Suspension of 32 Gold Refineries in the UAE:
Important Lessons for the Dealers in Precious Metals and Stones (DPMS)

Crimes can impact organisations in unexpected ways. For businesses that deal with precious metals, such as gold, which is extremely vulnerable to money laundering and other heinous crimes, the risks they face are even higher. What if a company purchases gold that has been traded by paying bribes to armed militias, who then use the funds to displace indigenous tribes from their habitats? Or what if a customer purchases a gold product from a retail trader using the proceeds of drug trafficking? Even if a company is completely unaware of these connections, can it truly distance itself from the responsibility of the impact of its operations?

The UAE government’s stance is unequivocal—a business cannot afford to be ignorant of the risks associated with its operations, and it must conduct comprehensive due diligence to effectively identify and manage financial and non-financial crime risks associated with it.

In the UAE, the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) laws specify the due diligence requirements for dealers in precious metals and stones. Recently, 32 gold refineries were suspended for three months, from July 24, 2024, to October 24, 2024, after the Ministry of Economy (MOE) found 256 AML compliance violations at these gold refineries during their inspections. This suspension of 32 gold refineries in the UAE represents 5% of the country’s gold sector. The move by the UAE’s MOE serves as a clarion call to businesses operating in the precious metals and stones sector, including gold refineries, to further strengthen their AML compliance frameworks in line with the UAE government’s strong commitment to combating money laundering and related crimes.

In this blog, we will explore the reasons behind the suspension of 32 gold refineries in and discuss what dealers in precious metals and stones must do to avoid facing similar repercussions.

Dealers in Precious Metals and Stones (DPMS) are classified as Designated Non-Financial Businesses and Professions (DNFBPs) when single cash transactions or related cash transactions meet or exceed the value of AED 55,000 as per Article 3 of the Cabinet Decision No 10 of 2019. As part of their AML due diligence obligations, DPMS that fall under the above definition of DNFBPs must identify the customer or beneficial owner as part of the Customer Due Diligence (CDD) measures. They should conduct CDD when establishing a business relationship, carrying out transactions equal to or above AED 55,000, conducting wire transfers equal to or above AED 3,500 on suspicion of a crime, or if the identity of the customer/beneficial owner is in doubt.

Comprehensive indicators of suspicious transactions related to business relationships, customers, transactions and means of payment of the DPMS have been detailed in the Supplemental Guidance for Dealers in Precious Metals and Stones (DPMS). It’s important to note that among the 256 violations that led to the recent suspension of 32 gold refineries, one of the most prominent issues identified was the failure to implement essential risk identification measures. Therefore, studying the risk indicators and training employees are essential to avoid punitive regulatory actions, such as the suspension of 32 gold refineries we recently witnessed.

The due diligence obligation of businesses in the precious metals sector involves identifying risks and implementing measures to manage those risks. The risk assessment reports must also be meticulously documented and regularly updated so that they are readily available upon request. These businesses must also stay informed about the latest criminal typologies and technological advancements in money laundering activities. Findings by the UAE Financial Intelligence Unit (UAEFIU) Annual Report 2022 offer important details on the typologies observed in cases analysed by them:

^{Source: UAE Financial Intelligence Unit (UAEFIU) Annual Report 2022}

As a high proportion of identified money laundering crimes are associated with professional money laundering groups and networks that employ sophisticated money laundering techniques and technology, the due diligence capabilities of organisations should also be strengthened.

In situations where high risks are identified during the regular due diligence process, DPMS that fall under the definition of DNFBPs must undertake Enhanced Due Diligence (EDD) measures by:

a) Collecting more information and thoroughly investigating the details related to the customer and beneficial owner’s identity, the purpose of the business relationship, and the reasons for the transaction.

b) Regularly updating the Customer Due Diligence (CDD) information for both the customers and the beneficial owners.

c) Taking reasonable measures to identify the source of funds.

d) Increasing the level of ongoing monitoring and examination of business relationships and transactions to identify any unusual or suspicious activities.

e) Getting senior management approval before commencing any business relationship with a customer identified as high-risk.

Dealers in Precious Metals and Stones are also required to audit transactions and meticulously document and update records. All records must be maintained for a minimum of five years in an organised manner so that data analysis and tracking can be done easily. If a customer is identified as a Politically Exposed Person (PEP), DPMS must ascertain the PEP’s financial resources and the ultimate beneficiaries. DPMS should also conduct adverse media screenings to identify potential high-risk entities.

As part of their AML obligations, DPMS that fall under the definition of DNFBPs, need to check the names of existing and potential customers, persons and organisations related to their customers, parties to transactions, and beneficial owners, against the sanctions lists issued by both the United Nations Security Council (UNSC) Consolidated List and the UAE Local Terrorist List as per Cabinet Decision No. 74 of 2020. They may also need to conduct name screening against other sanctions lists published by the Office of Foreign Assets Control (OFAC), the EU, and others.

