Battling the blood trade: Gold executives from the UAE are in talks to draft new global rules to stop trading in the precious metal mined from conflict zones.
New rules to tighten gold trade
Gold industry executives from the UAE have been called upon to help draft new global rules to stop the trade in gold mined from conflict zones.
The rules from the Organisation for Economic Co-operation and Development (OECD) are intended to prevent gold mined in war zones from entering the global market by requiring traders to track the metal from the mine to the jeweller or bank vault.
The rules are similar to the Kimberley Process for diamonds, which in 2003 restricted the global trade in diamonds mined from conflict zones such as Sierra Leone.
The rules are part of a larger effort by the OECD to draw up regulations for the entire global trade in minerals. The organisation, which represents 28 industrialised economies, has invited India and Dubai to join the drafting process.
"Dubai has been invited for a number of reasons," said Tyler Gillard, a legal expert at the investment division of the OECD.
"It has a huge gold market, making it an important player globally. As a global hub, we are able to reach out to companies from non-OECD countries who trade through Dubai, and the city is also a destination for a lot of gold from Central Africa," Mr Gillard said. "We are going to have to wait and see what level of commitment the DMCC [Dubai Multi Commodities Centre] is willing to make. So far it has signalled a keen interest to address issues on conflict areas and what the responsibility of traders and refiners should be."
Gold dealers in Dubai, which trades Dh140 billion (US$38.11bn) of gold annually, say the rules will require them to take on a new role of policing their industry, rather than simply meeting international standards. Although not yet formally introduced, new documentation requirements are said to have already slowed the trade.
"Dubai became a centre for import and export because of its ease of doing business," said Ebrahim Al Yamani, the head of business development at Gold Standard, a Dubai gold supplier. "If we have to work like police, the industry will suffer."
The UAE came under scrutiny last year after a UN report on the Democratic Republic of the Congo said customs officials allowed shipments of gold into the country with "minimal documentation" and without requiring importers to say where their metals were purchased or would be sold.
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Many executives are objecting to the regulations on the grounds that implementing them would be costly and difficult.
"For the longest time, the industry had its own internal policing mechanism. People can trust that gold bought from Dubai is genuine," said Riyad Musbah, the owner of Al Riyadh Jewellery in Abu Dhabi. "But I'm not sure if clients will really care about whether the gold is fuelling conflict, or what the added cost will be on the sector."
The DMCC and a handful of jewellers and refiners are cooperating with the OECD on implementing the regulations without disrupting Dubai's gold trade, which accounts for a large portion of emirate's exports every year.
Dubai is a long-established market for gold bullion and jewellery. Its trade is fuelled by demand from India, the world's number one gold consumer, and domestic consumption, which, at 19 tonnes in the second quarter of this year, makes the UAE the second-largest consumer of gold in the Middle East after Saudi Arabia.
Dubai imported Dh89.5bn of gold bullion last year, compared with Dh73.7bn in 2009, according to data from Dubai Customs. Exports reached Dh52bn last year, compared with Dh39.5bn in 2009.
Traders in Dubai say there is already a drive to improve the documentation of gold transactions.
Over the past few weeks, clients of Mr Al Yamani who export gold from the UAE have been asked to produce a paper trail for their gold from its origin.
The process - which requires up to a day and a half to get essential signatures from middlemen, banks and refiners - has left clients unhappy as the price of gold can fluctuate sharply in a single day.
"A delay of one or two days can mean a big loss for clients. In the past I could vouch as the origin and that was enough," he said.
The US Securities and Exchange Commission has been drafting rules similar to the OECD's, requiring companies to carry out due-diligence checks on their supply chains to determine whether their products contain conflict minerals. The US regulator estimated that compliance costs could total more than $71 million and affect more than 5,000 companies.