Top Dubai Refiner Kaloti Obeying Conflict Gold Rules, Audit Finds

Dubai’s biggest gold refiner is following international guidelines to prevent underground trade in the metal, an independent audit has found after allegations of illicit dealing damaged the emirate’s image as a major gold market.

The audit by global accountants Grant Thornton, published this week, found the Kaloti Group took the necessary precautions to avoid abuses during the six months to March 31 this year, by monitoring its sources of gold and checking its financial transactions.

The guidelines, followed by refiners around the world, are designed to stop human rights abuses and underground trade in gold by African warlords.

Kaloti commissioned Grant Thornton to conduct the audit after reports by Britain’s Guardian newspaper and the BBC in February alleged the group had failed to examine suspicious deals, for example by accepting 2.4 tonnes of gold in over 1,000 deals with customers who provided no paperwork.

The group denied the reports, which referred to the period before the Grant Thornton audit. But the negative publicity was unwelcome for Dubai’s gold trade, with some foreign customers and banks becoming more cautious about dealing with the emirate, according to industry sources.

“Initially there were negative reactions from some stakeholders. Some became more reluctant to work with us, or to increase the value of contracts,” Munir al-Kaloti, president and founder of Kaloti, told Reuters.

Kaloti said business had now returned to normal. But the practice of Dubai refiners paying cash for large over-the-counter purchases of gold has largely ended in the wake of the controversy, one industry source said.

Dubai’s position between Africa and the world’s two biggest centres of gold demand, China and India, is fuelling its growth as a trading centre. Gold imports and exports handled by Dubai shot up to $75 billion in 2013 from $6 billion in 2003; nearly 40 per cent of the world’s physical gold trade passed through Dubai last year, the Dubai Multi Commodities Centre says.

That makes Dubai a key place for enforcing global standards for transparency in the trade. The DMCC, which facilitates gold trade in the emirate, denied in February it had ignored the standards, but subsequently said it would tighten its supervision of sourcing.

It said it would commission an expert advisory firm to review the monitoring process in Dubai, and create an independent body to oversee it.

Dubai’s role in the trade may continue to increase in coming years. Kaloti is building a $60 million gold refinery in the emirate, one of the world’s largest, which is to open next year.

The Dubai Gold and Commodities Exchange, which trades gold futures, has said it will introduce a spot gold contract. The contract was originally due to launch in June, but the exchange subsequently said it would delay this to the third quarter of 2014 to ensure technical aspects went smoothly.