US moves to freeze Uganda's pot of gold

The United States Treasury Department’s sanction regime on the Entebbe-based African Gold Refinery Ltd, and its Belgian co-founder/director, Alain Goetz—announced late Thursday evening (Ugandan time)—came two days after Russia scuttled a vote to sanction the same company at the UN Security Council.

Diplomatic sources in New York and Kampala intimated to Sunday Monitor that on March 15, France brought a proposal to the UN Security Council (UNSC) sanctions committee. 

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France hoped to have the committee chaired by its former colony—Gabon—give the green light to add the African Gold Refinery Ltd (AGRL) and its directors to the sanctions list.

At the UNSC, Russia and China—which often vote together—invoked a “technical hold” on the proposal that had the support of the US, France, the UK, and United Arab Emirates (UAE) as the co-designating states.
In UN corridors, technical hold functions as a pause on a proposal and is moved on the grounds that the technicality of the proposal has not been sufficiently examined.

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Article 41 of the United Nations Charter gives the UNSC—the world body’s most powerful organ—the authority to use a variety of measures, including sanctions to enforce its decisions. The sanctions are generally supported by a committee, as well as panels/groups of experts or other mechanisms to monitor implementation of the sanctions.

Protest vote
The repertoire of sanctions range from comprehensive economic and trade sanctions to more targeted measures such as arms embargoes, travel bans, and financial or commodity restrictions.

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Russia’s protest vote was, in all likelihood, a reciprocation for Uganda’s “abstain” vote during the UN General Assembly’s emergency session on March 2 to call out Moscow for its invasion of Ukraine.

Following the failed UNSC bid, the US moved in unilaterally to impose sanctions against AGRL, which since its launch in 2017, has been under immense international scrutiny. 

This was especially so after revelations that the company imported gold from sanctioned Venezuela and acted as a conduit for conflict gold from the DR Congo and South Sudan.

The decision by Washington, diplomatic sources hinted, was also informed by the likelihood that several high-ranking Ugandan government officials are involved in the murky gold trade that turned the wheels of the refinery’s operations.

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In a statement issued on Thursday evening, the US Treasury Department indicated that AGRL is one of Mr Goetz’s companies engaging in gold sourced from regions controlled by armed groups engaged in conflict in the DR Congo.

“These armed groups and their commanders attacked civilians and are implicated in atrocities, including ethnic massacres, rape, and forced recruitment of children. Conflict gold provides the largest source of revenue to armed actors in eastern DRC, including armed groups which profit through illegal taxation, raiding of mines, and collaboration with smugglers,” the statement reads in part. 

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According to the Treasury Department, Mr Goetz’s operations span three countries in Uganda, UAE, and his home country Belgium, where he was convicted of money laundering and fraud in connection with his gold trade in 2020.  

The UAE, available records show, was among the key destinations for the refined gold from Uganda.

What does this mean?
Specifically, the sanctions—which ideally mean the global financial system tightening noose around AGRL while all its US-based assets will be frozen—come as a slap in the face of President Museveni.
Mr Museveni has been vocal about local value addition in mineral ore as part of the government’s wide-ranging efforts to revive the once vibrant mining sub-sector that collapsed in the 1990s.

Twice, the President decreed against exportation of mineral ore—tungsten, iron, gold, cobalt, phosphate, granite, salt, and copper—in raw form, arguing that the country was losing a lot of money in wasted value addition. 

He, however, later made a U-turn on the decision following intensive lobbying and complaints by the different investors.

AGRL, which started operations in 2014 before being commissioned in February 2017 (the first of its kind in Sub-Saharan Africa), immediately became a key player in gold trade amid a welter of concerns from local and international actors. 

Its $15m (Shs53.6b) refinery reportedly employed about 75 people.

Technocrats at Amber House, the seat of the Ministry of Energy, told Sunday Monitor that they “are evaluating the implications” of the latest development “in consultation with the Attorney General” and will provide a substantive position in due course.

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Contacted by the Associated Press (AP), Mr Goetz denied the Treasury Department’s allegations. 
The Belgian national denied having recent business ties with the DR Congo where the lucrative mining—especially in the mostly lawless eastern region—is in the hands of rapacious warlords and international mining cartels.

“I have not been to [Congo] in more than 20 years,” he told AP. 

