Global Witness just published a rather shocking report that blows the whistle on allegations related to gold due diligence activities at one of the world’s largest gold refiners (located in Dubai) and the audit firm engaged to conduct the audit of the company’s due diligence processes.
According to the report, Kaloti Jewelry International hired Ernst & Young to conduct an audit of their operations in 2012 against supply chain due diligence guidance developed by the Dubai Multi Commodities Centre (DMCC), a regulatory body. DMCC’s due diligence guidance was based on the OECD Due Diligence Guidance.
The audit team reportedly found that the refiner:
- Engaged in suspicious cash transactions totaling more than US$5.2 billion in 2012 alone;
- Knowingly – and routinely – accepted tonnes of gold from Morocco that was coated in silver to intentionally circumvent that country’s gold export laws; and
- Had inadequate supply chain documentation for suspect gold from Sudan.
From there, the report points fingers at the DMCC and Ernst & Young directly for various governance failures related to the Kaloti audit results. Eventually, the lead auditor from Ernst & Young refused to sign the audit report and resigned because the firm did not report the findings publicly (as was specified in the original DMCC guidance) and did not disengage from the client at that point.
There are, of course, two sides to this story and the Global Witness report reflects but one. We only know what is presented in the report and have no basis on which to judge or assess the larger set of facts. But a partner resigning from a Big 4 firm (apparently voluntarily) in response to the situation does raise eyebrows.
Even if the facts eventually demonstrate that there is more to this, the perception alone of the report could result in significant and wide ranging impacts for all stakeholders in the conflict minerals supply chain.