OFAC+ Advisory on Gold Trade Risks


Along with sanctions on miners affiliated with th Wagner Group, the U.S. released a multiagency advisory on compliance concerns associated with the Gold Trade.

Jointly issued by six Departments - State, Treasury, Commerce, Homeland Security, Labor, and the United States Agency for International Development (USAID) the advisory had been delayed several days, along with the Wagner Sanctions, to allow the mutiny in Russia to sort itself out.

The gold sector is a vital part of the economies and communities in many sub-Saharan African and Latin American countries. However, it presents many risks, including conflict and terror financing, money laundering, sanctions evasion, human rights abuses, labor rights abuses, and environmental degradation.

These risks are tied to all stages of the gold trade - mining, refining, trading, and selling.  While the Jewelry trade represents half of global gold demand, the industry (tech & medical) represents a significant source of gold demand, while artisinal and small scale mining (ASM) of the sort associated with illicit gold is responsible for significant production of Cobalt, Tin, Tungsten and Tantalum, as well as other critial industrial inputs.

While risks have been extensively documented in areas like the eastern Democratic Republic of the Congo (DRC), emerging threats in regions like Sudan, the Central African Republic (CAR), and Mali, have underscored the need for this advisory. The U.S. government aims to tackle the relationship between gold and illicit revenue streams that fund conflicts, corruption, and other concerns in sub-Saharan Africa.

Despite international efforts to help industry participants identify, evaluate, and reduce risks, bad actors continue to exploit vulnerabilities in the gold supply chain across sub-Saharan Africa.

Notably, armed groups have utilized the gold trade to finance their activities for decades, and armed entities hostile to U.S. interests are increasingly infiltrating the region's gold trade. 

The advisory encourages industry participants to brace for increased U.S. government scrutiny of the relationship between gold and these groups’ revenue streams and warns of possible U.S. sanctions aimed at disrupting these groups’ operations.

All U.S. individuals and entities involved in the gold sector are urged to conduct enhanced due diligence to address these risks. This includes miners, traders, refiners, exporters, users, consumers, financial institutions, and others. The advisory also encourages public reporting of efforts related to these risks.

U.S. entities are encouraged to explore opportunities for responsible investment in the African gold sector. This can be through large-scale projects, supporting sustainable development of artisanal and small-scale mining, and due diligence innovations that enable commercially viable artisanal gold exports.

The advisory also encourages companies to join multi-stakeholder initiatives to address these risks and release data on their individual efforts' impact.

The advisory offers several key recommendations which emphasize the importance of due diligence, risk awareness, and responsible sourcing initiatives. Here are the highlights:

  • Individuals and entities active in the gold sector in regions where corruption is prevalent should be aware of the associated risks, including potential facilitation of money laundering, sanctions violation, or other financial crimes.
  • Entities operating in conflict-affected areas should conduct meticulous due diligence concerning local communities to evade commercial and reputational risks linked with contributing to conflict violence.
  • Parties should conduct specific due diligence concerning labor and human rights abuses, as well as environmental concerns including the use of harmful substances such as mercury and cyanide, and practices that contribute to deforestation.
  • Those engaged in downstream purchases of recycled gold must conduct due diligence to determine whether recyclers may be introducing mined gold from sanctioned, conflict-affected, or other high-risk sources.
  • Entities should review available anti-money laundering typology reports meticulously, especially the lists of red flags associated with gold trading and refining, to identify potential risks applicable to their business and avoid involvement with parties engaged in money laundering, sanctions violations, and terrorist financing.

The overarching objective of the advisory is to encourage U.S. industry participants to responsibly invest in sub-Saharan Africa's gold sector while strengthening due diligence practices and transparency to prevent malign actors from exploiting the industry.

The advisory is structured into four parts: Part I discusses the opportunities in the gold industry in sub-Saharan Africa; Part II details the risks associated with the industry; Part III outlines U.S. sanctions in the gold industry context; and Part IV delves into due diligence and best practices, focusing especially on the OECD Due Diligence Guidance adopted in 2011. Additional details on existing sanctions and ongoing development projects are provided in the annexes.

Risk Considerations

Upstream Risks

  • Corruption: Both large-scale (LSGM) and artisanal small-scale gold mining (ASGM) activities are vulnerable to corruption. This can include bribery to acquire licenses or other permissions, which in turn can facilitate money laundering, violations of economic sanctions, or other financial crimes.
  • Conflict: Gold mining in conflict-ridden areas such as the DRC and CAR provides financial support for non-state armed groups, and the situation has intensified since 2016 with the arrival of new armed groups in already exploited areas. The industry can therefore indirectly contribute to the funding and recruitment efforts of these groups.
  • Upstream Smuggling: Due to differences in tax and royalty rates, smuggling is a significant risk in the gold mining industry. This illegal activity can lead to the violation of economic sanctions, tax evasion, money laundering, or other financial crimes.
  • Human Rights and Labor Abuses: Abuses, including child and forced labor, are common in gold mining operations, particularly in ASGM. These activities not only violate international labor standards but also pose severe health risks due to exposure to toxic substances like mercury and cyanide.
  • Environmental Concerns: ASGM is the largest global source of mercury pollution, releasing an estimated 844 metric tons annually. Deforestation and water pollution are also major environmental concerns.

To mitigate these risks, the industry, governments, and international bodies should collaborate, conduct due diligence, and implement responsible sourcing initiatives. This can help avoid commercial and reputational risks associated with contributing to these harms.

Downstream Risks associated with the transport, refining, and sale of gold are numerous and can lead to far-reaching impacts not just on the environment and public health, but also on the legal and financial sectors.

  • Environmental and Public Health Risks: The use of harmful substances such as mercury and cyanide in the extraction of gold presents a significant risk to the environment and public health, especially in regions where the regulation of such substances is lax. The potential for these toxins to contaminate air, water, and the food chain poses a significant threat to both local populations and ecosystems.

 Illicit Trade and Smuggling: The high value and ease of transportation of gold make it a prime target for smuggling and illicit trade. This not only exacerbates the environmental and health risks mentioned earlier but also presents a risk of financial and regulatory violations, particularly in the form of tax evasion and breaches of trade laws.

  • Misuse of "Recycled" Gold Labeling: The misuse of the term "recycled" for illicitly sourced gold is a growing concern. It's a loophole exploited to launder gold from illicit sources into the legitimate supply chain. Downstream purchasers should conduct rigorous due diligence to avoid inadvertently supporting such practices.
  • Money Laundering and Terrorist Financing: Gold's high value, portability, and lack of traceability make it an attractive vehicle for money laundering and terrorist financing. It is imperative that those involved in the gold trade understand and adhere to international AML/CFT standards to prevent their businesses from becoming conduits for such illegal activities.
  • Sanctions: The US and other nations may impose sanctions on individuals, entities, or nations involved in illicit activities related to the gold trade. Such sanctions can have far-reaching consequences, including asset freezing, trade bans, and legal actions. Businesses involved in the gold trade must ensure compliance with these sanctions to avoid severe penalties.

[Africa Gold Advisory]