Why everyone wants to smuggle gold to India?

Shantanu Guha Ray investigates why Indian traders are high on procuring illegal gold from African mines and routing such supplies through Dubai to make it look legal.

Worried about alarming rise in smuggling of gold through diplomatic channels, India has blanked out UAE airlines from chartering repatriation flights to India. Additional forces have been sent to the borders to check such smuggling. In Kerala, smugglers brought in over 220 kilos of gold since last September. 

Gold is reaching the Indian shores from Dubai, Myanmar, China, and far flung African countries where illegal mines thrive because of Indian traders.

There is a ready market for the yellow metal in India. Smugglers are trying hard to push more illegal supplies of gold in India, the world’s second largest consumer after China. India consumes approximately 850 metric tonnes of gold every year as compared to China’s tally of 990 metric tonnes. And every goldbug on the planet is excited and salivating at the mouth. Every day, Customs officials arrest people across the country for attempting to smuggle in gold by concealing it in bags, clothes, battery-operated table fans, laptop covers and even body parts. In one such case in Chennai last year, Customs officials caught as many as 30 passengers, each trying to smuggle in 7.5 kg of gold in their rectums.

The demand is on an all-time high. Expectedly, India is not taking any chances.

The Directorate General of Civil Aviation (DGCA) stopped issuing landing permits and cancelled the already approved ones for private jets from the UAE even as estimates showed over 60 tonnes of gold had already been smuggled to India, most from the UAE. The permission issued to UAE-based private jets scheduled to fly back UAE residents from India stands revoked until further notice.

“Private flights from UAE were bringing in gold. We have reports that smugglers were using Indians stranded abroad to ferry gold,” a senior DGCA official said in a telephonic interview.

DGCA hopes the decision to ban flights could check gold smuggling into India, mostly from Dubai. Reduced supply of smuggled gold could even drive the Indian spot prices to a premium, adding to bullish sentiment on the gold market.

Indian gold futures hit an all-time high of 49,045 rupees per 10 grams last week, taking gains to 25% in 2020 so far after they rallied by a quarter in the whole of 2019. Surendra Mehta, secretary at the India Bullion and Jewellers’ Association (IBJA), says he hopes smugglers will not be able to operate as they had previously.

Last week, the spot price of gold smashed through the $1,800-an-ounce barrier, the first time since 2011. Experts say it is a benchmark the yellow metal has not reached in nine years and it’s not that far from the all-time record spot price of $1,923.70 which it hit way back in September 2011. In short, gold has had an incredibly impressive year, first crossing the $1,600 mark in February, 2020. Experts say the gold’s rise is linked to the ongoing COVID-19 pandemic, especially its effect on the United States, where there has been a dramatic spike in cases this summer.

“Fears of further increases in infections and related lockdown fears have been driving demand and thus prices,” Carsten Menke, an analyst with Swiss bank Julius Baer, told the Financial Times. Interestingly, Bloomberg analysts were sanguine that the metal will cross the $2,000 mark before the end of 2020 if the number of US cases does not abate.

In two recent cases, a total of 31 kilos of gold was confiscated from passengers arriving at Jaipur’s Sanganer International Airport last week. The Customs officials arrested as many as 14 people from two flights reaching the Pink City from the UAE and Saudi Arabia. Officials of the Central Board of Indirect Taxes and Customs (CBIC) said this is the biggest case of gold smuggling in Rajasthan, emerging as a hub for gold smugglers.

The National Investigation Agency (NIA) is probing a recent case of gold smuggling in Kerala and has taken into custody two key accused, Swapna Suresh and Sandeep Nair, from Bengaluru. Swapna, a former employee of the UAE consulate in Thiruvananthapuram, is among the four accused booked by the NIA in the 30 kg gold smuggling through diplomatic baggage which arrived at the Thiruvananthapuram International airport on July 5, 2020. The gold, valued at around Rs 15 crore, is now in the custody of Customs (Preventive) Commissionerate, Kochi.

