubai and extending to multiple tax havens. The office maintains a web of offshore corporate structures, including Khazana Holdings and Hurricane Investment in the British Virgin Islands; Impala, Ginko International, Pix Business and Trading Mamu Investments in Panama; and numerous others. Members of the Rawji family are directors for several of these companies. Each entity appears connected to multiple other shell companies. For example, the Caymans-based Rawson Investment had registered beneficial ownership through five additional companies. These included Ponki, Farmer, MR Investment, Carbucco and Mutoto. Rawbank, the Rawjis and the legal officer at their Dubai-based hub did not respond to questions concerning the purpose or use of these companies.
The presence of offshore companies owned does not imply wrongdoing nor is it illegal. But the opaque corporate structure, including Rawholding - itself a family business and the DRC's strongest financial actor - appears wedded to the company in a manner that renders it deliberately difficult to identify or separate what the entities are used for and why.
Publishing due diligence standards, and documenting the origin and provenance of gold on its way in and out by geography, trading partners and logistical systems, would remove allegations against Rawbank, and would make it the industry standard by ensuring that only responsible gold is traded.
Dubai's rise as a gold buyer and onward seller is particularly worrying as it operates as a secrecy jurisdiction. Allegedly the end destination for over 70% of the DRC's gold, it holds the largest cash-for-gold market in the world. Gold is sold directly to refiners there with little in the way of paperwork and due diligence. This gold is then primarily exported to Indian or Swiss-based refiners that comprise the majority of the world's credible refineries selling to major multinationals.
Currently, Dubai's gold industry is worth more than $75 billion. Regulation is implemented by a quasi-private body called the Dubai Multi-Commodity Marketing Center (DMCC), which has in the past, as this author investigated, severely bent or changed the rules as well as turned a blind eye to grossly illicit activities in mineral commodities. A jurisdiction like Dubai can gain a financial competitive edge in the gold trade by writing laws that give it the advantage over other jurisdictions where significant economic activity takes place.
"There are occasions where international banks are unable and prejudiced against working with refiners that operate in certain jurisdictions or areas," said a source at Kaloti. That is, while currencies are attached to regulatory systems, reserve banks, and, ultimately, nationalities, gold is without identity, borderless and ever valuable.
We asked the DMCC, Dubai's public regulator, the following questions: What is the largest sum allowed in cash-for-gold transactions? Who comprise members of the DMCC review committee and are there any active traders or banks present? If so, is there a conflict of interest? What is the process of importing gold into Dubai by commercial airlines, private lanes and cargo shipments?
The DMCC initially confirmed responses would be forthcoming; later, they enquired whether the article would be positive or negative. When we replied it would reflect fact, they declined to comment.
The questions, ANCIR informed them, were based on information provided by sources concerning the regulatory gaps within the DMCC and its role as an enabler of Dubai as a hub for conflict gold.
Where research has exposed a lack of paperwork attesting to the origin of gold, the situation was covered up. In 2012, Dubai's Kaloti, valued at $12 billion and exporting over 40% of Dubai's gold, primarily to Switzerland, was found by Ernst & Young partner Amjad Rihan to have acquired $5.2 billion in cash from sellers without substantive paperwork. The company has supplied the mineral, including "scrap gold", to other refiners, including Swiss-based Valcambi.
Valcambi declined an interview related to its process of sourcing gold from other refiners. What emerges, then, is that while companies like Kaloti are no longer on the supply list for major multinationals, like Apple, the exclusion is void if the hidden trade between refiners continue.
Rihan informed the media that when he raised concerns, not only were they quashed by Ernst & Young as well as the DMCC, but the latter also changed auditing procedures, according to reports by Global Witness, to remove particular aspects of culpability. He could not be reached for comment. ANCIR's own investigation shows proof of gold transaction between Valcambi and Kaloti.
Kaloti may have made the headlines, but within Dubai it is Emirates Gold, founded by Swiss national Mohamed Shakarchi in 1991, that is most renowned. In addition to recycling scrap metals, Emirates is the largest gold bar manufacturer in the Middle East. Emirates Gold is part of the same machinery as Swiss-based PAMP, purchased by Shakarchi in the 1980s and one of Switzerland's leading refiners. Through a series of holding companies in the Netherlands and Luxembourg, the system is ultimately owned by a trust based in the Bahamas - Sharaf.
