A gold refiner used by criminals to launder drug money has been cleared to sell gold in global supply chains used to make smartphones and cars.
International investigators have concluded that Dubai-based trader Kaloti was buying gold from criminal networks.
Six years ago, law enforcement officials urged the US Treasury to warn the world that this was a “major money laundering problem.”
But the warning was never given.
As a result, Kaloti continued to sell tons of gold to companies in the Apple, General Motors and Amazon supply chains, which use the precious metal in components. This has put businesses and millions of consumers at risk of unintentionally funding criminal activity.
The US Treasury did not respond to requests for comment.
Kaloti’s representatives said they “vehemently denied” knowingly being involved in any crime or misconduct.
Confidential documents seen by the International Consortium of Investigative Journalists (ICIJ) and the BBC reveal that the U.S. Treasury was urged by investigators in 2014 to issue a warning after a three-year investigation.
Dubbed the “Honey Badger” and led by the Drug Enforcement Administration (DEA), the investigation concluded that Kaloti was involved in a project to transport or transfer “huge amounts of illicit value through the use of gold as commodity ”.
Under the system described in the documents, criminals all over the world could use drug money or other illegally obtained cash to purchase scrap gold, such as second-hand jewelry, and l ‘bring to Kaloti.
In exchange for the gold, investigators said, Kaloti would either offer cash in bulk or send them a wire transfer.
In 2014, the DEA recommended that the US Treasury publicly designate Kaloti as a “primary money laundering concern” under the US Patriot Act, which would have made it too risky for global banks to do business with them, blocking thus the financial system group.
But the US Treasury never took action against Kaloti. Former officials said they postponed a decision on the recommendation, concerned about the reaction of the United Arab Emirates, a key diplomatic ally, where Kaloti was based.
When the UAE did not act on its own initiative, the investigation was suspended.
Kaloti did not have a chance to see or dispute any of the evidence as it was not interviewed by investigators and there may be undisclosed reasons as to why the report was not acted upon. Attempts to get an explanation from the US Treasury have not resulted in an answer.
The investigation, which the US government has never made public, was supported by a flood of reports of suspicious activity from banks around the world handling Kaloti’s money.
Lenders, including Deutsche Bank and Barclays, submitted 34 separate reports on Kaloti to the US Treasury’s Financial Crime Enforcement Network (FinCEN), highlighting thousands of suspicious transactions between 2007 and 2015, totaling $ 9.3 billion (7 , £ 26 billion).
In 2017, a money laundering gang was convicted in France for laundering the proceeds of drug sales across Europe, including the UK.
Last October, BBC Panorama revealed that a company controlled by the gang, Renade International, sold Kaloti for $ 146million (£ 114million) of gold in 2012 alone – part of 5.2 billion dollars in gold purchases paid in cash.
Kaloti vehemently denies ever having acted inappropriately and claims that he has never been accused or contacted by any US authority about wrongdoing.
He says he performs full due diligence on all customers and suppliers.
Lawyers for the firm said it has successfully passed audits annually against all regulatory and legal standards.
Supply chain fears
The DEA-led task force to investigate Kaloti submitted an investigation report and recommended the primary money laundering designation in August 2014.
But after the designation did not materialize, the gold sold by Kaloti continued to end up in major supply chains.
Apple’s list of approved suppliers includes entities that have purchased tons of gold from Kaloti, including Valcambi, one of the world’s largest gold refiners, based in Switzerland.
All modern smartphones have components made of gold, a highly conductive metal.
This year, anti-corruption watchdog Global Witness reported that in 2018 and 2019, Valcambi purchased up to 20 tonnes of gold directly from Kaloti and an additional 60 tonnes from a related entity.
Another report from the Tech Transparency Project listed two other Swiss refiners who had purchased gold from Kaloti and were also on Apple’s supplier list.
Valcambi said he would not confirm or deny the purchase of gold in Kaloti. The company said it only buys gold from its suppliers “where the company can fully guarantee the identification of the origin of the gold.”
In a statement, Apple said it is committed to responsibly sourcing its products: “If a refiner is unable or unwilling to meet our standards, they will be taken out of our supply chain. Since 2015, we have stopped working with 63 gold refiners for this reason.
“Several in-depth and independent reviews have been conducted since 2015, and there is no evidence that Kaloti’s gold enters Apple products. “
Kaloti is listed as part of the General Motors and Amazon supply chain, according to data submitted to the Securities and Exchange Commission, the US regulator.
General Motors, which uses gold in auto parts such as catalytic converters, said it is committed to responsible sourcing of products used in its manufacture and has not done business directly with Kaloti.
He said none of his suppliers shared any compliance issues or concerns about Kaloti.
Amazon said it was “committed to ensuring that the products and services we provide are produced in a manner that respects human rights and the environment. We engage with suppliers who are committed to these same principles.
“We expect suppliers to support our efforts to identify the origin of the designated minerals used in our products. ”
Investigators who had worked for years to expose Kaloti-related money laundering describe themselves as “incredibly frustrated” with the handling of the case by the US Treasury.
“We have put a tremendous amount of work and effort over three years into this case – we have all lived and breathed it,” said one of the members of the DEA-led task force, speaking anonymously. .
“We were very confident that we had more than enough for them to be nominated. It pissed us all off. “