After the Bell: Will the US sanctions against the Gold Mafia work?

18 Dec 2024

The tentacles of this scandal are one of the reasons South Africa is on the Financial Action Task Force grey list. And the consequence of being on that list is that South Africa pays higher interest rates than it should. And that affects everyone: the government, government bodies, businesses, and you and me.

Aficionados of African corruption — sad there is such a thing, but there is — might have noticed a press release issued earlier this month by the US Department of the Treasury’s Office of Foreign Assets Control, which announced it was sanctioning 28 individuals and businesses involved in a global gold smuggling and money laundering network based in Zimbabwe.

And therein lies a long, fascinating story which cannot be told in this little column. If you are interested, there is a great series on YouTube called The Gold Mafia, which tells the story of an Al Jazeera investigation into Zimbabwean gold smuggling and its links to, well, everywhere, but notably Dubai and South Africa. Obvs.

I want to make one salient, and perhaps slightly obvious, point and that is how enduring, pervasive and cancerous corruption is once it takes hold. The TLDR (too long; didn’t read) story of the Gold Mafia is that since Zimbabwe is in an almost constant state of foreign currency shortages, people who can relieve that pressure — even just a little — are worth their weight in, well, gold. What Al Jazeera did was just extraordinarily brave: it infiltrated the smuggling network with undercover reporters to eventually expose the details of the scheme.

Central figure

The central figure allegedly was, and remains to a certain extent, Kamlesh Pattni, who is mentioned specifically as the “leader” of the network by the Office of Foreign Assets Control. Pattni, as you can imagine, has a colourful background and was the central figure in the Goldenberg scandal in Kenya in the 1990s. He was accused of manipulating Kenyan gold export incentives, but after a trial lasting 13 years involving in some way or another former Kenyan president Daniel arap Moi and dozens of judges, law enforcement officials and government employees, Pattni got off. Obvs again.

That was in 2013, and since Kenya was now a tricky place for Pattni to do business, he went where? Zimbabwe. Obvs. (I’ll stop that now.) In Zim, he replicated his business model, but with a twist; there was some actual gold to sell that had been smuggled into Zim from neighbouring countries. He then became an associate of former president Robert Mugabe and subsequently of current President Emmerson Mnangagwa. His job is basically to shore up the financial system as much as possible by buying gold in Zimbabwe, selling it in Dubai, where it travels to India for bridal presents (irony there) and then returning the dollars to Zimbabwe to facilitate purchases of foreign goods.

Only, according to both the Al Jazeera report and the Office of Foreign Assets Control document, some of the hard currency doesn’t make it back to Zimbabwe.

“When Pattni and his network would return to Zimbabwe with the cash from the sale of the natural resources, they would over-report the amount of cash being brought back into the country, receive compensation on the over-reported cash, and bribe government officials in Zimbabwe to receive protection for their illicit activity. Pattni then hid the profits behind a global network of companies often controlled by members of the network, including frontmen, facilitators, couriers and other supporters,” reads the Office of Foreign Assets Control report.

Inflationary spirals

Oddly, it doesn’t say how Mnangagwa feels about that, but presumably he is not in a position to argue since the one thing he needs most is a way to pay the Zimbabwean security forces to avoid them being caught up in the inflationary spirals that affect ordinary Zimbabweans.

Well, you know, this is all interesting, but how does all this affect South Africa? First, it affects South Africa very directly because gold smuggling is only one of the ways Zimbabwe tries to balance its foreign currency deficit. There is also cigarette smuggling and, more recently, alcohol smuggling. And in order to create hard currency that can be filtered into the international financial system, it needs to corrupt bankers, which is why 11 former Sasfin employees linked to the Gold Mafia are now facing charges in South Africa.

The extraordinary thing is that the legal aspects of these cases take years, but the effects are felt immediately. The tentacles of this scandal are one of the reasons South Africa is on the Financial Action Task Force grey list. And the consequence of being on that list is that South Africa pays higher interest rates than it should. And that affects everyone: the government, government bodies, businesses, and you and me.

The Office of Foreign Assets Control decision, taken on International Anti-Corruption Day (amazingly there is one), sanctions 28 individuals and businesses; doing business with any of them opens up the possibility of those companies or individuals being sanctioned too. Honestly, I don’t think it will make much difference, as the report itself points out Pattni and several of his supporters are already establishing new operations in other resource-rich countries. Hello, Kyrgyzstan.

But you know, better than nothing. DM

Categories:

Tags:

DM is much better if you are signed in...

Africa

Central figure

Inflationary spirals