On Tuesday, June 27, 2023, the U.S. Departments of State, the Treasury, Commerce, Homeland Security, Labor, and the United States Agency for International Development (USAID) published a joint advisory on the gold trade in sub-Saharan Africa (the Advisory). The Advisory was published in light of "increasingly concerning" reporting regarding the role of illicit actors in the gold trade, including Russian military group PMC Wagner (the Wagner Group). The Advisory builds upon previously issued due diligence guidelines to highlight the risks associated with the African gold trade and encourages gold industry participants to adopt and apply strengthened due diligence practices, including "more transparent public reporting by companies."
Along with the Advisory, the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC) designated four entities and one individual for alleged involvement in illicit gold dealings to fund the Wagner Group. The entities designated include Midas Resources SARLU, a Central African Republic (CAR)-based mining company that, according to OFAC, is affiliated with Wagner Group founder and owner Yevgeniy Prigozhin; Diamville SAU, a gold and diamond purchasing company based in the CAR and apparently controlled by Prigozhin; Industrial Resources General Trading, a Dubai-based industrial goods distributor, for having provided financial support to Prigozhin; and Limited Liability Company DM, a Russia-based firm that appears to have been involved in an illicit gold-selling scheme in the CAR. Andrey Nikolayevich Ivanov, a Russian national and Wagner Group executive, was also designated for his participation in related illicit activities in Mali. These actors were designated pursuant to Executive Order (EO) 14024 for having acted or purported to act for or on behalf of Prigozhin, who was originally added to OFAC's list of Specially Designated Nationals and Blocked Persons (SDN List) for having facilitated attempts to interfere with U.S. elections, and subsequently re-designated in connection with the Russian government's invasion of Ukraine.
Both the Advisory and the concurrent designations represent the U.S. government's heightened attention to the gold sector, an industry that is "critical to the economies and communities of many sub-Saharan African countries" and which the Advisory alleges is highly susceptible to exploitation by malign actors. Specifically, the Advisory notes that, while local armed groups in several conflict-affected regions in sub-Saharan Africa have used the gold trade to finance illicit activities "for decades," armed entities that are hostile to U.S. interests are increasing their presence in the African gold trade. The Advisory cites jihadists, including those with links to Al-Qaeda and the Islamic State, and the Wagner Group as examples of such malign actors.
The Advisory provides critical guidance to U.S. gold industry participants, including but not limited to miners, traders, refiners, exporters, users, consumers, and financial institutions in order to engage in the gold sector responsibly. The Advisory proceeds in four parts: Part I summarizes the opportunities inherent in the African gold trade; Part II discusses the risks associated with the African gold trade; Part III discusses existing U.S. sanctions targeting the gold industry; and Part IV discusses due diligence and best practices for industry participants.
Opportunities in the African Gold Trade
According to the Advisory, in 2021, Africa generated approximately one quarter of the worldwide output of gold. The top five producers of gold in 2021 were Ghana, South Africa, Burkina Faso, Mali, and Sudan. The Advisory divides the African gold sector into two parts, each of which present their own opportunities and risks — large-scale industrial mines, referred to as large-scale gold mining (LSGM) and artisanal and small-scale gold mining (ASGM).
The Advisory explains that many U.S. actors are active investors in the LSGM sector, which is an important part of the gold trade, and the U.S. government encourages further investment in all aspects of that sector. ASGM is estimated to produce about 20% of the world's gold, although estimates are uncertain because ASGM gold primarily circulates in an informal market. And unlike LSGM, ASGM is subject to limited monitoring and regulation by mining authorities. Accordingly, ASGM is more susceptible to criminal activity, corruption, social conflict, environmental impact, and human and labor rights abuses.
The Advisory recognizes the "significant potential to further develop the gold sector in Africa" by incorporating ASGM into the more formal gold trade. Such efforts could increase fiscal revenue from the gold trade and lower costs associated with corruption and environmental impacts.
Risks Associated With the African Gold Trade
The Advisory revisits its previous reporting of the risks associated with the African gold trade. The risks fall into two overarching categories: upstream risks (risks associated with mining) and downstream risks (risks associated with the transport, refining, and sale of gold).
With respect to upstream risks, the Advisory identifies corruption as a major risk associated with both LSGM and ASGM mining. For example, an INTERPOL investigation of gold mining in the Central African region pointed to both "grand corruption" and non-state armed groups (such as the Wagner Group and jihadist groups) that finance their activities by controlling gold mine sites, smuggling routes, and extorting gold through illegal taxation, as serious challenges in the industry.
