The Gold Smuggling Business Revealed
From 5 pm on Tuesday till 2.30 am on Wednesday, M Shivasankar IAS, Kerala chief minister Pinarayi Vijayan’s former principal secretary and IT secretary, was questioned by customs officers in Thiruvananthapuram for his alleged links with gold smugglers who are currently under National Investigation Agency (NIA) custody.
The former principal secretary, who was sent on a year-long forced leave by the Kerala chief minister for his alleged links with gold smugglers, was questioned by customs officers as they have got pieces of evidence confirming his closeness with Swapna Suresh, a former contract employee with Kerala IT department, and Sandeep Nair, Swapna’s accomplice and a businessman in Kerala.
Swapna and Sandeep are under NIA custody for smuggling gold through diplomatic channels.
On July 05, Thiruvananthapuram Air Customs seized 30 kg of smuggled gold worth Rs 15 crore from a consignment addressed to an official at the United Arab Emirates (UAE) Consulate in Thiruvananthapuram.
Swapna, Sandeep, and Sarith, a former PRO with the UAE Consulate, were involved in releasing the consignment in which gold was concealed.
However, they failed.
And the consignment was opened with the knowledge of the Ministry of External Affairs and the smuggled gold was seized.
Later on, as the gold was smuggled in a consignment camouflaged as diplomatic baggage, the NIA was brought in to probe the case.
The consignment was sent to Kerala from Dubai and the NIA, which is probing a terror link in the gold smuggling, has moved Interpol seeking a “blue notice” against Faisal Fareed, a Dubai-based person named as key accused in the case.
The NIA has found that Faisal Fareed had forged the documents - seal and emblem - of the UAE embassy to ensure diplomatic protection for the baggage and the gold was to be used for terror activities.
On July 07, in an exclusive story, The Lede had reported that 400 kg of gold was smuggled into Kerala through four international airports in the state in 2019 itself.
Talking to The Lede, a senior customs official in one of the airports in Kerala, had said that the majority of the gold - caught or uncaught - is brought from the UAE, especially Dubai.
Dubai And Gold
Dubai is one of the world’s largest gold hubs and is also a place to launder artisanally mined gold, especially from conflict-prone parts of East and Central Africa.
Even though Dubai is a relatively new player in gold trading, the UAE has ranked among the top four gold-importing countries, above Hong Kong and the United States.
And of the 11 gold refineries in the UAE, the majority are located in Dubai.
Dubai Multi Commodities Centre’s (DMCC) statistics reveal that Dubai is responsible for about 80% of the total UAE gold imports and exports.
Reportedly, Dubai accepts ASGM (artisanal and small-scale gold mining) gold from producer countries that more respectable trading hubs avoid.
For example, gold from the Democratic Republic of Congo (DRC) and South Sudan are both commonly trafficked ASGM gold carried into Dubai. They are always sold in the emirate’s gold souk.
And from there the gold is resold to the world’s most reputable gold hubs.
Gold Smuggled Into Dubai
A report from a foreign-policy think-tank The Carnegie Endowment for International Peace published on 07 July 2020, titled Dubai’s Role in Facilitating Corruption and Global Illicit Financial Flows, highlights the weaknesses in Dubai’s oversight of gold commodity trading.
The report claims that the gold processed in Dubai makes its way to the world’s leading gold hubs, such as India and Switzerland, or is re-exported as jewellery to places such as India, Iran, and Iraq, where gold is often part of money laundering or conflict-driven financial schemes.
NIA in India also has framed terror acts linked with money laundering in the gold smuggling case.
According to the Carnegie report, authored by Shawn Blore, an independent consultant, and Marcena Hunter, an analyst with Global Initiative Against Transnational Organized Crime, gold comes to Dubai from parts of Africa.
“Most of the gold is hand-carried by individual couriers, who usually carry 2–20 kilograms, with 10 kilograms being a typical parcel,” the report says.
Many of the African capitals are serviced by direct flights to the UAE.
And these flights are often under five hours in duration and generally cost less than $500, meaning a gold courier can reach Dubai in a single day’s travel for the cost of approximately 10–12 grams of gold.
According to the authors, on arrival in the UAE, couriers declare their gold to customs authorities (there is no tax) and fill out and sign a gold import form, listing, among other things, an unverified self-reported claim about the gold’s country of origin.
“Sometimes couriers are asked to show their boarding pass as proof of the gold’s origin, but this is rare,” the report adds.
Form in hand, couriers are free to sell the gold wherever they want in Dubai or elsewhere in the UAE. Typically, the gold is sold in the Dubai gold souk.
Souk dealers record these purchases as scrap gold, which provides a suitable paper trail for selling this gold on to one of Dubai’s gold refineries.
According to UN Comtrade Database, Switzerland and India imported a total of more than 200 tons or just over $8 billion in UAE gold in 2016.
And in the same year, the UAE exported just over 323 tons of gold jewellery worth $11.5 billion in 2016.
Most of this jewellery went to Iraq and India, 79 tonnes and 53 tonnes, respectively.
Gold is smuggled to Dubai, and the profits are used to purchase goods for import to Africa (often after being mis-invoiced) and then sold for a profit, creating double the opportunity to raise illicit funds.
Gold traders use the hawala system extensively for trade-based money laundering.
The hawala system is a centuries-old informal financial system that allows money to transit countries without currency moving, usually by linking money flows with the import and export of goods.
