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FOCUS: Rising gold dore imports raise laundering, sourcing worries

Wednesday, Apr 10, 2019

 

By Shrea Paul and Shrikant Kuwalekar

 

MUMBAI – Rising share of dore in the country's total gold imports may sound good for the domestic refining industry and make-in-India initiative of the government. But, industry participants have raised concerns over sourcing and suspect a money laundering racket.

 

"If the government doesn't pay attention, it could tarnish the country's image for irresponsible sourcing (of gold dore) and the industry may have to pay the price in the long term," said an official with a prominent bullion refiner.

 

Gold dore is a semi-pure alloy that is refined to get pure gold. The share of dore in India's 800-900-tn gold imports was just around 6% in 2014. The share has shot up to 40% in the last four years.

 

In the current calendar year, India's gold dore imports are seen rising to 280 tn, up from 260 tn last year, according to James Jose, secretary of the Association of Gold Refineries.

 

A major part of the dore is sourced from artisanal and small-scale miners in African and Latin American countries such as Ghana, Peru, and Bolivia.

 

Some of these miners may be directly or indirectly involved in unethical practices such as child labour, funding drug mafia, and terrorism.

 

A trade body official said refiners may knowingly or unknowingly get caught in this labyrinth.

 

Since India is part of the Financial Action Task Force and has vowed to follow the guidelines of the Organisation for Economic Co-operation and Development on responsible sourcing, the government must intervene before the damage is done, industry participants said.

 

Incentives to refiners and increasing refining capacities will not help India achieve the goal of becoming a gold refiner to the world. Because it is responsible sourcing that comes first before purity, quality and design, according to a recent article by India Gold Policy Centre at IIM-Ahmedabad.

 

"It is time the contours for operation of the refiners in India is better defined, and the sourcing guidelines for refiners are made mandatory, their financing and remittances models need to be reviewed by the RBI as only two out of the sixteen countries from where refiners import are FATF (Financial Action Task Force) member countries," the article said.

 

Trade officials said a few Indian companies that have offices in West Asia were sourcing gold dore from these artisanal miners at a much cheaper rate and using the transfer pricing mechanism to export the same through Ghana to India, which violates the Prevention of Money Laundering Act.

 

Last year, an official with the Ghana government said that the country's export of dore bars was higher than their production. In the past, such dore bars were routed through Dubai. However, imposition of 5% value added tax in Dubai put a stop to this gold route.

 

The import duty on gold bars is 10% and that on dore 9.35%, and as such, Indian gold refiners stand to profit about 65 basis points on using dore.

 

Even though importing gold under the guise of dore into India from Peru has fallen due to efforts made by both the governments in the past two years, it still remains a serious concern for the industry.

 

Some industry participants may still be involved in camouflaging pure gold bars as dore bars and importing them into India to cash in on the duty differential.

 

To tackle the above issues, industry participants are batting for stricter steps to ensure credibility and traceability, as India is on the threshold of launching an ambitious gold policy under which the precious metal will be developed as an asset class. There is also a plan to set up a pan-India spot exchange in gold.

 

"Responsible sourcing of gold is key for the successful implementation of the spot exchange, or launch of a good delivery standard, and for banks to buy from the local market," said Somasundaram P.R., managing director, India, World Gold Council.

 

"India needs to frame and implement a formal system which adheres to global standards and ensures due diligence to OECD, anti-money laundering and FATF (Financial Action Task Force) guidelines," Somasundaram added.

 

Some industry participants stressed on the need to appoint third-party auditors to ensure transparency in the process as it will increase credibility.

 

"A third party or statutory auditor should be made mandatory for refiners, who will ensure that gold is sourced responsibly," said Rajesh Khosla, chairman emeritus of MMTC-PAMP India Pvt Ltd, India's only London Bullion Market-accredited gold refiner.  End

 

US$1 = 69.16 rupees

 

Edited by Ashish Shirke

 

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