The Road to El Dorado has Hidden Detours: How Mali’s lenient taxation of gold exports paved the way for an illicit trade hub

It is no revelation that North West Africa has been, and remains, a famed source of the world’s gold.[1] What has only recently become known, however, is that the region has been hosting a controversial trade route. Beginning in Côte d’Ivoire and Burkina Faso, gold travels through these countries’ porous borders into Mali wherefrom it is exported to foreign refiners. In virtue of Mali’s tax regime, buyers benefit from a significant tax break, as they are taxed only on a quarter of gold exported per month.

The exposition of this conduit was made by a report published in late January this year by Partnership Africa Canada (PAC), a non-governmental organisation that focuses on strengthening natural resource governance in conflict and high-risk areas. After conducting extensive on-site research and data analysis in the three North West African countries, the organisation unveiled discrepancies between Mali’s declared gold production and the amount of gold actually exported to UAE gold refiners.

Mali’s troublesome export tax regime has been identified as the main culprit in this regard. Similar to Burkina Faso and Côte d’Ivoire, the Malian government levies an export tax on gold at 3% of the value of the exported quantity. The motivation for this uniform approach is to prevent exporters from shopping for the most beneficial tax regime.[2] However, implementation by Mali’s government officials of this law differs from the other two countries, ensuring that the country is the favoured hub through which gold is diverted from its neighbouring countries.

The uniqueness of Mali’s application of the export tax lies therein that only 50kg of every 200kg gold exported is taxed if all shipments are executed within one month. Hence, 75% of gold exports out of Mali are tax-free. Mali’s Mining Code does not allow for this practice explicitly.[3]

The relevant countries’ geographical proximity to one another further enables the smuggling of gold through long-established trade networks over the borders of these neighbouring countries with relative ease. With some of Côte d’Ivoire’s major gold producing areas being very close to the Burkinabe border, Ivorian gold moves straight through Burkina Faso’s borders into Mali from where it is exported, bypassing the capital, Yamoussoukro.[4]

The report further finds that ‘pre-financing’ is essential for this illicit trade practice.[5] Small-buyers, pre-financed by the larger traders operating in the capital cities, buy directly from artisanal pit owners. The larger traders are pre-financed by buyers such as the refining centres in the UAE, to whom the gold is finally exported.[6] These traders unsurprisingly realise a profit by facilitating the smuggling of gold from Cote d’Ivoire into Burkina Faso and Mali. This practice causes that most of the gold produced in Cote d’Ivoire is sold to Burkinabe and Malian traders, and cannot be traced back to Cote d’Ivoire as the country of origin. The inability to trace the origin of gold undermines the legitimacy of the African gold trade.[7]

Production and trade statistics expose discrepancies in declared data, linking the UAE to the illicit trade of gold through Mali. The import trade data reported in UN database Comtrade, provided by the UAE for the period between 2011 and 2014, shows that UAE gold imported from Mali successively exceeded the total gold exported by Mali in 2013 and 2014.[8] As the majority of Mali’s industrial gold exported to refiners in South Africa and Switzerland was accounted for, the figures could be explained neither by UAE-based refiners nor the customs officials in the relevant countries.[9] The PAC report, therefore, argues that the quantity of gold supposedly produced by Mali is being supplemented with the artisanal gold produced in Burkina Faso and Cote d’Ivoire. The additional artisanal gold is then exported to Dubai by North West African suppliers.

These statistics imply that the UAE is actively involved in the illicit trade of gold through Mali, therefore raising questions about the integrity of UAE-based buyers and the Dubai Multi-Commodities Centre. PAC previously investigated the UAE regarding gold imported from the Democratic Republic of Congo. The UAE import controls allowed for gold carried as hand luggage to be exempted from declaration.[10] This exemption allowed for the sale of DRC gold in Dubai’s gold souks (marketplaces), thus bypassing the due diligence processes regulated by the Dubai Multi-Commodities Centre.[11] The UAE’s commitment to resource governance seems lacklustre, however, as it has not resolved to address this issue. It, therefore, remains to be seen if the complicity of UAE companies in illicit gold trading in Mali will be addressed.[12]

The PAC report recommends that the Malian Ministries of Finance and Mines bans hand-carried exports and review the implementation of the 3% export tax on gold that facilitates the significant tax break. With reference to the findings regarding the UAE, the report recommended that importers of gold from Mali and Burkina Faso conduct thorough due diligence regarding their supply chains. The Dubai Multi-Commodities Centre was also advised to commence phasing out carry-on gold exports with immediate effect.

As a way forward, PAC calls for all gold-producing countries in North West Africa to adhere to a uniform, regional approach. Since an illicit trade route undermines the economies of the African countries implicated, PAC argues that a regional approach will address challenges in the gold sector with more efficiency than domestic legislation. Economic dividends can be increased, enhancing the management of the artisanal and small-scale mining sector and facilitating long-term peace and security.[13] 

The PAC Report illustrates the need for greater due diligence in the gold sourcing procedures between UAE refiners and their West African suppliers. Shortcomings in supply chains can be exposed if refineries adhere to due diligence standards by verifying the origin of imported gold. However, since compliance with international gold guidance standards is entirely voluntary,[14] it remains uncertain whether UAE refiners will abide by an unbinding responsibility to trace the source of the West African gold they import.

Written by: Laura-Anne Wilson