In light of increasing reports of illicit activities in the gold trade, particularly involving the notorious "Wagner Group," (involved in Russia's invasion of Ukraine and other conflicts globally), the U.S. Departments of State, Treasury, Commerce, Homeland Security, Labor, and the United States Agency for International Development (USAID) issued an Africa Gold Advisory (the “Advisory”) on June 27, 2023. The stated purpose of the Advisory is to “(i) highlight the opportunities and specific risks raised by the gold trade across sub-Saharan African and (ii) encourage industry participants to adopt and apply strengthened due diligence practices” to prevent bad actors from exploiting the gold sector.
The Advisory provides the following key recommendations that individuals and entities engaged in the gold sector in conflict-affected countries in sub-Saharan Africa should follow:
- Understand the inherent risks associated with conducting business with corrupt actors;
- Recognize the inherent risks associated with smuggling;
- Conduct specific due diligence concerning local communities to identify and address any potential red flags;
- Conduct specific due diligence regarding labor and human rights abuses;
- Conduct specific due diligence regarding environmental concerns, including mercury, cyanide, and deforestation;
- Conduct due diligence on purchases related to recycled gold to determine whether recyclers may be introducing gold from sanctioned, conflict-affected, or other high-risk sources; and
- Review available anti-money laundering typology reports carefully, with focus towards the lists of red flags associated with gold trading and refining, to identify specific red flags applicable to their business.
The Advisory highlights the particular areas for growth within the African gold sector including large-scale gold mining (LSGM) with the continent’s largest mines by output located in the Democratic Republic of the Congo (DRC), Mali, Tanzania, and Ghana. Artisanal and small-scale gold mining (ASMG) also presents area for potential growth and could potentially impact a large number of individuals in sub-Saharan Africa. According to the Advisory, ASGM is “subject to less monitoring and regulation by mining authorities” and is “more at risk of criminal activity, corruption, social conflict, ecological degradation, [and] human and labor rights abuses”.
The Advisory notes the risks uncovered by the U.S. government and a number of international organizations in recent years related to the gold sector in sub-Saharan Africa. Specially, the Advisory explains the upstream risks as those associated with mining including (i) corruption, (ii) conflict, (iii) upstream smuggling, (iv) human rights and labor abuses, and (v) environmental concerns. The downstream risks concerning conduct associated with the transport, refining, and sale of gold include (i) misuse of “recycled” gold labeling and (ii) money laundering/terrorist financing.
The Advisory goes on to describe the potential steps the United States can take to address risks associated with the gold sector including sanctions. Although the Advisory does not identify any new steps taken by the United States to curb exploitation, it notes that “[i]ndividuals and entities that conduct business with, materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to, or in support of a sanctioned individual or entity may expose themselves to an array of consequences, such as potential designations, civil penalties, or other legal actions.”
The Advisory highlights critical linkages between different areas of compliance risk – ESG/supply chain, corruption, anti-money laundering and sanctions – and the need to design comprehensive due diligence and monitoring controls to effectively mitigate these risks.
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