If they find complete matches, they are required to apply Targeted Financial Sanctions (TFS) by freezing funds and reporting to the authorities without delay. It is important to note that in the recent suspension of 32 gold refineries, failure to report to the UAE Financial Intelligence Unit and failure to screen customers and transactions against terrorism-related databases were found to be the two most prominent violations committed by the gold refineries.

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The UAE’s Ministry of Economy (MOE) is committed to responsible sourcing within the precious metals sector. His Excellency Abdullah Ahmed Al Saleh, Undersecretary of the Ministry of Economy, in the context of the recent suspension of 32 gold refineries, reaffirmed the UAE’s commitment to ensuring “the highest level of compliance” with due diligence regulations for the responsible sourcing of gold.  

Responsible sourcing of gold entails ensuring that the gold supply chain does not contribute to conflicts, money laundering, human rights abuses, or environmental degradation. Since 2018, various regulations have been introduced to strengthen the regulatory framework towards this goal. Gold refineries are required to follow the MOE’s Due Diligence Regulations for Responsible Sourcing of Gold, based on the OECD’s five-step framework. In March 2024, Ministerial Decree No. 68 of 2024 extended the first three steps of the five-step framework of risk-based due diligence to precious metal dealers and other relevant entities within the supply chain. The three steps include the following:

In addition to the above three steps, gold refineries need to conduct independent third-party audits of their due diligence measures and submit annual reports on these measures to the Ministry of Economy.

As part of their supply chain due diligence protocol, businesses in the precious metals sector need to also perform Customer Due Diligence (CDD) to verify the identity of the supplier and the beneficial owner before executing any transaction. They must identify, assess, and understand the risks associated with the gold supply chain. If their gold is mined, processed, or transported through Conflict-Affected and High-Risk Areas (CAHRAs)—regions often afflicted by armed conflict, human rights abuses, and political instability—then Enhanced Due Diligence (EDD) must be conducted. They should also familiarise themselves with the supply chain risk factors and red flags associated with geography, transactions, delivery channels, customers and suppliers to identify risks associated with their own supply chains. 

Businesses in the precious metals sector also need to implement comprehensive risk management policies and procedures to mitigate the identified risks in their supply chain. This strategy should include employing robust compliance functions, as well as conducting site-based due diligence on suppliers and engaging with stakeholders throughout the supply chain. Failure to do so could result in significant legal and reputational consequences, including heavy administrative fines as per the UAE’s AML/CFT laws.

The UAE government’s strong commitment to fighting money laundering led to the country’s removal from the FATF Grey List, also known as ‘Jurisdictions under Increased Monitoring,’ within just two years. During the Plenary meeting held in Paris from February 21 to 23, 2024, the Financial Action Task Force (FATF)—an intergovernmental body dedicated to fighting money laundering and terrorist financing—recognised the “significant progress” made by the UAE in strengthening its AML/CFT framework.

The suspension of 32 gold refineries is part of the concentrated efforts by the UAE to fight money laundering and related crimes and the numbers show the rigour of these efforts. In 2022, more than AED 452 million in funds were frozen based on the UAE Financial Intelligence Unit (UAE FIU) analysis. In the first quarter of 2023, fines of AED 65.9 million were imposed on 137 companies within the country’s DNFBP sector for AML/CFT violations. The first ten months of 2023 saw fines related to AML/CFT reach AED 249.2 million, more than three times the fines recorded in 2022, which stood at AED 76 million. As of October 31, 2023, fines related to Targeted Financial Sanctions showed a remarkable 448% increase compared to 2022. Additionally, compared to 2021, there was a 79% rise in Suspicious Transaction Reports (STRs) and Suspicious Activity Reports (SARs) received by the UAE’s FIU in 2022.  

^{Source: UAE Financial Intelligence Unit (UAEFIU) Annual Report 2022}

The recent suspension of 32 gold refineries for three months is an important part of the UAE’s efforts to combat money laundering and reinforce the country’s commitment towards financial compliance. Businesses operating in the precious metals and stones sector, which fall under the definition of DNFBPs, need to strengthen their due diligence processes to complement the UAE government’s efforts in this area. It is important to note that under the UAE’s AML/CFT laws, businesses operating in the precious metals sector may use third parties to perform due diligence measures to meet regulatory standards. This approach would not only be cost-effective but also provide access to expert consultants with experience in compliance within the precious metals sector. The legal and technological expertise required to ensure full compliance is critical for businesses to maintain their operations within the UAE’s stringent AML/CFT compliance framework.

AKW Consultants is one of the UAE’s Good Delivery Reviewers for Gold and Precious Metals. Our extensive experience in developing comprehensive policies and processes for managing money laundering and other associated risks within the precious metals sector ensures your business remains compliant with all regulatory measures. This helps you avoid hefty administrative fines and punitive actions, such as the recent suspension of 32 gold refineries in the UAE.