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Wed 26 Feb 2014 02:35 PM

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Ernst & Young defends role in Kaloti gold scandal

Global auditing firm hits back over compliance review saying it did nothing but 'highly professional work'

Ernst & Young defends role in Kaloti gold scandal
Ahmed Bin Sulayem, executive chairman of \nDubai Multi-Commodities Centre (DMCC)

Global auditing firm Ernst & Young has defended its compliance review of a Dubai-based gold trader embroiled in a $5bn gold scandal, saying it did nothing but “highly professional work”.

The company’s Dubai office has come under fire by a former partner and head of the inspection division, Amjad Rihan, that it had succumb to pressure from Kaloti and gold regulator the Dubai Multi-Commodities Centre to water down findings in its review of Kaloti’s operations in 2012, London’s The Guardian reported.

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.

However, according to leaked documents cited by the newspaper, they failed to mention initial highly critical findings, including that Kaloti allegedly took millions of dollars of gold plated in another metal and seemingly smuggled out of Morocco.

The report also said it paid more than $5bn in cash for the metal and accepted gold from more than 1,000 customers without paperwork, The Guardian reported.

“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.”

EY Dubai said in a statement to Arabian Business that as a result of its review of Kaloti’s supply-chain compliance. “EY Dubai identified some instances of non-compliance with the rules established by the relevant regulator (the Dubai Multi Commodities Centre or DMCC)”.

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

It added: “EY Dubai took the views of our former partner very seriously and prior to issuing our Assurance Report undertook a comprehensive review; including consulting with internal and external experts, who supported the actions we took.

“We firmly believe that by identifying elements of non-compliance we played an important role for improvements in the client’s supply chain controls.”

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. Kaloti and DMCC have been contacted by Arabian Business for comment.

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 was quoted by the newspaper as saying it had not sought to influence or interfere in the review process “or that it altered or softened the review process to favour any member refinery”.

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