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Thu 4 Sep 2014 01:24 PM

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Dubai's Kaloti issues new denial in $5bn gold scandal

Kaloti and DMCC were accused of cash-for-gold deals, smuggling but Kaloti says latest audit shows it is compliant with international standards

Dubai's Kaloti issues new denial in $5bn gold scandal
Ahmed Bin Sulayem, executive chairman of the Dubai Multi Commodities Centre (DMCC), Dubais gold regulatory body

The Dubai-based gold trader embroiled in a $5 billion gold scandal, Kaloti Precious Metals, has publicly released its latest audit report in a bid to further deny allegations it flouted international rules aimed at stopping trade in so-called conflict gold.

The voluntary reasonable assurance audit of the company’s precious metals supply chain, conducted by Grant Thornton, found Kaloti fully complied with Dubai Multi Commodities Centre (DMCC) guidelines, which are based on the OECD’s and are in line with international standards for responsible sourcing of precious metals, the company said in a statement.

The audit was conducted on the company’s gold trading between October 2013 and March 2014.

The period that it was accused of breaching guidelines was in 2012.

The claims were made by the former Ernst & Young partner-turned whistle blower Amjad Rihan, who was in charge of the inspection division, and originally published in London’s The Guardian newspaper in February.

Citing a confidential 2012 inspection report by E&Y, Rihan claimed Kaloti paid out $5.2 billion in cash-for-gold deals – equivalent to almost 45 percent of its business in 2012 – and accepted 2.4 tonnes of precious metal from more than 1,000 customers without paperwork.

He also alleged Kaloti, a $12bn refining and trading business which owns the largest refinery in the Middle East, took millions of dollars of gold plated in another metal and seemingly smuggled it out of Morocco.

He said the revelations were not made publicly at the time because 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 that resulted in the full details of the inspection reports being kept confidential.

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.

In a statement to Arabian Business in February, E&Y Dubai said its original compliance report had “identified some instances of non-compliance with the rules established by the relevant regulator (the Dubai Multi Commodities Centre or DMCC)” but it defended its review and re-write of the report.

“EY Dubai refutes entirely the suggestion that we did anything but highly professional work in relation to our compliance engagement with Kaloti,” the statement said.

“It was the work of EY Dubai that first brought to light that there was non-compliance with the applicable regulations.”

The company said the instances of non-compliance it found were fully reported by EY Dubai to the client and separately to the regulator.

“The client implemented a corrective action plan, as reflected in its Compliance Report – both the Compliance Report and EY Dubai’s Assurance Report are public,” it said.

DMCC also 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”.

In its latest statement on Wednesday, Kaloti said the recent review by Grant Thornton showed the company was working within international guidelines.

“Kaloti is pleased to once again provide evidence of the full compliance of Kaloti Jewellery International DMCC and Kaloti Gold Factory LLC with responsible sourcing of precious metals from all its local and international sources,” Co-CEO Tarek El Mdaka said.

“As an organisation, we are dedicated to providing the highest standards of due diligence for the good of the industry and the sustainability of our own business. We remain committed to continually improving our risk management and reporting processes, and we are regularly educating our staff as well as suppliers to ensure the highest possible responsible supply chain standards are maintained.”

Freelancer 5 years ago

What's the point of auditing 2013 when the incidents took place in 2012 and before? 45% of the business being conducted in cash in no joke and raises lots of questions... The regulator too needs to make sure it's reputation is not in question...

Marc Jons 5 years ago

DMCC, as a regulator, always played the role of judge and jury. In this instance, it is judge, jury and accused all at the same time and it will exonerate itself by itself from any wrongdoing.