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Wed 26 Feb 2014 11:52 AM

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Dubai refinery Kaloti, DMCC caught up in $5bn global gold scandal

A whistleblower said Dubai firm accepted gold from more than 1,000 customers without paperwork

Dubai refinery Kaloti, DMCC caught up in $5bn global gold scandal
Ahmed Bin Sulayem, executive chairman of \nDubai Multi-Commodities Centre (DMCC)

A Dubai-based gold refinery has been accused of flouting new international rules aimed at stopping trade in so-called conflict gold, amid claims it paid more than $5bn in cash for the precious metal and accepted gold from more than 1,000 customers without paperwork, London’s The Guardian newspaper has reported.

Citing a confidential 2012 inspection report by Ernst & Young, the Kaloti Group, a $12bn refining and trading business which owns the largest refinery in the Middle East, is also accused of also taking millions of dollars of gold plated in another metal and seemingly smuggled out of Morocco.

It comes as it also reported that the Dubai Multi-Commodities Centre (DMCC), which was set up by Dubai ruler Sheikh Mohammed in 2002 to promote and regulate the gold industry and is headed by executive chairman Ahmed Bin Sulayem, changed its rules in a way which resulted in the the full details of the inspection reports being kept confidential.

The newspaper said the leaked E&Y report showed Kaloti paid out $5.2bn in cash-for-gold deals – equivalent to almost 45 percent of its business in 2012.

It also accepted 2.4 tonnes of gold in more than 1,000 transactions with customers who provided no paperwork and paid cash to Sudanese suppliers who had hand-carried gold to Dubai that was sourced from small-scale, artisan mining operations without checking for mining licences.

The Guardian said while there was no evidence that Kaloti accepted conflict gold, a term which refers to underground trade linked to African warlords and human rights abuses, major breaches in new gold trading guidelines were uncovered.

The new international rules, being championed by US President Barack Obama, the UN, EU and campaign groups, aim to stamp out illicit trade in conflict gold, with the UN pointing to growing evidence linking extortion at hundreds of mines in the Democratic Republic of Congo to armed groups involved in war crimes.

Quoting former E&Y partner-turned whistleblower Amjad Rihan, who was in charge of the inspection division, The Guardian report said DMCC had altered its reporting rules, with pressure put on E&Y over the report.

The report findings, published in December, are mentioned only briefly in a DMCC press release, which hailed the inspection outcome, saying Kaloti was compliant, certified and offered conflict-free gold.

“I am not a lawyer, but in my opinion, what is ‘ethical’ and what is ‘legal’ should not conflict,” Rihan was quoted as saying.

“The DMCC, Ernst & Young and Kaloti were all aware that the risk of conflict gold entering Dubai had been very high. In my opinion the way they acted is appalling, amoral and extremely unethical.”

Kaloti said in a statement to The Guardian that it “had shortcomings in the initial stages of the long, multi-staged audit process” but its “fully compliant final result was confirmed by Ernst & Young”.

The DMCC rejected that it had sought to influence or interfere in the review process “or that it altered or softened the review process to favour any member refinery”.

“All our findings have been made public and the review and reporting processes are robust,” it was quoted as saying.

E&Y Dubai managing partner Joe Murphy reportedly said that it took the views of Rihan “very seriously” and undertook its own review of the report before it was issued.

The firm rejected it was under pressure to soften the findings.

At the time of going to press, Ernst & Young, the Kaloti Group and DMCC has not responded when contacted by Arabian Business to comment on the allegations made by The Guardian report.

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