Uganda, Rwanda and Burundi are the main transit routes of gold smuggled from the eastern Democratic Republic of Congo to Dubai, according to a new United Nations report that says they are inadequately enforcing laws and rules intended to prevent the illegal trade.
The report, by a UN panel of experts, also noted discrepancies in the export statistics provided by the transit countries, the Democratic Republic of Congo, and the United Arab Emirates, which suggests smuggling. For instance, Uganda declared gold exports of 12,000 kilograms in 2018 (the latest Bank of Uganda figures put gold exports in 2018 at 13,216kg) but the United Arab Emirates said it received 21,044kg of gold from Uganda in just the first nine months of 2018.
The group of experts on the Democratic Republic of Congo was established by the UN’s Security Council to assist its committee overseeing sanctions imposed on the country. Their final report was submitted to the President of the Security Council on June 7 and recommends that the DRC and UAE governments “clarify and finalise any remaining processes necessary to implement the procedures to efficiently combat the illegal export of gold”.
The report is the latest document drawing scrutiny to the gold trade in Uganda. The precious metal has grown to become Uganda’s top export commodity, overtaking coffee in 2018, even though local production is negligible. Central bank figures show that Uganda exported 13.2 tonnes of gold in 2018, up from 10.8 tonnes in 2017; data from the Uganda Bureau of Statistics, however, shows that local gold production in 2017 was just 0.004 tonnes.
It found that most of the gold traded from Butembo, a town 78 kilometres away from the Mpondwe border crossing in Kasese district, was carried to buyers in Kampala. The gold trade in Butembo, however, “was characterised by a lack of due diligence, underdeclaration, and smuggling,” the report said.
Gold traders in Butembo were more concerned about the quality and volume of the gold they purchased and did not verify its origin, the investigators found.
The report added: “Given that gold traded in Butembo was produced mainly in North Kivu, Tshopo, Ituri and Haut-Uélé provinces, where armed groups and some FARDC elements were known to interfere with gold production and trade, the group cannot exclude the possibility that gold traded in Butembo included gold produced in conflict areas and unvalidated sites.”
Although Butembo has a licenced buyer and exporter of gold, traders in the town preferred to sell to traders in Kampala. Two traders told the panel that their main buyers in Uganda were “Kunal Lhodia, a director of the sanctioned entity Uganda Commercial Impex (UCI) Ltd, and Sameer Bhimdji.”
The panel faulted Ugandan authorities for failing to send it a report of their investigations into the activities of gold traders based in Kampala, as they had promised.
Bukavu, which is just across the border from the Rwandan city of Cyangugu, is where most of the gold traded in Kigali and Bujumbura comes from. “Artisanal and small-scale mining sites in Fizi, Shabunda and Kamituga territories were the main sources of gold traded in Bukavu”, the report said, yet “most mining sites in those areas were not validated and therefore illegal, in part because of the ongoing involvement of armed groups and Congolese security forces in the production and trade of gold.”
Just like in Butembo, there are licenced gold buyers in Bukavu to whom traders are required by the national mining code to declare and sell their gold. Instead, the traders prefer to smuggle it out of the Congo, often with the cooperation of corrupt law enforcement agents. A senior mining administration official in South Kivu — Bukavu is the provinces’ capital city — told the panel that about 300kg of undeclared gold transited through the city each month but official statistics show about 5kg a month on average.
The report notes that the gold traders and smugglers in the DRC went out of their way to avoid the banking system. Their activities are financed by wealthy traders in the two Congolese cities with no affiliation to the gold trade; these are repaid in cash by those who received the gold in the transit countries and Dubai.
“The group believes that circumventing the banking system through gold-based financial transactions generates a lack of transparency and violates the recommendations of the Financial Action Task Force as reflected in Congolese legislation,” said the report.
A pattern of smuggling
The UN investigators say they met with implicated companies and officials in Uganda, Rwanda and Burundi who “denied knowledge of illicit gold trading and claimed to have in place reliable due diligence systems to detect and avoid any smuggled gold in their supply chains.”
But official data in the United Arab Emirates where the gold from the three countries ends up contradicts their claims.
Burundian government statistics show it exported 601.7kg of gold to Dubai in 2018 but United Arab Emirates statistics covering January to September 2018 indicate that traders in Dubai received more than 2,130.6kg from the country, according to the report. DRC statistics show exports of 56.2kg in 2018 but UAE figures show 207.1kg of gold purchased from the country in nine months.
Rwanda declared gold exports of 2,163kg in 2018 but UAE statistics show it officially imported 12,539kg from the country during the first nine months of 2018. It adds that UAE statistics show imports of 21,044kg of gold from Uganda in the nine-month period, while official Ugandan data showed 12,000kg for the whole year (later revised to 13,216kg).
These discrepancies “suggest a pattern of smuggling,” according to the experts.
Besides Ugandan authorities, the panel also met with representatives of local gold refiner African Gold Refinery Ltd. at its premises in Entebbe in January. AGR, citing Ugandan law and its contractual obligations, said it could not provide the names of its suppliers but claimed it was investigating to ensure that none were involved in illegal activities.
Rwandan government officials also told the panel that a new gold refinery will officially launch its activities later this year.