An artisanal miner holds up a rock containing gold that was removed from inside a mining pit at the unlicensed mining site of Nsuaem Top in Ghana. Picture: Zohra Bensemra/Reuters
An artisanal miner holds up a rock containing gold that was removed from inside a mining pit at the unlicensed mining site of Nsuaem Top in Ghana. Picture: Zohra Bensemra/Reuters

Gold worth billions being smuggled out of Africa via UAE

By David Lewis, Ryan McNeill And Zandi Shabalala Time of article published Apr 24, 2019

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Nairobi - Billions of dollars' worth of

gold is 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.

Previous reports and studies have highlighted the

black-market trade in gold mined by people, including children,

who have no ties to big business, and dig or pan for it with

little official oversight. No-one can put an exact figure on the

total value that is leaving Africa. But the Reuters analysis

gives an estimate of the scale.

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.

Informal methods of gold production, known in the industry

as "artisanal" or small-scale mining, are growing globally. They

have provided a livelihood to millions of Africans and help some

make more money than they could dream of from traditional

trades. But the methods leak chemicals into rocks, soil and

rivers. And African governments such as Ghana, Tanzania and

Zambia complain 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.

Artisanal miners sluice for gold by pouring water through gravel at an unlicensed mine near the city of Doropo, Ivory Coast. Picture: Luc Gnago/Reuters

Artisanal mining began as small-time ventures. But the

"romantic" era of individual mining has given way to

"large-scale and dangerous" operations run by foreign-controlled

criminal syndicates, Ghana's President Nana Akufo-Addo told a

mining conference in February. Ghana is Africa's second-largest

gold producer.

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.

For example, Democratic Republic of Congo (DRC) is a major

gold producer but one whose official exports amount to a

fraction of its estimated production: Most is smuggled into

neighbouring Uganda and Rwanda. "It is of course worrisome for

us but we have very little leverage to stop it," said Thierry

Boliki, director of the CEEC, the Congolese government body that

is meant to register, value and tax high-value minerals like

gold.

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. But during 2016, the latest year

for which data is available, the UAE imported almost double the

value taken by China. With African gold imports worth $8.5

billion that year, China came a distant second. Switzerland, the

world's gold refining hub, came third with $7.5 billion worth.

Most of the gold is traded in Dubai, home to the UAE's gold

industry.

AFRICA’S BIG GOLD PRODUCERS AND EXPORTERS

The UAE is the biggest destination for African gold. But Africa’s biggest exporting countries are not always the biggest gold producers, according to trade data. Graphic: Reuters

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. But the UAE said 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

organisation's minerals unit. "UAE is cashing in on the

unregulated environment in Africa."

The Dubai Customs Authority referred Reuters' queries to the

UAE foreign ministry, which did not respond. The UAE government

media office referred Reuters to the UAE federal customs

authority, which also did not respond.

Not all the discrepancies in the data analysed 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. And gold

analysts say some of the trade, especially from Egypt and Libya,

could include gold that has been recycled.

But in 11 cases, the per-kilo value that the UAE declared

importing is significantly higher than that recorded by the

exporting country. This, said Leonce Ndikumana, an economist who

has studied capital flows in Africa, is a "classic case of

export under-invoicing" to reduce taxes.

Matthew Salomon, an American economist who has researched

the use of trade statistics to identify illicit financial flows,

said the issue deserves scrutiny. "Persistent discrepancies in

the trade of particular goods and between particular countries

... can identify significant risks of illicit activity," he

said.

An artisanal miner climbs out of a gold mine with a bag of rocks broken off from inside the mining pit at the unlicensed mining site of Nsuaem Top in Ghana. Picture: Zohra Bensemra/Reuters

POLLUTION, CONFLICT AND BANDITS

Over the past decade, high demand for gold has made it

attractive for informal miners to use digging equipment and

toxic chemicals to boost the 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. But 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 unauthorised mining.

