Where Russia is selling its gold – as the West turns the screws on Putin

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 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 UAE-based gold trader Paloma Precious. Paloma is alleged to have traded $300m (£246m) in Russian gold since Vladimir Putin invaded Ukraine.

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 President 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 London Bullion Market Association (LBMA), which regulates the trade, banned Russian gold shortly after the invasion of Ukraine.

The LBMA, which accredits gold refineries and sets the standard for global trade, banned bars made in Russia from March 7 2022 onwards from being traded. Western allies followed suit and banned all Russian gold exported from July 2022 onwards.

Yet rather than crush the trade, it has been rerouted. UN data shows that UAE imports of Russian gold increased 15 times over 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 (primarily via Hong Kong) and Turkey, which each imported around 20 tonnes.

This data suggests sanctions on Paloma Precious 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 external audits. LBMA-accredited refineries account for around 90pc of annual mined gold production around the world.

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 are 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 suspended Emirates Gold’s Good Delivery List certification 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 urgent legal advice to determine the impact of UK sanctions on the transaction.

Paloma Precious did not respond to a request for comment.

Because the UAE has no sanctions on Russia, Putin is free to export Russian gold to these refineries. Russia’s reliance on friendly countries such as the UAE to wash its gold mimics the way Putin has managed to circumvent the G7 oil price cap by building a “dark fleet” of tankers operating outside the Western insurance market.

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. It cannot be imported into the UK as bars because it lacks LBMA certification, but it can be imported as jewellery or even in electronics. British holidaymakers who buy jewellery in the UAE may also inadvertently be purchasing Russian gold and bringing it home.

The end result is a lifeline for the Kremlin. Russia produces more than 300 tons of gold per 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 and formerly an official in the US Treasury Department’s Office of Foreign Assets Control.

“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 realise the significance of gold.

However, as the Foreign Office sanctions last week demonstrate, Westminster is now waking up – and turning the screws on Putin.