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Illicit Gold Trade and Smuggling: Vulnerabilities Exposed by Rushwaya Case

13 November, 2020 

Introduction

The Zimbabwe Environmental Law Association (ZELA) has been following closely the arrest of Henrietta Rushwaya, the President of Zimbabwe Miners Federation (ZMF) at the Robert Gabriel Mugabe (RGM) International Airport on allegations of attempting to smuggle about 6kgs of refined gold to Dubai. Corruption and gold smuggling among other issues have crippled the country’s efforts to leverage on its vast mineral resources and deliver basic services such as education, health and  water.In September, 2020, Minister of Home Affairs, Hon. Kazembe Kazembe revealed that Zimbabwe was losing at least US$100 million worth of gold every month through international smuggling rings blaming it on “ porous borders”[1].The Minister of Finance and Economic Development, Professor Mthuli Ncube lamented that the country is losing significant revenue due to smuggling of gold to mostly the United Arab Emirates and South Africa[2].  Gold is being used as a conduit for money laundering and Illicit Financial Flows (IFFs) jeopardising the country’s domestic resource mobilization efforts to deliver quality basic services to the ordinary citizens. The critical question is what are the policy drivers and vulnerabilities  that make Zimbabwe’s gold sector susceptible to smuggling and illicit gold trade? More importantly, why does gold smuggling in Zimbabwe often implicate politically exposed persons such as Henrietta Rushwaya. This may, in essence show the manner in which politics and power dynamics are embroiled in gold mining in Zimbabwe.

Capture of the ASM by smuggling syndicates and political players

The system of gold leakages in Zimbabwe is linked to criminality within the Artisanal and Small Scale Mining sector. Massive gold pilferage  or leakage are facilitated by a well connected system leveraging on the chaos in the sector and the influence of political actors involved. An unpublished study by ZELA on the ASM sector shows that the sector is now dominated by powerful political actors and senior officials within the security sector. Lack of formalisation of artisanal mining actually mirrors a captured policy process in a way that allows a few to benefit and accumulate wealth from the sector taking advantage of the lack of formalization.The Rushwaya’s  gold smuggling story which already is implicating powerful actors including state intelligence officials and politicians  appears to be a tip of an iceberg of high-profile criminality and illegality in the mineral resources sector in Zimbabwe. In 2019 the President informed delegates attending an Anti Corruption conference in Harare that Zimbabwe lost gold worth US$60 million through a syndicate of businessmen that clandestinely export precious minerals to Dubai.[3] Again in 2019 the Minister of Finance and Economic Development Professor Mthuli Ncube indicated Zimbabwe lost 30-34 tonnes of gold due to smuggling to South Africa.[4]

The artisanal and small scale gold sector (ASMG) is the major contributor to gold deliveries and mining generated foreign currency in Zimbabwe.[5] The informal ecosystem of the gold value chain provides huge incentives for politically connected players or the elite to easily manipulate artisanal miners, sponsors, small time dealers and other actors along the supply chain. At the production and market level   of the ASM gold supply chain, the sector appears captured by smuggling syndicates, with connected elites and politicians seemingly involved.[6]  Lack of political will to formalise the artisanal gold sector appears to be connected to political interests. Many reports abound of how the gold sector is linked and controlled by politicians.[7] The elites and politicians benefit more from an informal sector.  CSOs such as ZELA and the PWYP Zimbabwe[8]  have been calling  for the formalisation of the ASM sector. However, there is no remarkable progress to talk about on that front. Among key recommendations that ZELA and other CSOs have been pushing for include the need to create an enabling legal and policy  environment for ASM sector that allows decriminalisation of ASGM sector activities, transparency on insuance of licences and  improvement in access financing and markets in the sector.

 Suspension of the Law: The Gold Trade Act

The Rushwaya case also exposes one of the vulnerabilities in the gold trade sector where the provisions of the Gold Trade Act on possession and dealing in gold seems to have been suspended for purposes of promoting artisanal gold mining and deliveries to Fidelity Printers and Refineries. The Gold Trade Act regulates possession and dealing in gold. The act prohibits the possession of gold by unauthorised persons and regulates dealings in gold, detailing the cases in which  a person is said to be  dealing in or  possessing  gold legally. Section 3(1) prohibits dealing in or possession of Gold without the required licence. It states that no person shall, either as principal or agent, deal in or possess gold, unless; he is the holder of a licence or permit, or a holder or tributor or holder of an authority, grant or permit issued under the Mines and Minerals Act or an employee or agent of any of the persons mentioned above and is authorized by his employer or principal to deal in or possess gold in the lawful possession of such employer or principal. However, the No questions Asked Policy adopted by Fidelity Printers and Refiners ( FPR) and its ambiguity creates  a situation where indiviudals may posses or deliver gold to  FPR without  validating  if the person is a holder of  tributor or  has  a licence or  permit to buy gold.

