Chinese-owned mining company exporting to Dubai gave armed groups AK-47s for access to gold
Armed groups in Shabunda territory, eastern Democratic Republic of Congo, received gifts of arms and cash from a Chinese mining company and made up to $25,000 per month extorted from local miners during a recent two-year gold boom. In just one year, up to $17 million of gold produced by Kun Hou Mining, the Chinese-owned company, went missing and was likely smuggled out of Congo into international supply chains, Global Witness reveals today.
At the same time, the Congolese state lost out on tax revenues on up to $38 million of artisanal gold produced per year during the gold rush, due to smuggling and misconduct by provincial authorities. The gold rush focused on the Ulindi River reached its peak in 2014 and 2015 and continues to this day. Evidence gathered by Global Witness also shows a provincial authority colluded with armed groups in illegal taxation of miners while another altered official export documents so gold looked as though it was coming from legally-operating mines.
Global Witness’ investigation reveals the extent of the problems in eastern Congo’s artisanal gold sector. Eastern Congo has seen an uptick in gold production in recent years, the revenues from which could have been used to address the region’s desperate poverty but have instead often funded armed groups and corrupt officials. Most of eastern Congo’s artisanal miners - around 80% - work in the gold sector. Recent international reforms have aimed to stop Congo’s mineral wealth funding armed groups. Global Witness warns today that the Congolese government needs to hold companies and government officials involved in such abuses to account in order for these reforms to work.
Armed groups, known as Raia Mutomboki, received at least two AK-47 assault rifles and $4,000 in cash from Kun Hou Mining, which operates mechanised gold dredging machines along the Ulindi River in Shabunda territory, South Kivu province of eastern Congo. In addition, the armed men taxed artisanal miners operating locally-made dredgers extracting gold along the river. Local authorities also collaborated with the Raia Mutomboki, through a tax sharing deal. The taxes collected by authorities appear to have disappeared, depriving Congo of much needed revenue which could be used for health and education.
“There were over 500 cases of malnutrition reported in Shabunda town in 2014 and yet the significant revenues generated by this gold boom benefitted armed men and predatory companies instead of the Congolese people” said Sophia Pickles, Senior Campaigner at Global Witness. “The Congolese government must enforce its own laws to ensure that companies in its gold sector do not produce or trade gold that has funded armed groups. Any company breaking these laws must be held accountable for their actions. Provincial mining authorities that fail to properly govern the minerals sector must also be held liable.”
Global Witness’ research shows that almost half a million dollars’ worth of Kun Hou’s gold was exported to a Dubai company through official channels. The rest of the company’s estimated $17 million of gold production is likely to have been smuggled out of the country.
Global Witness has also found evidence that mining officials in the provincial capital, Bukavu, deliberately falsified documentation to obscure links to Shabunda. Officials changed the gold’s origin on official export documents to show instead it came from the handful of legally-operating artisanal mines in South Kivu. This pattern has been repeated with other mines in the province. As a result, it is much more difficult for international buyers to be sure that gold has not funded armed groups.
“Provincial authorities overseeing Shabunda’s boom have, by their actions over the past two years, directly undermined international and the national government’s efforts to reform eastern Congo’s artisanal gold trade,” said Pickles. “States have a responsibility to ensure that companies do no harm, including checking supply chains for links to conflict and human rights abuses – Congo and the United Arab Emirates have dramatically failed in this respect.”
Global Witness’s report River of Gold also shows that:
· South Kivu’s provincial government and mining authorities continued to support Kun Hou Mining despite repeated legal violations by the firm and repeated requests from Congo’s national government in Kinshasa to shut down its operations.
· Mining officials in Shabunda town working for SAESSCAM, a governmental body mandated to support artisanal miners, ran an illegal taxation racket in areas where the local dredgers operated, including in collaboration with Raia Mutumboki armed groups.
· Gold from Shabunda’s boom was sold on to a gold trading house in Bukavu that then sold it to their sister company, Alfa Gold Corp DMCC, in Dubai. Neither firm carried out supply chain due diligence to international standards, which would have revealed that the gold had been obtained in direct contravention of Congolese law and UAE Guidelines. Alfa Gold Corp DMCC has a wholly owned UK subsidiary registered in London’s Hatton Garden jewellery area. Alfa Gold in Dubai and London did not respond to request for comment.
· Documents show that a French citizen Frank Menard, who worked for Kun Hou Mining, is deeply implicated in the company’s wrongdoing. Raia Mutomboki armed groups wrote to Menard in February 2015 to thank him for the two AK-47 assault rifles and $4,000. Menard also signed an official document confirming the sale of Kun Hou’s gold to Alfa Gold’s Congolese office. Global Witness’ attempts to contact Franck Menard were unsuccessful.
