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Last Updated : Nov 20, 2020 02:24 PM IST | Source: Moneycontrol.com

Dubai’s DMCC alleges LBMA norms on gold sourcing targeted to undermine its success in bullion trade

DMCC Executive Chairman and Chief Executive Officer (CEO) Ahmed Bin Sulayem, in a Linkedin posting, said the London body was trying to undermine UAE’s success.

Subramani Mancombu
Representative image
Representative image

The London Bullion Market Association (LBMA) recent move to check laundering and “conflict” gold by fixing some norms is being strongly opposed by at least three gold marketing centres, including India.

The strongest criticism of the move has come from the United Arab Emirates (UAE) government-owned DMCC (Dubai Multi Commodities Centre), one of the primary hubs of gold trade in the world.

DMCC Executive Chairman and Chief Executive Officer (CEO) Ahmed Bin Sulayem, in a Linkedin posting, said the London body was trying to undermine UAE’s success.

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He questioned LBMA’s motive to blacklist entire nations rather than target independent industry stakeholders on a case-by-case basis and termed the London body’s move as “authoritarian approach to maintain its majority control through conjecture and double standards”.

DMCC was not surprised by the LBMA move since a “weakened party” would employ a variety of tactics to retain its control by “any means necessary”, he said.

Sulayem said that LBMA had been stung by the success of DMCC, which has become a major centre to deal in slew commodities such as gold, diamonds, coffee, tea and aluminium. He was responding to reports that Dubai was the focus of LBMA norms, though it had not mentioned it overtly.

“Should LBMA make good on its proposed strategy, it will be the first time a market or state authority has raised the possibility of cutting off the bullion industry in a major financial centre, a ploy akin to changing the rules of Monopoly on a discretionary basis in order to keep other players off the board,” Sulayem said.

LBMA, one of the most influential gold market authorities, had in a letter earlier this month to various countries with large gold markets, said that it would stop gold from these countries if they don’t meet the regulatory standards.

The association has sent letters to India, United Arab Emirates (UAE), China, Hong Kong, Singapore, Russia, South Africa, Switzerland, Turkey, the UK and US.

The LBMA has said that if these countries do not meet the standards, they would be blacklisted. The association is, perhaps, acting on an advisory issued this month by The Sentry, a US-based investigative and policy body that tracks dirty money connected to African war criminals and trans-national war profiteers.

In its advisory, the Sentry said that the destination for 95 percent of the gold from East and Central Africa is Dubai, where criminal networks, armed groups and the corrupt use it for money laundering with these “conflict” gold.

The Sentry terms it “conflict” gold in view of armed conflict and corruption in countries such as Congo, Sudan, South Sudan, and Central African Republic.

The DMCC CEO has raised a few issues with regard to LBMA. First is the cartel-like control it wields over the industry imposing its discretionary brand of blacklisting without being a democratically-elected trade body.

The association could be either dragged to the World Trade Organisation or UK Courts, he said, adding that there are several ethical problems with the directive when it affects the trade flow of foreign sovereign nations.

Second, Sulayem wondered if LBMA would apply the same ethical standards to its existing members and stakeholders including JP Morgan Chase, which had admitted to manipulating precious metals futures. JP Morgan Chase had to make a record USD 920 million settlement.

“Is the precedent to allow convicted criminal activity a free pass in return for cash?” the DMCC CEO asked.

He also sought to know if LBMA would scrutinise any blatant conflicts of interest, of its own board members, including senior board members of major precious metal refiners and fabricators such as MKS PAMP Group.

Pointing to the targeting of countries than individuals, Sulayem wondered why when two of LBMA didn’t consider stopping gold imports from the US when two of its previously certified Good Delivery List members, Republic Metals Corporation and NTR Metals, declared for bankruptcy.

Both the firms declared for bankruptcy after being unable to account for large amounts of precious metal or be charged by federal prosecutors in Miami for buying USD 3.6 billion illegal gold from criminal groups in Latin America respectively.

The DMCC CEO said LBMA letter seemed to be an agenda to disrupt any centre that threatened its market share. He called for a policy of inclusion rather than subjugation on the issue.

He said it has also resulted in the rest of the world increasingly beginning to believe that “it is time for a transparent regulator, composed of an international coalition that is equipped to authorise or blacklist stakeholders based on meritocracy and not self-serving interests”.

The Indian bullion sector is also questioning the LBMA letter on the ground that the London association is trying to implement “monopolistic policies”. The industry is now discussion on formulating its own policy, though the problem is that banks, which lend to the industry, have to accept it.

Those irked with LBMA’s letter point out that DMCC’s Dubai good delivery (DGD) is better than LBMA’s system.

DGD scrutinises reports of the management of its members, which has audit details, unlike the LBMA which seeks only a compliance report and assurance statement from its members, critics point out.

According to those backing DMCC, its closer scrutiny is one reason why some of its members have been removed from DGD.

Russia has also questioned LBMA’s letter, according to trade sources.

The issue of “conflict” gold has cropped up particularly in view of gold prices gaining in recent months, leading to a rush in gold mining and refining in these “conflict” areas and nearly all the gold from these centres reach Dubai.

These gold find their way into Dubai after being exported or smuggled to neighbouring nations such as Uganda, Rwanda, Cameroon, Kenya, Chad and Burundi.

The Sentry’s, in its advisory, said that UAE should plug the regulatory loopholes and gold industry actors such as LBMA should engage UAE authorities to press for third party audits and cap gold cash transactions above a certain limit.

As gold prices have gained in recent years, there has been a rush in gold mining and refining in these “conflict” areas and nearly all the gold from these centres reach Dubai. These gold find their way into Dubai after being exported or smuggled to neighbouring nations such as Uganda, Rwanda, Cameroon, Kenya, Chad and Burundi.

The Sentry’s advisory said that UAE should plug the regulatory loopholes and gold industry actors such as LBMA should engage UAE authorities to press for third party audits and cap gold cash transactions above a certain limit.

The LBMA’s move could undo all that the UAE had done in the last two decades in making Dubai a gold trading hub.

The bullion sector points out that the Organization for Economic and Development Cooperation, a group of 37 nations, has come up with responsible sourcing guidelines for gold and thus, the LBMA directive was not required.

The Indian bullion industry feels LBMA has acted arbitrarily and it should join hands with Dubai to formulate their own standards that will be widely accepted.

The LBMA move has come at a time when gold has gained over 26 percent this year with prices hitting a record USD 2,063.20 an ounce on August 6. Prices have since moderated to USD 1,868.10 currently.

Domestically, gold had climbed to as high as Rs 56,000 per 10 gram on August 7. On November 20, gold for jewellery was quoted at Rs 48,700.

On MCX, gold December contracts were trading at Rs 50,520 per 10 gm against the previous close of Rs 49,992.

(Subramani Ra Mancombu is a journalist based in Chennai, who writes on topics in commodities and agriculture)
First Published on Nov 20, 2020 06:14 pm
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