Burkina Faso has banned small-scale mining in some areas

where al Qaeda-linked Islamists are active, and earlier this

month Nigeria's government suspended mining in the restive

northwestern state of Zamfara, saying intelligence reports

established what it called "a strong and glaring nexus" between

the activities of armed bandits and illicit miners.

Strong prices have fuelled the boom. Today, gold trades at

over $40,000 per kilo, which is below a peak from 2012 but still

four times the level of two decades ago.

Western investors want gold so they can diversify their

portfolios; India and China want it for jewellery. 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.

An artisanal gold miner holds a gold nugget at an unlicensed mine in Gaoua, Burkina Faso. Picture: Luc Gnago/Reuters

DESTINATION DUBAI

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.

The UAE's main commodity marketplace, the Dubai

Multi-Commodities Centre (DMCC), calls itself on its website

"your gateway to global trade." Trading in gold accounts for

nearly one-fifth of UAE's GDP.

However, no big industrial companies reached by Reuters –

including AngloGold Ashanti, Sibanye-Stillwater and Gold Fields

– say they send gold there. Reuters contacted 23 mining

companies with African operations, the smallest of which

produced around 2.5 tonnes in 2018: 21 of them said they did not

send metal to Dubai for refining, the other two did not respond.

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. And limited regulation in UAE means informally mined

gold can be legally imported, tax-free.

A general view of Sheikh Zayed Road in Dubai, United Arab Emirates. File picture: Hamad I Mohammed/Reuters

Gold can be imported to Dubai with little documentation,

African traders told Reuters.

A DMCC spokesman said it has a robust regulatory framework

that includes strict responsible sourcing rules. These are

aligned with the international benchmark for responsible

sourcing laid out by the Organisation for Economic Cooperation

and Development (OECD).

Sanjeev Dutta, head of commodities at DMCC, said in January

that the centre 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. 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."

A "very limited" number of refineries accept gold that has

been imported as hand luggage, Dutta said, but gave no figures.

An artisanal gold miner holds a gold nugget at an unlicensed mine in Gaoua, Burkina Faso. Picture: Luc Gnago/Reuters

GOLD TO GO

Some African miners are swapping their pickaxes and shovels

for diggers and crushers – increasing production volumes

exponentially. Regulation remains scant, and accidents are

frequent. In one week this February, three accidents at illegal

mining operations in Zimbabwe, Guinea and Liberia claimed the

lives of more than 100 people.

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 labour, corruption

and links to conflict at some of these mines. At one mine in

Zimbabwe visited by Reuters, people said they had to hand over

some of their find before they would even be allowed out of the

pit.

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.

The United Arab Emirates has imported unrefined gold worth billions of dollars from African states since 2006, as rising gold prices after the 2008 financial crisis encouraged informal mining.

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. Ghana,

concerned that a rush of mainly Chinese-led ventures is harming

the environment, has arrested hundreds of Chinese miners and

expelled thousands in the past six years.

At the end of last month, Ghana temporarily banned the

import of excavator equipment to try to stem a surge in illegal

mining using heavy machinery.

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 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 formalised by offering

access to financing and regulated markets.

In Burkina Faso, Oumarou Idani, minister of mines, believes

his country is leaking gold to UAE on a massive scale. Of the

9.5 tonnes of gold the government estimates informal miners dig

up each year, just 200 to 400 kg are declared to the

authorities, he said.

Much of the gold is smuggled from landlocked Burkina Faso to

its Atlantic coast neighbour Togo, according to the minister. In

Togo, virtually no taxes are imposed on gold.

Togo's director of mining development and controls, Nestor

Kossi Adjehoun, said informal mining is "an area that we have

not properly figured out." For now, he said, Togo saw no reason

to suspect gold was being smuggled through the country.

"I understand that Dubai is the destination for this gold,"

his Burkina Faso neighbour, Minister Idani, told Reuters in an

interview last year. "But since (the trade) is fraudulent, I

have no details."

Reuters

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