WSJ Reports on Conflict Minerals smuggled with False Certificates of Origin

By Cydney Posner

And speaking of conflict minerals, this article in The Wall Street Journal discusses the increased smuggling of gold with falsified certificates of origin, casting some doubt on the reliability of some supplier certifications.

The article describes the booming business that has developed in smuggled gold from "the conflict zones of the Democratic Republic of the Congo to the markets of Dubai and jewelry shops around the world." Traders buy gold from village miners who mine gold in rebel-controlled areas in eastern Congo and then sell primarily to "smugglers who hide the gold in vehicles that cross into neighboring countries, where it is recertified before heading to the Middle East and Asia in luggage accompanied by falsified documents, according to participants in this process. The rise in smuggling has helped sustain Congo's violent insurgencies. But it also now threatens to taint the precious metal, much like so-called ‘blood diamonds' from Africa did at the turn of the 21st century."

The increase in smuggling has been driven, according to the article, by the steep rise in the price of gold, together with the effects of Dodd-Frank, which "squeezed the legitimate market for Congolese metals." Concerned that gold "smuggled out of Congo [with] links to armed conflict ‘undermine' the precious metal's image with consumers," the World Gold Council has ‘published guidelines for miners to keep conflict gold out of the supply chain. Other industry groups and international organizations have issued similar guidelines for refiners, jewelers and others. The efforts follow in the footsteps of the so-called Kimberley Process governing the diamond trade, which some have credited with helping to stem the flow of precious stones from conflict zones." Even though the price of gold has recently declined, "that hasn't slowed the Congolese trade….[One trader] walks as many as 25 miles to makeshift mines, paying rebels $60 a day to escort him along the jungle footpaths. At the mines he buys gold dust to carry back to Goma's middlemen. How much he makes depends on how often he gets shaken down by other rebels on his return."

The article contends that the conflict minerals rules have increased the "opportunities for illicit gains….Much of Congo's gold ends up in shantytowns near the Ugandan border. There, smugglers acquire falsified certificates indicating that the metal originates from either Uganda or South Sudan, according to human-rights researchers. Such certification can be obtained because the governments lack accurate estimates of small gold mines in those countries…." Although Ugandan officials claim that "smuggling was the exception rather than the rule," breaches of the export restrictions can't be ruled out. The weak central government of the Congo has not been able to prevent militia and rebel groups from partitioning gold-rich territories. Whether the smuggling is performed entirely by rebel groups or also by Congolese troops is a matter of some dispute.

According to the Enough Project, "between 11 and 14 tons of gold were illegally smuggled from the Congo last year, up from four tons in 2010. But the multinational smuggling racket is proving difficult to dismantle. Often the gold's faint paper trail disappears as soon as it arrives in Dubai, the business hub in the United Arab Emirates. With fraudulent documents disguising its origin, up to 110 pounds of conflict gold can pass through customs as long as a licensed local dealer is listed on the accompanying paperwork.…" As a result, the gold's trace is lost and it can be shipped anywhere.

Most of the gold is "sent to small refining shops attached to the local gold market, or ‘souk.' The shops mix gold from different origins into scrap bars, which can be sold for cash to the souk's jewelers and traders. India, the world's largest consumer of gold, is a popular destination when it leaves Dubai." Some is also smuggled directly into India: "In recent months, Customs officials have discovered smuggled gold inside television sets and false bottoms of baggage. In January, they caught a passenger arriving in Mumbai with gold bars worth 2.5 million rupees ($46,000) wrapped in chocolate packaging."

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