In addition, the Advisory highlights human rights and labor abuses, as well as environmental concerns, as prevalent in the upstream gold sector. According to the Advisory, gold mining sites, particularly ASGM sites, often fail to comply with labor and mining regulations. Gold industry laborers are susceptible to mercury or other toxic substance exposure, as well as mining accidents or injuries. Child labor is far from uncommon in the gold sector, and women are often prohibited from working in mines. The gold industry also presents broader environmental risks. The Advisory explains that the ASGM sector is the largest source of mercury pollution in the world, and cyanide use is prevalent in many African countries. Deforestation and increased pollution in waterways are additional environmental risks associated with the gold sector.
With respect to downstream risks, the Advisory identifies two key issues: (1) the misuse of "recycled" gold labeling and (2) money laundering/terrorist financing. First, the Advisory explains that gold often moves through the formal supply chain after being illicitly mined or trafficked by being labeled "recycled." Although using recycled gold may have some upsides, including mitigating the environmental impacts of gold mining, recycling can also be a means of "laundering illicit gold into the legitimate supply chain," primarily due to the lack of traceability in the supply chain. Second, regarding money laundering/terrorist financing, the Advisory explains that gold's lack of traceability and the cash-intensive nature of the gold trade make gold an attractive vehicle through which criminal organizations, armed groups, and terrorist groups can move money, purchase weapons, and evade sanctions.
Sanctions Associated With the Global Gold Trade
The U.S. government, particularly OFAC, for many years has used sanctions to curtail illicit activity within the gold sector — not just within Africa, but globally. The Advisory includes an Annex listing sanctions and other measures related to the global gold industry imposed over the last five years. Notable examples include the prohibition on the importation of Russian gold, issued in June 2022 pursuant to EO 14068, and the issuance of EO 13850, which authorized broad sanctions involving Venezuela, including the gold industry specifically.
The Advisory also provides a case study of the Wagner Group. OFAC began targeting actors involved in the gold trade and associated with the Wagner Group in 2020, when it sanctioned Lobaye Invest, a company specializing in gold and diamond extraction and linked to Prigozhin, and Meroe Gold and M Invest, both Wagner-affiliated entities in the gold sector in Sudan. Since then, OFAC has traced and linked the Wagner Group's expanding activity across Africa to "extreme violence, civilian casualties, and extensive corruption." OFAC's most recent designation of Wagner-affiliated actors highlights its continued efforts to crack down on the group's illicit activity within the African gold trade.
Due Diligence Recommendations
In its final part, the Advisory sets forth best practices for gold industry participants, encouraging strengthened due diligence practices in light of the increasing risks associated with the gold trade.
First, the Advisory focuses on due diligence practices to counteract the risk of money laundering in the gold trade. The Advisory reminds U.S. precious metal dealers that they can be subject to U.S. anti-money laundering (AML) programs and reporting requirements and reminds U.S. financial institutions of their obligation to comply with AML and Commodities Future Trading (CFT) regulations implementing the Bank Secrecy Act (BSA). Importantly, gold dealers and retailers conducting business in the United States and who have purchased and sold more than $50,000 worth of gold in the prior calendar or tax year may be subject to the U.S. Department of the Treasury's Financial Crimes Enforcement Network's (FinCEN's) regulations. Those regulations require dealers to have appropriate AML programs, and failure to implement such programs and certain program requirements can result in monetary penalties. The Advisory more generally encourages participants to "commit to collecting, analyzing, certifying, and reporting information about their supply chains to ensure that their gold is not extracted from sites associated with illicit conduct."
The Advisory endorses several reports issued by organizations which recommend additional due diligence guidelines, including, in particular, the Organisation for Economic Co-operation and Development's (OECD's) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. OECD recommends a five-step due diligence framework, which was recognized by the U.S. Securities and Exchange Commission (SEC) in 2012 as an approved framework for due diligence under the Dodd-Frank Act. The five-step framework provides that industry participants should: (1) establish strong company systems and policies related to risks in the mineral supply chain, including communicating those policies clearly to suppliers and the public; (2) identify and assess supply chain risks; (3) design and implement policies and systems to address those risks; (4) ensure the effectiveness of those policies and systems through independent third-party audits; and (5) report publicly on supply chain due diligence, for example by "expanding the scope of their sustainability, corporate social responsibility or annual reports to cover additional information on mineral supply chain due diligence."
The Advisory also refers industry participants to due diligence frameworks developed by the World Gold Council, the London Bullion Market Association, the Responsible Minerals Initiative, and the Responsible Jewellery Council.
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Global gold industry participants, specifically those dealing in African-origin gold, should carefully consider the risks identified in the Advisory and adopt and apply thorough due diligence practices in light of the U.S. government's heightened attention to the gold sector.
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