Gold trade and Marketing in Zimbabwe

It is important to note that Fidelity Printers and Refiners (FPR) via the Reserve Bank of Zimbabwe enjoys a monopoly in gold buying, refining and export. Zimbabwe exports its gold to the world market indirectly through the Rand Refining in South Africa. The country is unable to sell gold directly to the international market because it lost its membership to the London Bullion Market Association (LBMA) in 2008 after failing to meet the minimum production of 10 tonnes per annum to maintain membership. However, Fidelity Printers and Refiners (FPR) has a policy framework to licence individuals or companies who want to buy gold on its behalf.  This policy framework is aimed at increasing mobilisation of gold from the ASM sector.  All the gold that licenced buyers purchase from the ASM sector is supposed to be sold to FPR which is the sole buyer and exporter of gold. Unless if permission is granted this means all gold that goes out of the country via any other person or institution outside FPR is classified as smuggled gold.

FPR’s unfavourable gold pricing framework is argued to be the  key driver of illicit financial and minerals flows in the gold sector. The FPR took time to bend towards the call by ASM miners, Zimbabwe Environmental Law Association (ZELA) and other Civil Society Organisations ( CSOs)  such as the Publish What You Pay (PWYP)  Zimbabwe on the need to realign its gold buying framework to the international market prices. Until July this year, FPR was buying gold from ASGM at prices which were significantly below the international market prices thereby creating huge  opportunities for arbitrage and smuggling of gold outside the country.  In April, 2020 ZELA[9] warned that the country was at a huge risk of revenue loss to smuggling when the gap between world market  prices of gold and the prices that FPR was offering increased due to COVID-19 induced increased in demand of gold at the world market. The outbreak of COVID-19 saw the prices of gold on the international market increasing as investors were seeking gold as a safe haven due to low returns in US$ denominated securities. The current liberalised gold buying framework still leaves room for arbitrage and smuggling of gold  because foreign buyers offers more lucrative prices than what FRP is currently offering. The inability of FPR to avail in cash to ASG miners’ offers arbitrate opportunities that big smugglers are pouncing on.

Involvement of Zimbabwe Miners Federation (ZMF)  

The licencing of Zimbabwe Miners Federation (ZMF) as a gold buying agent might have caused the manifestation of increased gold smuggling risks the country is currently facing. Such a move should have been coupled with close monitoring of its operations and systems to enhance traceability of gold from the miners to the market.  The attempt to smuggle gold at RGM by the President of ZMF came a month and half after the institution was reported to have secured a gold buying licence as FPR’s agent.[10]  The question that has become critical to answer is “ given that the body is dealing with gold trade, how insulated is it from political capture or smuggling syndicates.

Porous borders  

Zimbabwe’s borders with its neighbours are porous and this has resulted in significant leakages and smuggling of gold, diamonds and other minerals at the airports and land borders. The Mines and Minerals (Minerals Unit) Regulations of 2008 (SI 82 of 2008) established a Minerals Unit in section 3(1). The Minerals Unit is supposed to be a crack unit composed of officers from the Ministry of Mines, the police and the Reserve Bank of Zimbabwe. The functions of the Minerals Unit are stated as assisting miners in preventing the theft of minerals from mining locations, preventing smuggling of minerals outside Zimbabwe and safeguarding the mineral resources of Zimbabwe. The Minerals Unit has power to inspect, enter any mining location, examine or inspect mining operations, examine books, accounts vouchers, documents, maps and records. In addition, the Minerals Unit has power to examine security systems at mining locations. In this regard, the Minerals Unit is empowered to give direction to any miner to improve security of mining locations to prevent theft of minerals.  Further, the Act authorizes the Minerals Unit to station one or more of its members at premises of any registered mining locations or at any port of entry or exit to curb smuggling or theft of minerals. Custom officials are also responsible for ensuring that goods are declared at the border. However, there are capacity contraints in the operations of these entities as well as allegations of corruption that results in smuggling at the boarders. Allegations being raised against state security officials in the Rushwaya case confirm these challenges.

Due Diligence and Traceability  in the Gold sector in Zimbabwe

The FPR has a framework to know its customers as part of its due diligence. However, this system falls short of the means to promote  responsible production and sourcing in the gold sector. The system lacks production tracking and monitoring and this increases the  chances of gold leakages, illicit trade and criminality. In many countries gold mining is  associated with violence and illicit trade along the value chains. The current No questions Asked Policy does not give room for all  interrogation and questioning around sourcing of gold. There is still lack of systems to detect and measure  risks of human rights violations and illicit gold trade therefore there is no way of mitigating these risks along the whole gold supply chain.  The Rushwaya attempt to smuggle gold came nearly a week   after the Ministry of Mines and Mining Development announced that ZMF had signed several partnership deals with a suspicious  private company,  Ali Mohammend of Ali Japan 786[11]. The company is being implicated in the Henrietta Rushwaya’s smuggling allegations. One wonders if FPR and the Government conducts due diligence on private companies to ensure that these companies are not associated with criminal activities which may taint the gold supply chain and undermine the marketability of gold coming from Zimbabwe.

The problem of corruption, illicit trade and criminality has been compounded by the lack of mechanisms to trace gold from its production until it leaves the country.  Treceability measures on gold helps to curb criminal elements and illicit trade  in the gold supply chain as information such as the exact source of gold, who the holder of the gold buying licence  and the refiner of gold is and the amount of taxes that is paid on gold that leaves the country can be collected and analysed .