He added: “I have not kept any active contacts within [Congo] either.” 

He further warned that sanctions against AGRL would hurt efforts to improve transparency in the gold business by potentially offering informal traders “a safe haven”, again.
“International organisations can now easily verify information and quote figures because of the transparency that I laid a foundation for with the launch of African Gold Refinery,” he said. 

“This transparency is what the US has just placed at great risk with these sanctions,” he added.

The UN Security Council first attempted to close in on conflict gold floating around the restive Great Lakes region in 2009 when it cited two companies—Simba Gold Refinery and Bullion Gold Refinery—for smuggling gold out of the region.

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After its commissioning in 2017, AGRL emphasised that it was neither a gold buyer nor seller; but rather a refiner, and specifically offering four services: refining, melting, assaying and logistics. The company, however, came under scrutiny over where it sourced its raw material.

In 2016, AGRL revealed that out of gold exports worth $300m (Shs1 trillion) from Uganda, it accounted for roughly $200m (Shs715b). 

This, as the Ministry of Energy, and the Uganda Revenue Authority, on several occasions, struggled to explain the mismatch between Uganda’s gold export certificates and royalties declared. Soon gold—which Uganda produces less—overtook coffee as the country’s top export.

Not all that glitters is gold

Mr Goetz was one of the company’s founding directors in 2014, according to Uganda Registration Services Bureau filings, alongside Rwandan national Alphone Ktarebe, Barnabas Taremwa, Richard Kaijuka—both Ugandans—and Heizel Adanta, a Pilipino. 

But over the years, according to the filings, the company’s directors kept changing—including in 2019 when

Mr Goetz sold his shareholding in the company but continued signing documents.
From day one of commissioning of the refinery, concerns abound over the possibility of bloodied gold floating from wherever to Entebbe.  

In 2017, Mr Goetz told this newspaper that he was aware of  “the many controversies surrounding the regional gold trade” and was working hard to address them. 

Later in 2018, he acknowledged that AGR refines about 150 kilogrammes of gold from the DR Congo weekly, or approximately 8.5 tonnes a year, valued at $496m (Shs1.7trillion). 
This represents almost all of Uganda’s gold exports.

The DR Congo is considered the wealthiest country in the world in terms of natural resources, with an estimated evaluation of $24 trillion—equivalent to the Gross Domestic Product (GDP) of Europe and the United States combined.

Whereas it has huge deposits of any mineral one can think of—diamonds, gold, coltan, uranium, tin, copper, cobalt, oil, tungsten, tin, and many others— its citizens struggle within a country that has the second lowest nominal GDP in the world. The DRC is also the epicentre of what many consider to be an African world war.

AGRL once reasoned that the “dramatic increase in export figures recently is a direct result of [its] high levels of transparency.” 

The company also claimed to maintain zero tolerance to smuggling.

The disclosures on the origin of the refinery’s gold still remained farfetched, while at the same time the Bank of Uganda’s research department in-charge of import statistics between 2016 and 2021 maintained that it did not know the origin of the gold that Uganda keeps importing.

In early 2019 when Uganda’s merchandise exports rose sharply to $604.4m (Shs2.1 trillion) up from $296.3m (Shs1 trillion) the previous month, with gold exports increasing by 421.5 percent from the previous month to $363.4m (Shs1.3 trillion).

The Wall Street Journal published an expose detailing how an unusual gold amounts were sneaked into Uganda from Venezuela. 

Part of that country’s central bank’s reserves were sold off by its cash-strapped president Nicolas Maduro. 

The operation was designed to evade US sanctions on the Venezuelan government with the gold arriving in Uganda in two consignments aboard planes owned by a Russian chartered company, the WSJ revealed.

Later, a police investigation into the “unusually large consignments” seized 3.6 tonnes of the Venezuelan gold in a raid on AGRL. 
The company was now officially on the international watch list, which culminated into Thursday’s sanctions.

Uganda’s permanent representative to the UN says:

"I confirm that the issue of AGRL was taken to UN Security Council on Tuesday, March 15. Our position is that AGR is adding value to gold that used to be exported raw, and fetched low price. And AGRL does due diligence on sourcing. The only way for Uganda to grow is if it exports high value-added products and that is what AGR is doing in the region,” Adonia Ayebare, Uganda’s permanent representative to the UN.