How corruption is fuelling multi-billion gold rackets in EA region

Tuesday, April 19th, 2022 04:27 | By
Lual Lawrence Malong Yor, the South Sudanese businessman found guilty of conducting a million-dollar ‘gold scam’ by a Ugandan anti-corruption court in July 2021. PD/COURTESY

In July 2021, a Ugandan anti-corruption court found South Sudanese businessman Lual Lawrence Malong Yor guilty of defrauding an Ethiopian national of over US$1 million.

Together with his associates, Malong – who had become notorious for posting videos of himself online lying on top of piles of dollars– had carried out an elaborate fake-gold scam, obtaining money and creating false documentation for consignments of gold that never materialised.

The striking details of the story made headlines across East Africa. Yet, dramatic as it was (even the presiding judge described it as worthy of a movie), Malong’s case is by no means unique. Criminal networks with connections in the DRC and South Sudan play an increasingly active role in fake-gold scams in Nairobi and Kampala. These cases, which involve fraudsters promising investors gold but delivering imitations (such as brass) or simply disappearing with investors’ money, highlight the issues of corruption and poor regulation in East Africa’s gold sector that underlie this burgeoning criminal economy.

Foreign investors

Gold scammers in East Africa tend to target foreign investors (from as far away as Malaysia, India, Dubai, Ukraine, Korea and the UAE), offering them gold at very low prices. Prospective buyers are enticed with bars of genuine gold, gold-plated metals and nuggets, or even powder. However, according to CP Mwangi, chairperson of Kenya Chamber of Mines: “What people are buying on the streets is brass, which once cooked, looks like gold.” In one case from September 2021, a Guinean national operating from Nairobi defrauded an Indian national, agreeing to sell him 44.45 kilograms of gold at US$39.70 per gram (well below international market rates of the time) to be shipped from Guinea through Nairobi’s Jomo Kenyatta International Airport; instead, the dealer sent river pebbles.

A review of major cases reported by law enforcement in Kenya and Uganda between the beginning of 2021 and the beginning of March 2022 shows that defrauded investors lost an estimated US$25 million in a total of 18 incidents. In one case from 2020, a DRC national, arraigned in a Nairobi court in January 2022, was accused of defrauding a Ukrainian of US$8.32 million in 2020, an amount equivalent to 136 per cent of the value of Kenya’s total gold production.

Many of the networks involved appear to be made up of foreign nationals. GI-TOC research indicates that in the past year, Kenya has arrested seven foreigners (three Cameroonians, two Tanzanians, a Nigerian and a Zambian) in connection with the sale of fake gold, while Uganda arrested eight suspects (five Congolese, two Nigerians and a Cameroonian) in the first three months of 2021. Rivalry between gold-scamming networks and disputed deals have led to violence and assassinations.

The international impact of the East African fake-gold business cannot be overstated.

Diplomatic incident

In 2019, President Uhuru Kenyatta moved to defuse a diplomatic incident by meeting with the ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, associates of whom had been scammed by Kenyans in a Sh400 million (over US$3.5 million) deal involving the promise of 4.6 tonnes of gold that didn’t exist.

The gold was allegedly to be sourced in the DRC and transported to the UAE through Jomo Kenyatta. Kenyan authorities identified Senator Moses Wetangula as a ‘key person of interest’ in this case.  Wetangula dismissed the claims as a “non-issue”.

Law enforcement authorities in Kenya and Uganda have appealed to prospective gold buyers to beware potential scammers. The head of Kenya’s Directorate of Criminal Investigations (DCI), George Kinoti, has urged embassies and high commissions around the world to advise their citizens of the issue: “The gold scam has now reached alarming levels as unsuspecting foreign nationals are being swindled out of large amounts of money by fraudsters,” he declared in December, last year.

The details of the elaborate scam Malong carried out include many of the hallmarks typical of ‘fake gold’ deals. Malong first made an acquaintance with Abebe Engda, a friend of his eventual victim WG Dessie, both South Africa-based Ethiopian businessmen. Over six months from June 2017, he set up a series of meetings with the two men, at high-end hotels in Uganda and Nairobi, and in South Sudan and South Africa, facilitating all their travel visa requirements. As seen in other, similar scams, the intention with such high-end meetings is to expose to the potential victim that the perpetrator is wealthy and legitimately making substantial profits from the gold trade.

Malong offered to sell Dessie two tonnes of gold sourced in the DRC. Dessie had travelled to ‘Uganda, to Kenya, to Dubai, to Hong Kong SAR and back and forth several times chasing gold that never was,’ the court stated. By the time of his arrest, Malong had still not supplied the gold.

Malong was aided by a network of people: One posed as an army general from the DRC (the owner of the fictitious gold), and others pretended to be representatives of the Uganda and Kenya revenue authorities and Interpol. Dessie was conned into paying money to these individuals to facilitate the deal.

Dessie and his associate “trusted [Malong] as a man of God’, thinking that his religious principles made him a trustworthy business partner.” They had also “put so much money in the deal that they feared to pull out believing it was due to mature. Pulling out would lead to loss,” said Judge Lawrence Gidudu in the ruling.