The NIA estimates that over 200 kilograms of gold has been smuggled into Kerala since September last year.

NIA said recent gold smuggling was done to raise cash to finance terrorism in India. Also, as the case pertains to smuggling of a large quantity of gold into India from offshore locations, threatening the economic stability and national security of the country, it amounts to a terrorist act as stated in the Unlawful Activities (Prevention) Act. Cops probing cases of gold smuggling in Kerala say around 2 kg of gold is smuggled daily to these four airports in Kerala alone.

The development came two days after Kerala Chief Minister Pinarayi Vijayan wrote to Prime Minister Narendra Modi seeking his “intervention for an effective investigation” and after the Union Home Ministry allowed the agency to probe it, saying the incident “may have serious implications for national security.”

Swapna Suresh, a former employee of the UAE consulate in Thiruvananthapuram, is among the four accused booked by NIA in 30 kg gold smuggling case in Kerala.

Swapna worked in the Kerala state IT department, a portfolio held by Vijayan, and was sacked after her name surfaced in connection with the smuggling. A quick inquiry revealed she had submitted a fake degree certificate for securing her job.

The state government has also removed senior IAS officer M Sivasankar, who was the secretary to the Chief Minister and the IT Principal secretary, following allegations that he had close links with Swapna.

“The Indian government is not taking any chances,” the DGCA official further said. The DGCA has also informed aviation companies that any UAE private jet that departs with a cancelled permit to India would be confiscated.

Smuggling has been on a high ever since the government increased import duty on gold from 10% to 12.5% in the Union Budget in 2019, making the yellow metal dearer in the domestic market. Gold traders say this was the trigger for increased entry of gold through the illegal route. Intelligence officials say Indians, for generations, have loved to store gold as an ideal investment. The rush for gold has existed since early 70s when smugglers pushed it over 500 metric tonnes of gold through the sea route.

According to industry estimates, around 100 -120 tonnes of gold enter into the country through the illegal route as Indians started parking black money in gold. Officials of the Civil Aviation say Indians stuck abroad are being used by the smugglers to ferry gold, especially through charter flights.

“From yesterday onwards, we have some issues going on. In fact, all the landing permits that DGCA had issued up to July 10 have been cancelled,” Ahmed Shajeer, head of chartered division, Hadid International Services told Gulf News. Shajeer, whose company provides permits and navigation-related flight support services to various aviation companies providing private jet services, told the newspaper that a few private jets that were chartered from different Indian cities to Dubai had been cancelled due to this.

The UAE is a high spot for gold with supplies coming in from all over the world, mostly Africa. The Directorate of Revenue Intelligence (DRI) has beefed up security at the airport in anticipation of an increase in cases of gold smuggling. The first six months of this year have seen an increase in the number of seizures made at Chhatrapati Shivaji Maharaj International Airport.

Worried about the rise in smuggling of gold into Kerala, Chief Minister Pinarayi Vijayan wrote to Prime Minister Narendra Modi seeking his “intervention for an effective investigation” into the seizure of over 30 kg gold at the Thiruvananthapuram International Airport. Vijayan, in his letter said, the case had serious implications as it undermines the nation’s economy. “The fact that the attempt to smuggle huge quantities of gold was concealed in diplomatic baggage makes the matter extremely serious. It is learnt that customs officials are conducting inquiry into the incident. The case has serious implications as this undermines the economy of the nation.In fact, it has more than one angle warranting a thorough investigation,” Vijayan said.

DRI officials in the Indian Capital say Indians have routinely sought gold from the Middle East countries, and also from the mines of Congo, Somalia, Sudan and Uganda which travel through routes that lie close to Lake Victoria.

Initial preparations for gold mining in Africa. (Representative photo)

Stretching across a whopping 69,484 square km, Lake Victoria is also called Victoria Nyanza. It is the largest lake in Africa and the chief reservoir of the Nile, lying mainly in Tanzania and Uganda but bordering on Kenya. DRI officials say this is the route which is used by smugglers seeking gold for the big Indian market.

