Ministry of Economy Collaborates With UAE Gold Refineries on Due Diligence Regulations Dialogue

The Ministry of Economy has been attempting to crack down on its regulations on the United Arab Emirates gold refineries for multiple years now. In recent news, the organization’s Anti-Money Laundering department conducted a two-day dialogue session to discuss due diligence regulations in UAE gold refineries. AML aims to create more responsible gold supplies with these regulations that have been mandatory for all UAE gold refineries since January 2023 following the Organization for Economic Cooperation and Development announcement, which applied the laws globally.

The recent dialogue acted as part of the Ministry of Economy’s efforts to strengthen the AML’s regime over non-financial businesses.

“The purpose of implementing the due diligence regulations for the responsible supply of gold is to protect the interests of companies that engage in such activities from the penalties and administrative sanctions resulting from their failure to comply with the UAE’s AML/CFT legislation,” Safiya Al Safi, the Director of the AML Department at the Ministry of Economy, explained.

Safiya Al Safi explained that the policies strictly apply to all gold refineries in the United Arab Emirates. The organization’s procedures help local companies develop strong managerial systems while adopting proper due diligence regarding gold supply chains.

When followed correctly, the policies help refineries locate and assess any supply chain risks, create and execute management strategies for responding to said risks, and implement third-party audit systems for assessing and reporting on the supply chain. Essentially, refineries can better locate issues, such as money laundering, and then understand how to respond to the issue and dissolve it. The gold supply chain industry contains numerous lucrative and harmful practices that organizations like the Ministry of Economy want to terminate.

While these policies may have gone into effect at the beginning of 2023, clearly, the UAE is still experiencing issues. Safiya Al Safi explained that the purpose of these further discussions was to ensure that gold refineries promptly implement the mandated regulations. Safiya Al Safi wanted to promote further awareness on the topic, discuss perspectives, and answer questions regarding challenges in implementing procedures to hopefully improve implantation rates moving forward.

One key aspect of correctly following these procedures is conducting due diligence properly, so what does that look like?

To prevent harmful practices like money laundering, gold refineries are supposed to vet their customers and suppliers by identifying risks, controlling transactions, and maintaining all documentation. The ‘Know Your Customer’ policy requires institutions to establish the customer’s identity, understand the nature of their activities, qualify the legitimacy of their fund sourcing, and assess risks. Following such guidelines helps gold refineries prevent money laundering, terrorist financing, corruption, and fraud.

During the dialogue, UAE gold refineries discussed the challenges the local industry faces in implementing the proposals in an effective or efficient way.

The recent program introduced in January 2023 is not the first time the Ministry of Economy has enforced regulations on the gold-trading industry. Gold trade falls under the high-risk category, requiring regular monitoring and compliance for industry safety.

The Ministry of Economy created a set of due diligence laws in 2022 in accordance with the Federal Decree-Law No.20 of 2018 to increase the international standards on gold trading while positioning the UAE as a global gold hub. 2022’s initiatives developed increased governance over the gold trade.

Similarly, in December 2020, the Ministerial Development Council began the Federal Policy for the Gold Sector, which created the Emirates Gold Bullion Committee. This initiative pulled together a unified national effort in the UAE for more governance over gold trading.

In November 2021, the UAE also created the UAE Good Delivery Standard for Gold, establishing recognized specifications on gold delivery and circulation.

Clearly, improving gold trade and production in the UAE has been an ongoing battle. Over the past few years alone, the industry has shown excellent strides toward creating a more responsible gold supply chain. The recent dialogue over the Ministry of Economy’s regulations on UAE gold refineries should create better policy adoption, especially given the potential penalties.

While gold production and trade may traditionally contain high-risk practices, numerous organizations are actively mending this. With the Ministry of Economy cracking down on the UAE’s gold refineries, the gold industry can hopefully become a more responsible and sustainable trade space.

As an unintended side effect, the recent policies potentially restricted trade between Dubai and Russia, ultimately boosting exports from Russia to China. As a result, global gold trade patterns have shifted, boosting demand rates and potentially offering some pricing support for the precious metal.

As always, investors should consult their advisors before making any portfolio moves.

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