UK newspaper The Guardian claims that in 2012 Kaloti ‘paid more than $5bn in cash for the metal and accepted gold from more than 1,000 customers who walked in off the street with no paperwork’.
The regulations of the Dubai Multi-Commodities Centre require gold refiners to make detailed checks of cash deals worth more than AED 40,000. However, it appears that Kaloti did not have a system in place to do this in 2012. The paper’s story is based on leaked documents from Ernst & Young (E&Y), which had been brought in to review Kaloti’s business practices.
Among specific allegations by The Guardian, Kaloti was said to have ‘taken millions of dollars of gold knowing it was plated in another metal and seemed to have been smuggled out of Morocco’.
The refiner has responded, “There is absolutely no evidence that Kaloti falsified any documentation. In its audit report, E&Y clearly stated that ‘findings were inadequate documentation in the supply chain’.
“Kaloti had full KYC documentation on all its Moroccan clients and had proper import documentation and invoices stating that this particular consignment was gold from Morocco.
“Kaloti accepted it had a shortcoming in the initial audit, quickly remediated it, and is now fully compliant.”
The Guardian also claimed that Kaloti had ‘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 – sourced from small-scale, artisan mining operations – but did not check whether they had approved mining licences’.
The refiner has responded, “All cash transactions mentioned in the report were conducted for clients that were on boarded by Kaloti and have full compliance KYC documentation. Each transaction was monitored by E&Y and each of the suppliers were checked by E&Y. There is no evidence that Kaloti was involved in money laundering; or any of our clients for that matter…”
The paper admitted that, “The Guardian has seen no evidence that published reporting of Kaloti failings was out of line with regulatory rules or industry practice.” It also said, “While there is no evidence that the refinery accepted conflict gold, major breaches in new guidelines were uncovered, raising concern about the history of huge volumes of shipments.”
In its public statement responding to the international media reports, the refiner said, “Kaloti would like to take this opportunity to reassure that these allegations are false and without any substantiation. Kaloti has strongly denied these claims and any implication relating to regulatory non-compliance in the gold trade.”
It added, “In all of Ernst & Young’s reports and findings during the process, Kaloti was never found to be sourcing from conflict zones. Any non-compliance during the initial audit stage was related to specific documentation anomalies, which were swiftly rectified, and not to any findings of conflict gold within the supply chain. There has been no evidence in any of E&Y findings that Kaloti sourced gold from conflict zones…
However, the refiner admitted, “As stated in the audit’s Consolidated Report, published on our website in accordance with the requirements of the regulator, Kaloti had shortcomings in the initial stages of the multi-staged process. However, as per DMCC Guidelines, Kaloti submitted a corrective action plan and immediately started the remediation process. The company received a fully compliant final audit result, which was confirmed by Ernst & Young.”
Unfortunately, it is perhaps not enough to be in a position to refute the allegations that have been made. Better by far to have systems in place that preclude them from ever being made in the first place. Gold is a key factor in Dubai’s trade, the gold business in the emirate is estimated to be worth around $70 billion a year.
The row centring on Kaloti is not over claims that it imported gold from conflict zones but that the systems it had in place meant that it was impossible to determine the origin of some of the gold it imported.
There are now strict international rules regarding so-called ‘conflict diamonds’. The global community is attempting to put in place similar rules regarding ‘conflict gold’. Kaloti could perhaps restore the lustre to its reputation and indeed boost its business by ensuring that not only are its systems and business practices correct but also that they are clearly seen to be correct, obviating the need to defend itself against any future claims otherwise – that would perhaps be the refiner’s own ‘acid test’.
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