Detailed investigation by Impact, a Canadian think tank, showed India, which imports one third of the world’s gold supply, is picking up the metal from Congo, a nation where gold mines are linked to corruption. A portion of the artisanally-mined gold is exported from Tanzania, the bulk of the gold travels through Uganda. The biggest city in the region is Mwanza, a port on the southern coast of Lake Victoria that offers direct cargo service to Port Bell outside Kampala. The port also has direct road links with Kigoma, a town close to Lake Tanganyika from the mineral-rich Kivu Provinces that lie in the eastern parts of Congo.

Merchants of Indian origin use air and road links to Nairobi and then export the metal to the UAE and then to India. Somewhere in the route, illegal gold turns legal.

Indians are all over Mwanza, a town notorious for such illegal sales. Indians have an edge in Mwanza because they pay top prices, much higher than the London Bullion Market prices. The gold then travels from Mwanza to Kampala, Nairobi, Zanzibar and Dar Es Salaam and then lands up straight in Dubai. And then, the gold goes through an interesting process in Dubai to turn legal and eventually lands up in India. 

In some cases, the Indian refiners in Kampala trades as much as 200 kg of gold every week. During 2017-18, as many as eight Indian refineries imported over 200 tonnes of gold from Africa. 

The Impact report says Sameer Bhimji, a controversial gold importer on the radar of India’s Enforcement Directorate (ED) exports a little over 700 kg of gold from Uganda every week to Dubai for refining and eventual export to India. Thanks to this smuggling, surging gold prices are now becoming a major headache for the Central government.

The World Gold Council says the propensity to smuggle increases each time the taxes are hiked. 

A previous spate of smuggling occurred after India, which imports almost all of its gold, saw then Finance Minister P. Chidambaram increasing the tax three times in 2013. Illegal inflows peaked at 225 tonnes in 2014. 

In September and October 2019, nearly 40% more gold was seized than the same period in 2018, mainly from China, Taiwan, Hong Kong, Myanmar and Dubai. On December 10, DRI officials arrested one Sahil Jain in Mumbai for illegally importing over 180 kg of gold in the last ten months. Jain, a 23-year-old gold merchant, said there were many, probably thousands like him, doing the same.

And there lies the fear. 

DRI officials say there is no guarantee that the gold which is smuggled from China is pure. Kingold Jewelry, a NASDAQ-listed company based in the city of Wuhan (of coronavirus infamy), was once considered China’s largest gold jewelry, got into trouble after using gold as collateral in 2013. The company’s debt continued to climb every year. Eventually, Kingold pledged 2.7 million ounces of gold in total, worth about $4.8 billion. Kingold not only offered the gold as collateral, but even had its gold inspected by government certification offices and insured for US$4.3 billion by a state-owned insurance company. 

Everything seemed foolproof. But one day, the scam was unearthed. In late 2019, Kingold failed to repay a debt owed to a creditor, Dongguan Trust.

Like with all collateralized debts gone awry, Dongguan took possession of Kingold’s gold that had been pledged as collateral. When the Trust went to monetize the gold, they realised those bright shiny gold bars were actually copper bars wrapped in gold. Shocked, other creditors began checking their own collateral. They also found out the gold they held was also copper. The 2.9 million ounces of fake gold in question represent 22% of China’s 2019 gold output. 

Expectedly, many are asking, how much of China’s gold reserves are gold plated? And how much of it has been smuggled into India by Chinese traders through Kathmandu and Bangladesh?

India’s illegal gold rush is indeed a matter of concern for the DRI, Customs, and the government.

Shantanu Guha Ray
Shantanu Guha Ray
Shantanu Guha Ray is India Editor, Central European News (CEN), Vienna and the Consulting Editor, News Intervention. His much-acclaimed and award-winning book, Target, takes a close look at the NSEL crisis.

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