Goldenberg 2: Is this another mega gold scam in the making

The signing of the Central Bank of Kenya (Amendment) Act into law by President William Ruto has raised pertinent questions on the idea behind the move given the country’s minimal domestic production of gold.

The new law gives the Central Bank of Kenya (CBK) explicit legal authority to buy, sell, import, export, and hold gold and other precious metals in the sector. It, however, leaves open a series of commercial, regulatory and compliance questions that could determine who benefits from Kenya’s biggest shift in gold policy.

Kenya appears to be playing catch-up because central banks in neighbouring Tanzania and Uganda are already shoring up their gold reserves to protect their countries from overdependence on foreign reserves.

The same is happening in Ghana and few other countries: “Increasingly, African governments are not only seeking to extract more gold but also to retain greater control over it. Across the continent, policymakers are viewing gold as a strategic financial asset that can strengthen reserves, reduce external vulnerabilities and support greater economic sovereignty,” says Gopal Noorani, a Nairobi jewelry trader.

But in Kenya, one of the major concerns from observers is where the gold will be sourced from, given that the country does not produce substantial amounts of gold. Currently, it is sourced from artisanal miners, who either dig pits or pan from river sand in areas like Kakamega, West Pokot and Nyanza.

Kenya is known for gold scandals, including the sale of smelted brass padlocks disguised as the precious mineral, and gold smuggling, especially from the Democratic Republic of Congo and Sudan.

Big gold scandals such as the 1991-1992 Kamlesh Patni’s Goldenberg Export Compensation Scheme scandal that almost crippled the country’s economy can also not be forgotten.

The Goldenberg Commission of Inquiry, chaired by Justice Samuel Bosire that investigated the monumental scandal, found that gold quantities in Kenya were very small and most of it was smuggled from Bunia in DRC by Patni. Kenyans have every reason to worry, because CBK was at the centre of the Goldenberg scandal where money was siphoned in a spiral web through several banks that were doing overnight lending to pay for gold export compensation.

In the recent past, Kenya has also seen an increase in criminal cases of foreigners getting scammed millions of shillings by conmen in Nairobi. Some smelt brass padlocks to present it as gold.

Following the sweeping powers granted to the CBK on the dealings of gold, concerns have emerged on how secure the CBK would be from the criminals who sell fake gold and whether the move opens a floodgate of smuggling of gold from Sudan and the DR Congo.

Political players have also questioned the timing of the law at a time when Kenya has been accused of allegedly facilitating illicit gold smuggling and war profiteering in Sudan.

Opposition leaders have also raised issues over President Ruto prioritising personal business interests over Kenya’s national agenda. They claim the Head of State has had dealings with Sudan’s Rapid Support Forces (RSF) leader, Mohamed Hamdan Dagalo, popularly known as Hemedti, who allegedly smuggled large amounts of gold from his country into Kenya.

Hemedti was also a beneficiary of Kenya’s diplomatic passport, in confusing and shady circumstances. Former Attorney General Justin Muturi said having worked with the President, he realised every policy initiative is aimed at his personal benefit.

“This is a leader who has links with RSF leader in Sudan as well as controversial Zimbabwean businessman Wicknell Chivayo, who has faced several allegations involving illicit cross-border gold networks; Kenyans could be staring to yet another Goldenberg scandal heist,” noted Muturi.

Locally, the President has had ties with businessman Okech Salah who is also involved in the gold business, with Ruto critics raising eyebrows on the amendment of the Act.

Former Deputy President Rigathi Gachagua says the amendment of the CBK ACT is a form of State capture claiming the President allegedly wants to use the CBK to edge out other players so that he may have total control of the gold business in the region.

“The move is Ruto’s scheme to sanitise gold from his associates in Sudan and DRC; he simply wants to bring gold business right under his hand while using State institutions,” he said.

