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PAC INVESTIGATES ILLICIT TRADE OF MINERALS FROM DRC TO DUBAI
28 May 2014

Partnership Africa Canada (PAC) has released a report that seeks to better understand the illicit trade of gold, and to a lesser degree, diamonds, emanating from the Democratic Republic of Congo (DRC), and the role industry and state actors play - primarily in neighboring countries and the United Arab Emirates - in facilitating this illegality.

DRC Focus

According to PAC, its report, titled "All that Glitters is Not Gold: Dubai, Congo and the Illicit Trade of Conflict Minerals," focuses on DRC as the diamond- and gold-producing country has been the site of often-violent extraction of valuable natural resources for over a century. More recently, gold mines in eastern DRC have been at the epicenter of a protracted armed conflict that has claimed millions of lives and economically destabilized the Great Lakes region for the last decade. PAC notes that despite being mineral rich, DRC's underdevelopment is directly linked to a "myriad of inter-related factors" including corruption, armed conflict, political instability, poor domestic enforcement capacity and a lack of fiscal instruments to realize the full potential of its mineral wealth.

"But just as important is how sophisticated international smuggling syndicates have exploited-and in some case encouraged-these vulnerabilities for their benefit. Our investigations explore the illicit trade of these minerals from mine site to leading gold refiners and diamond trading centres in Dubai-and finally for onward travel to the jewellery factories of India, and beyond," writes PAC.

"The continued smuggling of Congolese minerals poses a significant threat to ICGLR [International Conference on the Great Lakes Region] certification, due diligence efforts and security in Central Africa," says Joanne Lebert, program director for PAC's work in the Great Lakes.

Dubai's Role in Global Mineral Trade

"The undervaluation of diamonds entering Dubai represents a major deprivation of African treasuries," says Alan Martin, PAC's director of research. "In 2013 alone, lax regulations and manipulative transfer pricing generated in excess of $1.6 billion in profits in the UAE-approximately $66 million of which involved Congolese diamonds. This is revenue that African governments need and deserve," adds Martin. 

This PAC report explains how Dubai came to play such a central role in the global mineral trade, and the way it has managed to attract an ever-increasing proportion of the worldwide gold and rough diamonds trade over the last decade. 

Report Findings

One of the main findings of this report is that the gold sector in Dubai has yet to develop a coherent, comprehensive and universally applied strategy to apply due diligence or implement a chain of custody over its gold supply.  Among the report's other main findings are that transfer pricing poses a significant ethical and enforcement challenge to Dubai's diamond sector. Re-exported diamonds are on average valued at 44% higher than at the point of import-a figure five times higher than Dubai's next closest competitor, says PAC. This, coupled with its tax free practices, makes the Emirate vulnerable to money laundering and other criminality.

Among the report's recommendations are that the Kimberley Process should  create a special taskforce to investigate the issue of transfer pricing in the diamond industry, with a view to recommend ways African diamond producing countries can secure fairer and more accurate diamond valuations, and predictable tax revenues.

Additionally, the report recommends that the government of the UAE should address transfer pricing of diamonds through federal legislation and introduce frequent and routine inspections of the value of imported parcels by the DMCC, with a rejection threshold of 15% undervaluation.

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In response to the PAC report, the DMCC has issued the following statement:

"The report issued by Partnership Africa Canada (PAC) is based primarily on recycled information much of which is wrong, misleading and out of date. Whilst the report does highlight some of the good work that DMCC has undertaken to implement responsible sourcing practices it is undermined by a list of recommendations that are weak and unrepresentative within the current context of the precious metals and precious stones industry.  DMCC is fully committed to continuing its work with the OECD and international community to help eliminate the trade of conflict gold and diamonds."

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To download the report in full, click here: http://tinyurl.com/o5he9bz  

 

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