The UAE’s New Ministerial Decree No. (68) of 2024 on Responsible Sourcing of Gold

Actions have consequences, both intended and unintended. Responsibility means owning the consequences of our actions and striving to ensure that they are beneficial to those affected by them.

Responsible sourcing of gold is also guided by the same principle. It entails that the UAE companies sourcing gold from different regions across the world respect human rights and ensure their operations are ethical and do not contribute to environmental damage, armed conflict, and other illegal activities. Organisations sourcing gold from conflict-affected and high-risk areas, according to the Organisation for Economic Co-operation and Development (OECD), should also see that their activities promote “sustainable, equitable, and effective development.”

So, is responsible sourcing of gold just a moral imperative for stakeholders in the gold supply chain operating in the UAE?

Not really! Since August 2022, gold refineries (Regulated Entities) across the UAE have been complying with the MOE Due Diligence Regulations for Responsible Sourcing of Gold (Due Diligence Regulations). However, the legal responsibility now does not lie only with the gold refineries. The UAE’s new Ministerial Decree No. 68 of 2024, published on March 29, 2024, extends the first three steps of the Due Diligence Regulations to other relevant entities and precious metals dealers in the gold supply chain as well.

In this blog, we will delve into this Decree and understand how following strict due diligence measures can help various entities operating in the UAE assess and mitigate risks associated with the sourcing of gold. We will also explore what relevant entities in the supply chain and precious metals dealers, that fall under the ambit of this new law, should do to stay compliant and avoid administrative penalties in the process.

The new Ministerial Decree No. (68) of 2024 requires all organisations involved in refining gold or recycling gold products, as well as stakeholders in the gold supply chain in the UAE, including those operating in commercial free zones under the Ministry of Economy’s supervision, to comply with the Due Diligence Regulations.

Article One of the Decree mandates relevant entities in the supply chain and precious metals dealers to comply with the following procedures concerning responsible sourcing of gold:

1. Establish strong company management systems and adopt a company-specific policy on due diligence for gold supply chains.
2. Identify and assess risks in the gold supply chain.
3. Design and implement a management strategy to respond to identified risks regarding gold supply chains.

Meanwhile, entities engaged in activities related to refining gold and recycling gold products, in addition to the above procedures, need to appoint an independent third-party auditor and submit a report on due diligence in the gold supply chain.

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The Supplemental Guidance for Dealers in Precious Metals and Stones (DPMS), published in 2019 by the UAE’s Ministry of Economy, has defined a dealer operating in the DPMS sector quite comprehensively. A dealer in precious metals and stones is any individual or entity, including their employees or representatives, who regularly engage in the production or trade of precious metals or stones as part of their business activities. An exhaustive list of business activities related to the gold supply chain has been incorporated in the guidance as well.

Gold is extremely valuable in small quantities and can easily be processed, transported, and recycled. It can be bought and sold virtually everywhere, often in cash, and its value usually increases with time. Since gold can be used to convert criminal proceeds into assets that can be easily exchanged, it has been susceptible to financial crimes such as money laundering worldwide. The gold supply chain has also been linked to human rights abuses, including extortion, violence, and large-scale displacement. Additionally, extensive deforestation and other forms of environmental damage have been associated with gold mining activities, adding to negative impacts on local communities and ecosystems. Hence, adopting comprehensive due diligence procedures is essential to manage these risks.

Sourcing gold becomes especially risky if it originates from Artisanal Small-scale Mining (ASM) in conflict-affected and high-risk areas (CAHRAs). CAHRAs, as described by the OECD, are regions spread across the world marked by armed conflict, violence, and other risks. The armed conflicts can be related to civil wars, wars of liberation, or other armed insurgencies occurring within or between states. In addition to armed conflicts, there could be risks associated with bribery, political repression, and institutional weaknesses, among other things. The areas are also often characterised by widespread human rights abuses and violations of national and international law.

The UAE’s Due Diligence Regulations have laid down measures for gold refineries to responsibly source gold, particularly when sourcing from CAHRAs. In essence, supply chain due diligence is to be carried out on each supply chain of gold, irrespective of the Non-CAHRA involvement and non-presence of High Risk elements. The gold refineries are required to comply with the Due Diligence Regulations and incorporate them into their broader AML/CFT policies and procedures.  The supply chain due diligence is intended for gold refineries to identify and mitigate adverse impacts of their operation as well as to ensure that they respect human rights, conserve the environment, and do not contribute to money laundering and conflict.

