On June 27, a broad lineup of U.S. government departments and agencies issued an "Africa Gold Advisory." The 29-page Advisory, jointly issued by the U.S. Departments of State, Treasury, Commerce, Homeland Security, and Labor, together with the U.S. Agency for International Development (USAID), identifies major risks associated with transacting with the African gold sector and urges U.S. businesses to conduct careful due diligence before engaging in any such transaction.
To a substantial extent, the issuance of the Advisory was motivated by the activities of the Wagner Group, recently in the news for its confrontation with the Putin government, but long the subject of U.S. sanctions for various malign activities. The Wagner Group derives significant revenue through the African gold sector, especially in Sudan, the Central African Republic, and Mali.
As explained in the Advisory, the principal risks of transacting with the African gold sector, particularly in sub-Saharan Africa, fall into two categories. The first consists of "upstream" risks associated with mining on a large industrial scale as well as on a smaller, artisanal scale. These risks include corruption (associated with money laundering, violation of economic sanctions, and other financial crimes); contributing to armed conflict and terrorism (which also presents commercial and reputational risks); smuggling (associated with violation of economic sanctions, tax evasion, money laundering, and other financial crimes); human rights and labor abuses (including child labor and other forced labor, which implicate U.S. import bans); and environmental concerns (including mercury contamination, dissemination of cyanide into the ecosystem, and deforestation). The second category consists of "downstream" risks associated with transporting, refining, and selling gold. These risks include most of those in the first category, as well as mislabeling illicitly mined gold as "recycled," a stratagem that obscures the metal's origin.
The risk of participating in money laundering and terrorist financing is always present. The Advisory explains that "[t]he use of gold as currency, the cash-intensive nature of elements of the gold trade, and gold's portability and lack of traceability—particularly from mining to refining—makes it an attractive vehicle by which criminal organizations, armed groups, terrorist organizations, and others seek to move illicit gains, purchase weapons, evade sanctions, etc."
The Advisory urges U.S. businesses to conduct thorough due diligence to reduce the risk of unwitting assistance to, or participation in, proscribed activities. The Advisory identifies organizations that have issued guidelines for conducting due diligence, including the Organization for Economic Cooperation and Development (OECD), the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN), the Financial Action Task Force (FATF), the Inter-Governmental Action Group Against Money Laundering in West Africa (GIABA), the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), and various industry organizations. Red flags can include unexplained decreases in a mine's production; buying gold above market price using cash or barter; a sudden influx of miners into an abandoned site; and making payments for local purchases into an account abroad.
In addition to risks that apply to U.S. businesses generally, U.S. precious metal dealers and U.S. financial institutions are subject to regulatory obligations concerning transactions involving the gold sector. All U.S. businesses that transact with African gold should consult with experienced counsel.
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