Destination of smuggled gold

It is not a big surprise that the destination of gold that Rushwaya attempted to smuggle was Dubai. Dubai has a huge appetite for smuggled gold.  A research released by IMPACT Transform in 2019 reveals that  Dubai and India are  two key recipients of gold that is smuggled.[12] The research has shown that Due Diligence  on gold imports carried out by Indian customs officials  and industry actions is negligible. Dubai has been found to be an intermediary between illicit or conflict gold that is sourced from African countries, especially from the Great Lakes Region and exported to India. Trade statistics indicate that a significant portion of gold leaving Dubai makes its way to India, the biggest jewellery manufacturing centre in the world[13].    

Lack of Gold Policy

There is no  gold policy in Zimbabwe. The policy changes that the government comes up with ( such as the RBZ’s No Questions Asked Policy) are not hinged on a clear government policy framework on exploration production, beneficiation,  marketing and management of gold in Zimbabwe and this often creates a lot of policy reversals and inconsistencies. There  is no clarity at the moment with regards to government’s policy direction on accountability of gold including measures to curb criminality and illicit gold trade within the No Questions Asked Policy. Furthermore, there is no policy framework on  who should invest in the gold value chain and models of partnerships within the sector. These are some of the key issues that the Zimbabwe’s Gold Policy should address.       

What needs to be done

  • Government must develop a Gold Policy that provides policy direction on production, management and marketing of gold including creating scope for responsible gold production and sourcing systems  
  • The government must consider revising its No Questions Asked  Policy to promote responsible sourcing in the gold sector
  • FPR must develop or enhance its systems on gold  production tracking  and monitoring to enhance responsible gold sourcing
  • There is a need for government to use advanced technology to monitor airports and boarders to ensure smuggling of gold and other minerals out of the country is curbed.
  • Custom officials, ZRP minerals unit and airlines  need to improve their systems in  identifying risks, vulnerabilities and exposure  to illicit financial and minerals flows.
  • There is need for the country to improve transparency and accountability measures in the mining sector to curb corruption and state capture in the mining sector
  • Zimbabwe Miners Federation (ZMF) should be closely monitored. There is need for  regulations or laws that govern its operations
  • There is need for government to speed up the formalisation of the ASGM sector
  • Zimbabwe should adopt OECD Due diligence on responsible  mineral supply chains  or borrow some of the Due Diligence standards in the gold supply chain and incorporate them into the local legislative framework to ensure responsible and conflict sensitive due diligence in the gold supply chain. Of particular importance is the need to ensure gold traceability. Corruption and smuggling of gold can be further curbed through the introduction of traceability measures within the gold mining sector whereby minerals are traced from their origin up to the end user.  
  • The government must conduct due diligence of the companies or individuals that apply for licences or seek to partner with government in gold trade. This will help to weed out companies that maybe masquerading as genuine investors in the gold supply chain.
  • There is need to revoke the trading licences of individuals and companies found to be involved in illicit gold trade. Information on the de-listed individuals and companies involved in illicit trade must be shared widely
  • There is need for importers of gold to enhance measures to curb illicit gold trade and criminality through verification of certificates of  origin or export permits , custom clearance documents  including tax receipts  in the country of exports.

[1] https://www.chronicle.co.zw/us100-million-gold-smuggled-out-of-zimbabwe/

[2] https://www.chronicle.co.zw/zim-gold-smuggled-to-dubai-via-south-africa-minister/

[3] https://www.thestandard.co.zw/2019/12/22/us60-m-gold-smuggled-dubai/

[4] https://www.newsday.co.zw/2020/11/zim-loses-30-tonnes-gold-to-smuggling/

[5] https://www.rbz.co.zw/documents/mps/Monetary-Policy-Statement-17-February-2020.pdf

[6] http://www.zela.org/understanding-violence-in-artisanal-small-scale-mining-in-zimbabwe-drivers-implications-and-key-options/

[7] https://www.newsday.co.zw/2012/01/2012-01-12-zanu-pf-cashes-in-on-gold-rush/

[8] http://www.zela.org/transparency-dosage-critical-to-help-the-fight-against-violence-in-artisanal-and-small-scale-mining/?utm_source=rss&utm_medium=rss&utm_campaign=transparency-dosage-critical-to-help-the-fight-against-violence-in-artisanal-and-small-scale-mining

[9] http://www.zela.org/download/mining-sector-exemptions-from-covid-19-lockdown-motivations-and-triggers/

[10] https://www.herald.co.zw/zmf-secures-gold-buying-licence

[11] https://www.herald.co.zw/zmf-gets-strategic-mining-partnerships/

[12]https://impacttransform.org/wp-content/uploads/2019/11/IMPACT_A-Golden-Web_EN-Nov-2019_web.pdf

[13]https://impacttransform.org/wp-content/uploads/2019/11/IMPACT_A-Golden-Web_EN-Nov-2019_web.pdf

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