In recent years there have been significant international efforts to tackle the link between violent conflict, human rights abuses and the minerals trade in Congo and elsewhere including international supply chain guidance set out by the Organisation for Economic Cooperation and Development (OECD) five years ago, which has been a legal requirement in Congo since 2012. The US also passed a law and most recently industry supply chain guidelines based on the OECD standard were agreed in China. The Chinese guidelines set a precedent for Chinese companies to recognise and reduce supply chain risks and if adhered to should allow companies sourcing minerals from high-risk areas to do so responsibly.
Kun Hu Mining refused to comment in response to three requests from Global Witness. SAESSCAM have strongly denied that its agents collaborated with armed groups.
Sophia Pickles, Senior Campaigner, Corruption Investigations
+44 (0) 7703 108 449
Notes to editor:
- Global Witness’s
report, River of Gold¸ is published in
English and French and with a summary in Chinese and Arabic.
- In August 2015 a coalition of civil society organisations in the Great Lakes region, COSOC-GL published a report entitled “Study of gold dredging in Shabunda: the gold rush in Shabunda”, see http://cosoc-gl.org/fr/2015/la-ruee-vers-lor-a-shabunda/
- A 2014 IPIS survey of 1088 mines in eastern Congo found that four fifths of the 221,500 artisanal miners surveyed worked in gold mining, a portion that has grown in recent years.
- Global Witness calculations for the volumes of artisanal gold produced during the gold boom along the Ulindi River are based on documents collected and interviews during fieldwork in Shabunda town in January and March 2015 and in Bukavu in 2014 and 2015 and documents provided by South Kivu’s mining agency SAESSCAM and Mining Division, as well as estimations provided by an industry expert familiar with Kun Hou’s operations along the Ulindi River. Our estimation is based on Kun Hou operating on average just over 3 semi-industrial dredges at any one time for up to 20 hours per day 6 days per week . On this basis, we estimate that Kun Hou, produced around 460kg of alluvial gold per year, which is worth $18 million at international prices. Of that, Global Witness has established that just less than half a million dollars’ worth of gold was exported legally meaning that $17 million was likely smuggled out of the country. For the artisanal dredgers we based our calculations on 150 locally-made artisanal dredging machines and estimate they produced between 550kg and 720kg per year. In total we estimate that the two types of dredging machines produced between 1,010 and 1,180 kg per year. This would be worth upwards of $38 million using an average international gold price of $38.5/gram. Gold is often bought at or near international market prices from Congolese mining sites, according to Global Witness research. Further information on estimations and calculations is available in the full report.
- The OECD due diligence guidance was written in collaboration with governments, international organizations, industry and civil society and has been endorsed by forty-three countries including the Democratic Republic of Congo. Today it forms the global benchmark for risk-based supply chain due diligence. The OECD framework lays out a practical five-step process that companies can use to ensure that their mineral purchases are not contributing to conflict or human rights abuses. The steps are: + Establish strong company management systems.+Identify and assess risks in the supply chain. +Design and implement a strategy to respond to identified risks. +Carry out an independent third party audit of supply chain due diligence at identified points in the supply chain. +Report annually on supply chain due diligence.
- Chinese due diligence guidelines apply to all Chinese companies which are extracting, trading, processing, transporting, and/or otherwise using mineral resources and their related products and are engaged at any point in the supply chain of mineral resources and their related products. “Chinese company” in this regard means legal (for-profit) entities which are registered in China or overseas companies (including subsidiaries which are wholly- or majority-owned or controlled by a Chinese entity or individual. See https://www.globalwitness.org/en/press-releases/global-witness-welcomes-progressive-new-chinese-mineral-supply-chain-guidelines
- Global Witness engages with companies, governments and other partners around the world to tackle the issue of natural resource-funded conflict. For the past fifteen years we have reported on the links between the trade in minerals and armed conflict in eastern Democratic Republic of Congo , working with Congolese civil society, policy-makers and business leaders to develop practical solutions.
- Global Witness researchers undertook research in Shabunda town, the eponymous hub of South Kivu’s Shabunda territory, on two occasions in 2015 and conducted further interviews in Bukavu, South Kivu’s provincial capital, on three separate occasions in 2014 and 2015. We interviewed over 80 people involved in the gold boom that began along Shabunda’s Ulindi River from 2013. Interviewees included gold divers, dredge workers, traders and businesspeople brought to Shabunda town by the gold rush as well as local residents, authorities and civil society. We also undertook telephone interviews and email exchanges, as well as interviews with a whistle-blower from Kun Hou Mining.
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