Supply chain due diligence measures for responsible sourcing of gold will also need to be implemented by precious metals dealers and other relevant entities, according to the new Ministerial Decree. Supply Chain due diligence begins with establishing strong policies and procedures and creating a strong compliance function. Companies should implement Know Your Counterparty (KYC) and Customer Due Diligence (CDD) measures to verify the identity of the supplier and the beneficial owner and assess red flags in the supply chain related to gold mined, transported, or traded, particularly from CAHRAs. A competent management system can help assess the effectiveness of the policies and procedures as well as increase the transparency of the system.

Conducting supply chain due diligence before entering a new business relationship with a supplier, and assessing supply chain risks on an ongoing basis is important. For each business that operates along the gold supply chain, the risks related to sourcing gold can be unique. It is important, therefore, to identify and assess each of these unique risks and tailor risk management processes accordingly. In case high risks are identified, eEnhanced Due Diligence (EDD) should be undertaken. Risk management plans should be continuously reviewed so that they remain effective. The supply chain due diligence procedures are extremely important for companies to assess and manage actual and potential supply chain risks associated with their operations.

Business organisations operating in the gold supply chain may unwittingly contribute to financial crimes when they buy or sell gold. To combat crimes related to money laundering and financing of terrorism and illegal organisations, the UAE has implemented several laws and regulations that have evolved to make the country more prepared to fight such crimes. Federal Decree-Law No. 20 of 2018, amended by Federal Decree-Law No. 26 of 2021, along with concomitant enforcing regulations, is the primary AML/CFT law in the UAE.

Article Three of the new Decree on responsible sourcing of gold specifies that administrative penalties will be imposed on entities violating the provisions of the Decree, under the UAE’s AML/CFT law. Administrative penalties, as per Article 14 of Federal Decree-Law No. 20 of 2018, can range from AED 50,000 to AED 5,000,000 for each violation and may include banning violators from the sector, as well as the arrest of the officials responsible for the violation.

These administrative penalties also apply to violating “Due Diligence Regulations for Responsible Sourcing of Gold” for gold refineries. When the said document was published in 2022, Safeya Al Safi, Director of the Anti-Money Laundering Department at the Ministry of Economy, stated that “adherence to these guidelines is mandatory for all gold refineries operating in the country” and penalties for non-compliance with responsible sourcing guidelines “may reach from Dhs 50,000 to Dhs five million,” as reported in the Gulf Today article.

The UAE takes fighting against crimes such as money laundering very seriously, which led to the country formally exiting the FATF grey list in 2024. This commitment is also evident in the fines imposed on organisations for violating AML/CFT Decree-law and its implementing regulations. The total value of AML/CFT fines imposed by the country’s supervisory authorities between January and October 2023 reached over AED 249 million, more than three times the fines collected in 2022. Also, as reported in the National News, the UAE seized and confiscated assets worth more than Dh1.3 billion ($354 million) from March to mid-July 2023 and launched 183 new money laundering cases nationally in the country’s fight against crimes such as money laundering and financing of terrorism.

Source: Executive Office of Anti-Money Laundering and Counter-Terrorism Financing

The UAE’s new Ministerial Decree on responsible sourcing of gold follows the OECD’s prescribed framework for conducting due diligence on the gold supply chain. No matter where a company lies in the supply chain, upstream or downstream, making activity-specific risk assessments is important. Building policies and procedures and strengthening compliance functions through regular training and capacity development are essential for mitigating AML/CFT risks in the gold supply chain.

AKW Consultants is an ISO 9001:2015-certified firm and a DMCC-approved UAE Good Delivery Auditor for Gold and Precious Metals. We help you develop comprehensive policies and processes for assessing and managing risks associated with your specific activities, ensuring your business stays compliant with the UAE’s new Ministerial Decree on responsible sourcing of gold. We also help you avoid hefty administrative penalties and protect your company’s reputation as a responsible business committed to sustainable practises.

Full Ministerial Decree No. (68) of 2024 can be found here.