While companies are required to disclose at least the names of subsidiaries integral to the functioning of businesses, digging through the actual paper trail reveals a host of shell companies with no shareholders or substantial business activities.
Documents leaked to ICIJ show PAMP Holding Mauritius entering into an agreement with MKS Holding BV and two shell entities: Panama-based Mountside Investment and Hong Kong-based Dynamic Bonus Limited. Both shell entities are based at nominee postbox addresses and are described as beneficial owners of the company. The persons and entities behind Dynamic Bonus and Mountside are unknown and confidential, save to advisers of the companies. As of 2010, MKS Holding owned 72% of MMTC-PAMP India, a joint venture between India's state-owned MMTC and Switzerland's PAMP. MMTC-PAMP India supplies major multinationals, including US-based Apple.
The infrastructure may be designed for purely innocent purposes. But why use - or hide - behind a raft of tax havens and hidden beneficial owner in places where gold is neither produced nor where the real corporate seats are located?
Dubai's role is less as the source and more as the vehicle - driving towards Switzerland. Yet speaking about "Swiss refineries", does not necessarily involve any separation between Dubai and Switzerland or even the London Bullion Market Association (LBMA). The LBMA is considered the world's foremost gold trade association and uses refiner "referees" to vet the credibility and legitimacy of other refiners. For instance, not only is PAMP, a Swiss refinery, an LBMA "referee", but there is also a shared connection through LBMA director Mehdi Barkhordar, who is also a director of PAMP India - the latter a country that comprises one of the world's leading gold importers.
Why does a refinery like PAMP create, or indeed need, multiple seemingly separate entities instead of one consolidated company? A senior Geneva-based source from Trafigura, a multinational commodities trading company, answered the question of why MKS existed in Switzerland, for instance, as a separate entity from PAMP: "MKS Finance is heading the 'delicate' trading of gold, silver and jewels, which can't go through PAMP."
Emirates Gold did not respond to questions sent via email at the time of publication, although the email was opened from Dubai. MKS and PAMP declined to comment. The questions included whether the entities purchase from the cash-for-gold market and if so, how provenance is established or documented; the presence and purpose of offshore entities and jurisdictions; the different roles of Pamp, MKS and Emirates Gold within the corporate structure; and details about the trade between Dubai, Switzerland and India.
For its part, the LBMA claims information pertaining to the company's structure, audits and other corporate data is confidential. It does not publish non-price data, such as volumes or purchasing jurisdictions.
Even the audit process, results and classification of refiners ranked on the good list is confidential, save that they are approved. The question of whether refiners purchase from other refiners, particularly between and within secrecy jurisdictions, appears to be off the radar.
The system provides a gold standard that perfectly allows for banks and refineries using Dubai and Switzerland to remove origin. Gold is faceless and placeless. "Good" gold is blended with "bad" gold. And regulatory vacuums - involving or enforced by quasi-private bodies like the LBMA and DMCC - help to ensure that all such trade is technically legal, save for exceptional cases. But for the DRC, this hidden trade is lethal and one where the advocacy and regulatory markets have generally failed or feared to tread.
Rawbank's CEO, Thierry Taeymans, was director of KPM Finance, a company created in 2004 in Belgium at Rue Lesbroussart 76, with Kathy Delmotte and Frank Verhoestraete. This corresponded with a period when he was Rawbank's CEO.
KPM Finance was liquidated in 2012, the same year the Bank of Congo issued a suspension of the company for fraudulent activity. Delmotte and Verhoestraete established a new import-export company: North & South Air Logistics.
The company maintains bases in Dubai, Belgium, South Africa and across the DRC. The company uses the moniker "KPM" and is also based at Rue Lesbroussart 76. Though scant details are available, employee profiles show continuity between KPM Finance, KPM Cargo and North & South Air Logistics.
North & South Air Logistics has a subsidiary known as Multimo and also appears to use the trade name of KPM Multimo. According to sources, the company Multimo International belonged to a diamond trader that operated under former dictator Mobutu Sese Seko, exporting minerals, including diamonds, to Belgium.
The company was allegedly sold over a decade ago to a group of Belgian businessmen. ANCIR checked Belgium's corporate registry, which confirmed the company Multimo International was created in December 1991 and later sold. It is now part of North & South Air Logistics and is based at the same address.
KPM Multimo declined to comment. Rawbank did not respond to questions.
This article was produced in conjunction with the ANCIR and the International Consortium of Investigative Journalists, and originally appeared on the ANCIR's website.