Analysis: Iran May Use Polisario to Smuggle Gold, Evading Sanctions

New York – The Iranian rial is in free fall after the announcement that the US, having withdrawn from the JCPOA, will reimpose sanctions lifted after the conclusion of the nuclear deal.

In addition, the withdrawal of foreign businesses, threatened by secondary sanctions, dealt a blow to the Iranian economy as well.

Recently, the Moroccan Ministry of Foreign Affairs and International Cooperation warnedthe country’s banks against doing business with Iran. Morocco severed diplomatic relations with Iran on May 2, a week before the United States announced withdrawal from the JCPOA in response to Iran’s weaponization of the separatist group Polisario, which was being armed and trained by Hezbullah via the Iranian embassy in Algiers. Speaking in Bucharest, Romania, he expressed support for the Trump administration and its focus on Iran, and showed interest in additional cooperation with respect to tackling Iran and its various nefarious operations in West and North Africa.

Despite these tough measures, however, the Islamic Republic seems to have developed other options for going around sanctions and saving its crumbling economy. An Iranian trade official told Iran’s PressTV that one potential option for continuing trade with Africa would include bartering oil products for gold. While China’s looking to exploit corruption in Africa in order to take control of ports and key infrastructure in a potential threat to sovereignty of multiple nations, for Iran, Africa’s growing entrepreneurial scene may provide future business opportunities. This, too, may be a solution for European and other foreign businesses who have had to withdraw from direct investments and other business ventures in Iran proper due to the threat of being frozen out of the US financial system.

Renault, for instance, announced a possible shift of production to Africa, giving a glimpse at the next frontier in developing industries looking for cheaper options. Some vehicleswill soon be available in South Africa.  Renault’s venture, however, may also signal continuation of potential clandestine cooperation with Iran, which has in greatly increased its public activity throughout Africa in the past two years. Doing business through local third parties may end up preserving some of the business initiatives developed at the conclusion of the nuclear deal. Shady deals with known European companies may only be one of the options for the regime’s self-preservation, however.

Polisario’s past involvement in gold smuggling

Despite the recent break up with Morocco, Iran may continue to utilize Morocco’s adversaries, such as Polisario, and other non-state actors, in its quest to evade sanctions. Polisario, known for its weapons and drug smuggling, may yet play a role in smuggling gold out of Africa, in exchange for getting a cut of the oil products (that could be refined elsewhere in Africa). Indeed, as late as March 2018, Polisario cells have been implicated in gold trafficking.  These cells were part of an international ring of gold prospectors based in a town in Northern Mauritania. They have accumulated a great deal of cash as a result of these illegal operations.

This was not the first such incident. A year earlier, the Algerian army detained a group of Mauritanian prospectors based on allegations of gold smuggling; however, the Mauritanian authorities contradicted that version of events.  Polisario front members have been implicated in selling weapons throughout Mauritania, and linked to Al Qaeda in Islamic Maghreb, and only months later, to Hezbullah. It is not hard to imagine that both terrorist organization could have been beneficiaries of the gold trafficking operations, and that some other cells may continue to operate in this capacity to date.

Hezbullah’s role in facilitating gold trafficking

Interestingly, Hezbullah’s role in gold trafficking goes far beyond these two incidents.  Lebanon is an important point of distribution for both legal and illegal gold trade from Egypt and West Africa onwards to Switzerland and South Africa for refinement, reaching nearly $1 billion worth of non-monetary gold in 2016. Gold has traditionally been a safe haven for times of uncertainty, but it also made the precious metal a highly desirable commodity for criminal networks. The chaotic situation and corruption in West African countries such as Togo, facilitated the likelihood of abuse for the various groups operating in that area. Gold trade routes from that vicinity have been subject to an ongoing four-year investigation by a watchdog.

Togo is a non-exporting country which smuggled gold from Burkino Faso, where it was extracted by children and adults operating essentially as slave labor. Hezbullah is better known for its cocaine smuggling operations; in the past, it has been involved in the illicit diamond trade in Africa.  However, given the prominent role the organization plays in Lebanese domestic politics today, its direct role in facilitating these operations, perhaps through control of involved companies by affiliated families, is well worth a second look. After all, it has already been found that Lebanon has been protecting Hezbullah’s role in the cocaine trade in Latin America. Given the tough financial times, it is reasonable to believe that the government could also be complicit in covering up the organization’s involvement in African gold smuggling. Indeed, gold trafficking schemes are likewise popping up all over Latin America, often in connection with illegal gold mining and human trafficking operations, which are frequently linked to  narco-terrorist syndicates. Whether there is a Hezbullah connection is worth exploring.