According to a report dubbed ‘All that glitters’ published on September 2023 by The Global Initiative Against Transnational Organised Crime (GI-TOC), Kenya is one of the principal regional transit hubs – along with Uganda, Rwanda, Burundi and Tanzania – for the smuggling of this conflict gold.

“Almost as lucrative as the smuggling of genuine gold through Kenya are the myriad scams that seek to peddle counterfeit or non-existent quantities of the precious metal to unsuspecting buyers. Gold swindles have on occasion escalated into embarrassing diplomatic rows, most notably in 2020 when both the President of Kenya and the main opposition leader were summoned to a meeting by the emir of Dubai over an Emirati company that had been victimised by Kenyan fraudsters. Dubai is by far the most popular destination for smuggled East African gold, due to its status as a tax haven as well as a key aviation hub,” the report reads.

The report explained how Kenya plays a major role in the regional illicit gold trade, and how Kenyans have routinely been named in UN sanctions reports.

“On one infamous occasion, the smuggling of Congolese gold through Kenya caused a diplomatic incident. In 2011, then DRC president Joseph Kabila personally came to Kenya in search of over 2.5 tonnes ($100 million) in gold looted from his country. It subsequently came to light – at considerable embarrassment to the Kenyan government – that the two key brokers of this deal were Kenyan citizens, one of whom owned an artisanal refinery (as well as a major group of hotels) in Nairobi,” the report read.

According to the report, while the United Arab Emirates (UAE), the foremost destination for smuggled Congolese gold, gold produce has skyrocketed, official export figures from African countries have not kept pace, strongly suggesting that much of the precious metal reaches the UAE illicitly.

“This trend has also manifested itself in Kenya. According to the most recent UN Comtrade data, Kenya’s global gold exports in 2021 (the most recent year for which UN Comtrade data is available) totaled under US$16 million. However, during the same year the UAE officially imported almost US$200 million in gold from Kenya, a discrepancy of some US$185 million. Data from previous years feature similar discrepancies. Meanwhile, the DRC’s official global gold exports in 2021 totaled a mere 51 kilogrammes, with a value of US$2.7 million,” read part of the report.

The report implicated two senior leaders in the country, including a serving MP and a high-ranking official who is the leader in one of the three Executive arms of government, in a gold scandal that caused a diplomatic tiff between Kenya and the UAE.

“The 4.6 tonnes of gold, of course, had never existed. The fraud, otherwise similar to many perpetrated in Kenya, gained an international dimension when it emerged that the emir of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, had personal ties to the owner of the procuring company. In January 2019, Sheikh Maktoum sent a bluntly worded missive to the Kenyan interior ministry. Referring to the owner as ‘our company’, the Sheikh demanded ‘immediate and strong action to release the totality of gold shipment to UAE’.

The report added, ‘Finally responding to the mounting political pressure, Kenyan police signaled their intention to arrest the MP, then businessman and the high profile leader.’

Despite the fear over the past gold scandals, Kenya Chamber of Mines has welcomed the new law, saying besides enhancing the reserves at CBK, the move will create a ready market for what the artisanal and small-scale miners are producing from Migori, through Siaya, Vihiga, Kakamega, Nandi, West Pokot and Turkana.

Through its chairperson Dr Patrick Kanyoro, the strategy has worked in Tanzania and Ghana, saying the country can learn a lot of lessons from them.

“Granted our favourable geographic location, Kenya stands an opportunity to be the hub of choice for miners and mineral traders. With the upcoming Mineral, Mining and Beneficiation Policy 2026 that has proposed the Mineral Commodity Exchange in Nairobi, the future is bright,” he said.

He, however, said the country needed to do serious housekeeping, saying, ‘issue licences and permits to all investors - domestic as well as foreign. When we formalise the gold value chain, that will be a hygienic way of managing mineral smuggling.”

Mining Cabinet Secretary Ali Hassan Joho announced the discovery of gold in Kakamega, which he claims, without empirical evidence, is valued at approximately Sh680 billion.