The report states that a combination of loosely regulated gold imports, poor oversight of free trade zones, trade mis-invoicing, and the flow of currency via informal systems like hawala are a boon to trade-based money laundering networks.
Why Are Keralites Smuggling Gold?
According to a gold businessman in Dubai, gold is smuggled into India, especially Kerala to evade tax and also to use the yellow metal as a material currency.
“The price of one kilogram gold (24 karat) is around Rs 43 lakh in Dubai. Now, assume that you are going to take one kilogram of gold to India legally. Then you have to pay an import duty of 12.5% and a GST of 3%. Which will come around Rs 6.65 lakh. Interestingly, any passenger can carry two or three bars weighing one kilogram each. Let’s consider that a passenger is smuggling two kilogram of gold bars. He is going to save around Rs 13 lakh by evading tax,” the gold businessman told The Lede.
“This is the saving, which tempts smugglers to smuggle gold,” the businessman added.
“Additionally, gold is an asset, and hiding 3 kg of unaccounted gold in your house is very easy. And anytime there will be buyers too,” he added.
According to the businessman, a lot of the domestic gold in India is nowhere close to 24-karat and the smugglers know that Indians will be looking to buy the best gold they can no matter where it is from, and they stand to make a nice profit by subverting the authorities.
He added that gold jewellers are the ones who go for smuggled gold.
“Assume that somebody is going to buy 100 sovereign gold for a marriage. They have to pay 18% tax (10% Customs Duty on gold being imported from overseas + 3% GST on the value of gold in the jewellery + 5% GST on making charges of the gold jewellery) for the 100-sovereign gold. The shop owner will ‘help’ the customer to buy 50 sovereign gold where GST will be avoided. The customer will be happy. When the client agrees, then the jewellery owner would sell the smuggled unaccounted gold,” he added.
Migrants, Laptops, Oats
The illicit gold trade relies heavily on the courier services of mostly low-paid migrant labourers from rural India who work in the Gulf.
Smuggling syndicates especially prey on indebted workers, some of who have to pay medical bills for family members in India and neighbouring states.
Criminal syndicates operate in small cells, with the courier only ever meeting the person who gives them the gold in Dubai and possibly the person who receives the delivery.
The courier is given a cell number to call after clearing customs in India. If for whatever reason, the courier is arrested and does not call at the agreed-upon time, the SIM card is destroyed, removing the ability of police to track other syndicate members.
Even if a courier is caught, the prospects of conviction are unlikely. The low likelihood of conviction lies mostly in India’s massive population, the many common names, and the lack of a centralised system that records offenses.
This means that even if someone is arrested, the worst the police can do is to confiscate their passport and hold them in jail for a maximum of 60 days.
After their release, a courier simply has to go their home area, reapply for a new passport, and never show up for their trial.
Talking to The Lede, a Keralite woman lawyer in Dubai who knows a few gold smuggling rackets in and around Dubai said that Rs 25,000 is given for a courier and ticket to go home.
“These smugglers are more advanced than Indian customs preventive officers. They are always a step ahead of our customs officials. There are even some flats here in Dubai which have metal detector doors to train the carriers to walk normally when carrying gold as paste inserted in the body,” the lawyer said.
“If not inserted in the body, then even the carrier won’t know where the gold is kept in the baggage. And when caught in India by customs, the carrier also will be surprised,” she added.
Meanwhile, a cargo service agent in Dubai told The Lede that they have seized gold concealed in washing machines and even in laptops where the normal circuit will be replaced with gold.
“Laptops with the gold circuit is the latest trend. And they mix the powdered gold in Oats which will not be caught but can be segregated by experienced goldsmiths,” the cargo agent added.
Rs 1,000 Cr In 2016-19
In 2019, the Directorate of Revenue Intelligence (DRI) Mumbai unit busted a gold smuggling racket that had smuggled some 3300 kg of gold from UAE, which is worth Rs 1000 crore between 2016 and 2019.
According to the DRI charge-sheet, Nisar Aliyar, a Keralite based in Mumbai, had floated two companies Al Ramz Metal Scrap Trading and Blue Sea Metal FZE registering the same in the name of one person identified as Kalpesh Nanda for exporting metal scrap to India. This was an alleged cover cargo to smuggle gold.
The DRI alleged that Aliyar then ensured that the sale proceeds of the smuggled gold were siphoned off to Dubai through hawala.
Aliyar was arrested on 31 March 2019, and charged under various provisions of the Customs Act and Conservation of Foreign Exchange & Prevention of Smuggling Activities Act, 1974 (COFEPOSA).
According to a report from IMPACT in November 2019, India is importing approximately 1000 tons of gold per year - a quarter more than what official figures indicate.
IMPACT, a Canada-based research organisation, reveals that traders falsify import and customs documentation to import gold doré (a bar composed of a mixture of precious metals with gold as the main metal) that may be linked to conflict, human rights abuses, illegality, and criminal networks from Africa and South America into India.
“The opaqueness of the hawala system not only makes gold transactions invisible to law enforcement and revenue authorities, but it also poses a serious threat to the credibility and scalability of supply chain traceability and due diligence,” IMPACT’s report adds.
Meanwhile, The Lede had found that about 900 kg of gold was smuggled into India through Chennai, Kozhikode, Cochin, Thiruvananthapuram, Bengaluru, Kannur and Mangalore airports in 2019.
The RTI replies sent to this reporter reveal that while 350 kg of gold was smuggled into India through Chennai airport, 450 kg of gold was smuggled through four airports in Kerala.