Despite the recent interest in the issue thanks to Iran’s comments on the record, there is nothing new about gold smuggling. In fact, despite getting less press coverage than drug and arms trafficking, gold has always been a very attractive vehicle for criminal enterprises because it facilitates the conversion of illicit goods into a “stable, anonymous, transformable, and easily exchangeable asset”. Likewise, the market is highly lucrative. It is also fraught with vulnerabilities that make it an easy target for smugglers.

Why Gold is a Terrorist’s Best Friend in Money Laundering

For instance, there is little oversight in the industry and unlike many other markets, no licensing requirements. Quite simply, gold is hard to track. Gold is particularly attractive to money launderers in cash-for-gold schemes because the high-volume, low-value transactions are easy to falsify and to commingle with other proceeds. In the past, for instance, third party gold smuggling syndicates used this method to launder proceeds of illegal drug sales.

Because gold can be traded anonymously, transactions are hard to track and verify. How much gold is floating out there is anyone’s guess. The law enforcement, short of embedding itself in the criminal network, has limited ways to verify the identity of suppliers or buyers. Because gold is a global currency and is exchangeable worldwide, the same volume of gold can go through a variety of diverse criminal syndicates, further challenging the possibility of tracing the original source.  For instance, drug syndicates can pay their workers in gold. The gold is then bartered for other items, and the law enforcement may never know that there was anyone who ever got paid by that means.

Likewise, investment in gold provides reliable returns for the criminals at a later date.  It gives the syndicate a greater ability to manage risks associated with volatility, due to the inherent stability of the asset. Gold is easy to smuggle and trade, both physically and virtually. Unlike cryptocurrencies, which are subject to market fluctuate on the market, are subject to stringent oversight by governments, and scrutiny and outright bans by banks, gold is not considered inherently suspect. It can also be reshaped into everyday objects to avoid detection, and like drugs, can be transported through carriers, mules, which allows the syndicate to remain anonymous.

The opportunities for generating profit through gold smuggling are multifold. They include large and medium scale mining, artisanal small-scale mining, and everything in between. One example of terrorists and drug dealers utilizing gold to finance their operations, included a narco-terrorist ring in Colombia,  which took control of a territory with a productive gold mine, extorting the owners with violence and forcing the community to transfer ownership titles to them. The same pattern can likely be traced elsewhere.

Other means of turning gold into a profit may include recycling, smelting/refining, (smuggling to refineries is particularly lucrative), and assorted frauds associated with the misrepresentation of its value, whether towards unjust enrichment at the expense of the buyer or to earn tax credit. Retailing and investments are other means by which more enterprising syndicates can make a return on their gold trafficking or otherwise exploitation of the gold mines.

There are numerous red flags to detect indicia of illicit activity, such as cash payments for high volume, origin in high risk areas,  transportation through high risk areas for no apparent reason,  and the use of front/shell companies. There are also red flags associated with potentially illicit mining activity, for instance, when licensed mines have rapid and inexplicable production decreases, mines are developed in prohibited areas, there is no compliance with local regulations, or when ethnic or other communities hire a third party for the entire operation of the mine.

Iran’s Gas for Gold Scheme with Turkey

Due to rampant corruption, West African countries may be easy targets for such forms of exploitation and trafficking. Some of the top beneficiaries of these gold smuggling operations have been India and Turkey. However, more recently, Turkey has turned to Iran to facilitate the gold smuggling operations, in turn, helping the Islamic Republic circumvent sanctions. The details of that complicated arrangement came out through the criminal trial of the Iranian-Turkish banker Reza Zorrab in the United States. Zarrab contributed to the process of circumventing sanctions, and was eventually found guilty in the New York courts.  He acted in concert with the formal deputy general manager of a state-controlled Turkish bank, and assisted in helping the sanctioned regime to the tune of approximately $1 billion.

The scheme was an illustration of a conversion scheme. Iran sought to support its failing economy by converting its oil and gas products into cash. Zarrab, who claims to have had a plot to kill him on his hands, and who was also accused of rape, managed to take a nice cut from this lucrative venture. Ultimately, the gold trader implicated the Turkish president Erdogan in a money laundering operation which turned oil products into cash then onwards through his gold trading operations mainstream, giving Iran access to international markets. The scheme involved both gold trades and fake purchases of food, checking off many of the indicia of gold smuggling schemes described above.

