Is India turning a blind eye to smuggled gold?

A new report reveals India to be one of the largest gold smuggling hubs in the world. As a result, gold that is tied to conflict, human rights abuses, and corruption in Africa and South America is entering legal international markets through India.

In a report released on November 28, 2019, titled “A Golden Web: How India became one of the world’s largest gold smuggling hubs”, IMPACT-an independent non-profit collaborating with local partners for lasting change, has uncovered how India imports approximately 1,000 tons of gold per year — a quarter more than official figures indicate. Some enters as legal imports thanks to falsified paperwork.

“Actors across India’s gold industry are failing to do proper checks on where gold comes from to ensure it’s not financing conflict and human rights violations,” according to Joanne Lebert, IMPACT’s Executive Director. “With its role as a leading global gold manufacturing centre, India must take action to address the weaknesses in its gold supply chain.”

IMPACT’s research reveals that one third of the world’s gold passes through India, the heart of the world’s gold manufacturing sector. With its gold jewellery exports on the rise, India has become one of the world’s leading trading hubs — with illicit gold entering country, being transformed into goods, and leaving for international markets, including North America. The report identifies three primary factors which allow a problem of this magnitude:

Tax breaks: To boost India’s refinery sector, the government-introduced tax breaks in 2013 for golddoré — also known as unrefined gold. This has led to traders covering up questionable provenance claims by falsifying documentation of gold doré to take advantage of lower taxes. Gold doré imports shot from 23 tons in 2012 to over 229 tons in 2015 as a result of these tax breaks.

Falsified origin documents: Gold doré imports have spiked, with the majority coming from producing countries that lack strong internal controls or are linked to supply chains with weak evidence of due diligence. Analysis of trade data reveals more declared gold imports to India than some countries are capable of producing, such as in the Dominican Republic and Tanzania, as well as instances of paperwork fraud like in Ghana. In the case of the Dominican Republic, as much as 100.63 tons of gold doré imported to India between 2014 and 2017 cannot be accounted for in the country’s gold production.

Complicit allies: Refined gold is being smuggled into India primarily from the United Arab Emirates, while key traders and refiners in Africa’s Great Lakes region with links to India have been identified as being part of the illicit gold trade.

As a result, gold that is tied to conflict, human rights abuses, and corruption in Africa and South America is entering legal international markets through India. “Actors across India’s gold industry are failing to do proper checks on where gold comes from to ensure it’s not financing conflict and human rights violations,” according to Joanne Lebert, IMPACT’s Executive Director. “With its role as a leading global gold manufacturing centre, India must take action to address the weaknesses in its gold supply chain.”

Information gathered from Customs Department reveals that Indian custom officials have seized 1,197.7 kg of smuggled gold in the April-June quarter in 2019, an increase of 23.2% compared with the same period a year ago. The illegal trade could rise further in coming months as India, the world’s second biggest gold consumer, raised an import tax on gold by 2.5 percentage points to 12.5% in July’s federal budget, effectively increasing smugglers’ margins, industry officials told Reuters.

The duty difference has been encouraging people to smuggle in gold from the Middle-East. The gold smuggling has also boosted illegal forex transactions used to finance smuggled gold.

The gold smuggling has been rife since 2013 when India raised import duties on the metal to 10% in an effort to curb demand to reduce the country’s current account deficit. Grey market operators — businesses that smuggle gold from overseas and sell it for cash to avoid the duties – got a further boost in 2017 when India imposed a 3% sales tax on bullion.

In 2018-19 fiscal year that ended on March 31, customs officials seized 4,058 kg (4 tonnes) of gold, up from seizures of 3,223.3 kg a year ago and 429.17 kg in 2012/13. Grey market operators usually sell gold at discounts to prevailing market prices as they evade paying the 15.5% tax, denting business of banks and bullion dealers. The World Gold Council has said up to 95 tonnes of gold was smuggled into India in 2018, although India’s Association of Gold Refineries and Mints and other industry bodies put the figure at more than twice that.

Smuggled gold, usually brought in the form of kilo bars, is then melted to make jewellery and small coins and bars. The smuggling of gold has been becoming lucrative with rising gold prices.

IMPACT’s research reveals that one third of the world’s gold passes through India, the heart of the world’s gold manufacturing sector. With its gold jewellery exports on the rise, India has become one of the world’s leading trading hubs — with illicit gold entering country, being transformed into goods, and leaving for international markets, including North America.

“India is at the heart of a web of the illicit trade of gold, with threads spanning the globe and almost certainly financing conflict and corruption. Authorities must take action to remove incentives for gold smuggling and ensure the gold industry implements due diligence. Anyone buying India’s gold jewellery should be asking questions about where that gold comes from to have confidence in their supply chain,” adds Lebert.

IMPACT also calls on actors across India’s gold industry to implement due diligence on their gold supply chains. Gold traders, refiners, and jewellers have a responsibility to understand, mitigate, and publically report on any risks in their supply chain — all the way back to the mine site.

To tackle the problem, IMPACT calls on India to take immediate steps to harmonize its taxes, including between doré and refined gold to discourage smuggling; and to enhance regulatory controls at the border to require additional, valid information for all imports of all artisanal gold. “India is at the heart of a web of the illicit trade of gold, with threads spanning the globe and almost certainly financing conflict and corruption. Authorities must take action to remove incentives for gold smuggling and ensure the gold industry implements due diligence. Anyone buying India’s gold jewellery should be asking questions about where that gold comes from to have confidence in their supply chain,” adds Lebert.

IMPACT also calls on actors across India’s gold industry to implement due diligence on their gold supply chains. Gold traders, refiners, and jewellers have a responsibility to understand, mitigate, and publically report on any risks in their supply chain–all the way back to the mine site.

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