Malong’s background

The reality of Malong’s background is difficult to decipher. While he has claimed to be related to South Sudan’s former army chief of staff Paul Malong Awan, including through his public LinkedIn profile, the nature of their relationship is unclear. Both Paul and Lawrence have also at other points denied any familial relationship.

Reporting from investigative organisation The Sentry, published in 2020, describes Malong as a ‘politically exposed person’ in South Sudan who holds, respectively, stakes of 10 per cent and 17 per cent in gold-dealing companies

JPL Gold & Diamond and Gold Stone Mining. These companies are reportedly among several South Sudan-registered gold companies with ties to politically exposed persons.

Hadley Becha, director of CANCO, a Kenyan non- governmental organisation that deals in environmental governance and matters to do with the extractive industry, told the GI-TOC that it is common for gold scammers to pose as the relatives of top politicians and officials from the country in which the ‘investment’ would happen, usually South Sudan or the DRC.

Fake documents

Malong’s network falsified a litany of documents required for gold-export transactions – among them, export permits purportedly issued by the Commissioner of the Directorate of Geological Survey and Mines in Entebbe; freight and cargo company receipts; an analytical lab report from the National Chamber of Commerce and Industry; and a bill for air freight. False documentation is an essential part of many gold scams in convincing the investor of the legitimacy of their gold supply.

An official in Kenya’s Chamber of Mines said corruption in state institutions charged with controlling the mining sector and managing large-scale informal gold supplies has made the region’s gold sector attractive both to investors eager to circumvent regulations to buy cheap gold and to scammers looking to prey on these investors.

Becha made a similar assessment: “There’s a belief that you can get cheap gold from the eastern Africa region, and that’s why international merchants of the commodity run here. They believe that this place is very corrupt and that it lacks laws and regulations to govern the business.” Ironically, it seems that for some investors the dubious desire to make a profit on a low-price, low-regulation market is what puts them at risk of being scammed.

Uganda and Kenya’s immediate neighbours, the DRC and South Sudan, are major gold producers. Yet the informal nature of their gold industries has made them magnets to criminal actors ready to use corruption, financial leverage and violence to turn a profit. Fraudsters are also conscious of the fact that international investors perceive gold from the DRC and South Sudan to be cheap and easily accessible.

Complementary roles

Kenya and Uganda play complementary roles in the scams. Whereas Kampala acts as an operations base for criminal networks, Nairobi – as the major regional communications and financial hub – is the centre of the financial transactions in these scams. According to Kenyan security expert George Musamali: “The fraudsters come from as far as South Africa, the DRC and South Sudan to work with Kenyan fixers, because the country provides an ideal climate for their handiwork.”

A Kampala-based gold dealer revealed that “Kampala is like a fieldwork area; real deals are hatched from Nairobi, then done in Kampala.”

In Kenya, a leadership figure in a key political party, a former cabinet secretary, and three MPs are alleged to be major figures in the fake-gold industry. These individuals are currently being investigated for colluding with foreigners to defraud international investors, according to a source at the DCI. In March 2021, the DCI recovered fake gold and US$283 million in fake currency, all linked to a former cabinet secretary. The case is yet to be prosecuted.

“The correlation between crime and politics remains watertight. Most of the big scandals are driven by or facilitated by top politicians and bureaucrats who remain untouchable because the state doesn’t want to go for them out of fear that the political scales will tilt against it,” said a senior official in the Office of the Director of Public Prosecutions, Nairobi.54

Uganda suspects

In Uganda, some of the major players in fake-gold scams are alleged to be members of the police and military.

In a notable case, police questioned the Deputy Director of Internal Security Idi Taban Amin (son of former president Idi Amin) in March 2021 in connection with a gold scam where a US national lost over US$8 million.

Defrauders such as Malong would have difficulty pulling off such elaborate schemes without the aid of transnational conspirators and corrupt lawyers, immigration personnel and law enforcement officers strategically placed in Nairobi and Kampala. One gold dealer speaking to the GI-TOC in Kampala described a system in which some corrupt gold dealers will ensure there is an issue with an international buyer’s paperwork so that border authorities have a pretext for seizing the gold or the opportunity to exchange it for false gold during an inspection. The DCI has publicly stated that “the multi-million-shilling conspiracy is executed with the assistance of various agencies, including some government institutions”.

Legal firms have also featured prominently in gold scams, accused of facilitating criminality by registering dud companies on behalf of the scammers or facilitating bank transactions. A lawyer for the anti-corruption court based in Kampala argued that legal professionals may also be ‘aiding criminality’ by lending legitimacy to the fraudulent deals.

Smooth operations

Prolific fake-gold scams pose a problem to the smooth operations of gold regulatory bodies and discourage genuine investors. “The international dimension to the fraud is giving Kenya a negative and unwelcome reputation in the world of minerals and mining,” said then-mining minister Dan Kazungu in 2020.

While Ugandan and Kenyan police have emphasised the need for prospective buyers to exercise due diligence and engage the relevant regulatory bodies before transacting businesses, the involvement of officials in many of these scams makes identifying a reliable authority more difficult, meaning buyers are left guessing when trying to distinguish a fake gold deal from the real thing. The article was first published in the Global Initiative Against Transnational Organised Crime. Read about how ‘leaches’ have turned sodium cyanide in Kenya’s gold market into a nasty business dispute

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