How untraceable Russian gold is funding Putin’s war machine
Britain is cracking down on companies that melt down and trade the metal, writes Melissa Lawford
Executives from across the gold industry will next week gather at the five-star SO/ hotel in Dubai for the city’s annual Precious Metals Conference.
Speakers include the general counsel of the London Bullion Market Association (LBMA) who will give a talk on: “Enhancing governance in challenging times.”
Hanging over the conference is the spectre of Russian gold.
Last week, the UK’s National Crime Agency (NCA) issued a red alert, warning that Russia was increasingly using gold to avoid sanctions.
The NCA warned of deliberate attempts “to launder sanctioned gold to mask its origin so that it can be hidden in supply chains and sold in the UK and around the world”.
The UK Government has also just become the first Western nation to announce a series of sanctions targeting specific companies involved in Russia’s gold trade.
These include United Arab
Emirates-based gold trader Paloma Precious. Paloma is alleged to have traded $300m (£245m) in Russian gold since Vladimir Putin invaded Ukraine.
The UAE is now under intense scrutiny for its role in the global market for shadowy Russian gold.
The metal is being shipped from Russia to refineries in countries such as the UAE that do not have sanctions against Russia. There, the gold is melted down to scrub it of its association with Russia before being sold on.
“Once melted down and recast or refined, the origin cannot be determined by examination, as any hallmarks are lost,” the NCA warned.
The trail of gold is generating a vital source of revenue for Putin’s war machine. And it is becoming glaringly clear that the bulk of this is moving through the UAE.
London is the centre of the world’s gold trade and the LBMA, which regulates the trade, banned Russian gold shortly after Ukraine was invaded.
The LBMA, which accredits gold refineries and sets the standard for global trade, banned bars made in Russia from March 7 last year from being traded. The Western allies followed suit and banned all Russian gold exported from July last year. Yet rather than crush the trade, it has been rerouted. UN data show that UAE imports of Russian gold increased 15-fold between 2021 and 2022.
Other data suggests the true figure may be even higher. Russian customs records obtained earlier this year by Reuters showed that the UAE had imported 75.7 tonnes of gold from Russia worth a total of $4.3bn in the year since the war in Ukraine began. This was 58 times the volume by weight that was imported across 2021.
The UAE was by far the largest destination for Russian gold, followed by China and Turkey, which each imported about 20 tons each.
This data suggest that sanctions on Paloma are hitting only the tip of a very large iceberg. Based on the customs records, the $300m in Russian gold traded by Paloma is equivalent to only about 7pc of the total that entered the UAE in the first 12 months of the war.
The majority of the world’s gold refineries are accredited by the LBMA, which means they have to prove the source of every gram of gold handled and are subjected to annual audits.
But in the recycled gold sector there is less oversight. LBMA-accredited refineries cover about 50-60pc of recycled gold production.
It is the recycled gold that makes up the bulk of the UAE’s market. In the UAE, there are three or four major gold refineries. None is accredited by the LBMA.
Until July this summer, the Emirates Gold refinery was an affiliate member of the LBMA. But after the LBMA completed a due diligence review this summer, it suspended the refinery’s membership “until further notice”. The suspension is understood to be driven by suspected links to Russia.
Separately, the UAE also blocked Emirates Gold from delivering into Dubai’s gold market after it failed to meet standards for responsible sourcing and anti-money laundering.
The current owner of Emirates Gold is Paloma Precious. In September, London-listed Rockfire Resources announced a deal to acquire 100pc of Emirates Gold, provided it was reinstated to the UAE’s good delivery list. Rockfire has since said it is taking legal advice to determine the impact of UK sanctions on the transaction. Paloma did not respond to a request for comment.
The bulk of the Russian gold that passes through the UAE is likely going on to China and India, but some will also be coming to the UK. British holidaymakers who buy jewellery in the UAE may also inadvertently be purchasing Russian gold.
The end result is a lifeline for the Kremlin. Russia produces more than 300 tons of gold a year and the sector was worth £12.6bn to the economy in 2021. It is a “critical revenue stream” for Russia’s war effort and one of the largest after oil and gas, the Foreign Office warned.
“Gold is essential to Russia,” says Christopher Swift, a national security lawyer at Foley & Lardner. “Russia has evolved into a barter style economy where they are using products from their extractive industries such as oil, gas and metals mining, to pay for the purchase of weapons overseas as well as for consumer goods.”
While the West was quick to realise the significance of oil and gas to Putin’s war machine, it was slower to recognise the significance of gold.
However, as the Foreign Office sanctions last week demonstrate, Westminster is now waking up – and turning the screws on Putin.
‘Once melted down and recast or refined, the origin cannot be determined’