The trial, however, was merely a culmination of years of a lucrative operation. Before Iran and Turkey became allies by necessity, the two states were considered rivals for influence. In 2012, a Turkish official revealed that Iran was smuggling gold to evade economic sanctions.  It did so for at least six months with Turkey (and possibly other countries) by importing Turkish gold to pay for billions of dollars of energy sales in Turkey. Turkey, as one of the two biggest recipients of trafficked gold, in turn likely got at least some of its assets from the very West African countries where Iran and Hezbullah have been operational for years, possibly with the help of Polisario smugglers and Mauritanian intermediaries.

After that revelation, US put pressure on the Turkish government to stop participating in the scheme; however, evidence shows that in 2013 the gold smuggling operations were ongoing.  The massive “gas-for-gold” sanctions-busting scheme continued well into 2014, and brought additional bad press to the ruling AKP party in Turkey; however, as the Zarrab case three years later showed, with all the bad press and pressure, Turkey and Iran continued the ongoing money laundering that benefited both of the corrupt regimes. Given that neither Erdogan nor the Islamic Republic ever bore any serious responsibility for this brazen criminality, it would not be shocking that the two countries have used the new direct land route from Iran to Turkey which opened in late 2017 to ease importation of gold and gas and oil to each other under the guise of humanitarian aid or ordinary trade.

Iran’s Quest for Gold in West Africa

Furthermore, there is evidence that Iran procured gold directly from its source. For instance, in 2014, a US-flagged plane in Ghana was found to have links to Iran. Ghana remains one of Iran’s top sources for gold. Ghana has gained notoriety for corruption and associated gold smuggling, and drug and arms trafficking activities.  Iran had put in focus on Africa, through its “Africa initiative“, which used humanitarian aid and Shi’a outreach as an influence campaign in poor and corrupt, mostly West African (and later North African) countries.  It had spent a great deal of money exporting its ideology through mosques and schools. In return, Tehran received political support from these governments, and access to gold in some of the producing countries.

This outreach has strengthened after the 2016 attack on the Saudi embassy in Tehran, which led to the rift between the two countries and their supporters in Africa. However, Iran’s interest in Africa has been ongoing for decades, though it waxed and waned over time. Under Rouhani’s predecessor, for instance, the interest took a more active and aggressive form.

“Iran has made no secret of its desire to strengthen relations in Africa. Last April, President Mahmoud Ahmadinejad visited three West African countries—Niger, a leading producer of uranium, Benin and Ghana. The trip to Niger raised speculation that Ahmadinejad was looking for sources of uranium for Iran’s disputed nuclear program, a major reason for the imposition of Western sanctions on the country. Iran’s gold rush is also an illustration of its ongoing adventurist rivalry with KSA in the Sahel.  That rivalry includes competition for access to natural resources, such as gold. For Iran, however, the quest for these resources is more than just about local dominance or internal enrichment. Building naval bases and training militias and proxy armies all over the world is not free. Exportation of phosphates from North Africa, gold, and other natural resources is necessary to fund all these activities.

In February, Iran invited Ghana’s president to visit Tehran for what local news reports called discussions of “issues of mutual interests.” In 2014, the mysterious airplane in Iran was found to have ties to Ghana. Iran’s interest in Ghana was multifold.  Besides gold, the country also had a great deal of uranium. Uranium is frequently found in gold mines.  Furthermore, some of the uranium is actually a byproduct of gold mining.  The example of two Iranian advisers who recently went to Libya in a quest to procure additional uranium via Tunisia and met their end at the hands of unidentified assassins comes to mind.  At the time, while engaged in the nuclear negotiations, Iran was hoarding uranium for enrichment towards the development of its nuclear program.

Was its interest in African gold merely yet another money laundering operation to sustain its economy and to enrich corrupt government official? Or was it always a public veneer for illicit purchases of uranium?  Likely, it was always some combination of both.  Indeed, Iran’s interest in gold was not limited to Ghana or to operations with Turkey.  In 2016, for instance, Iran received 13 tons of gold from another ally—South Africa—which likewise was helpful in evading sanctions. South Africa is one of the two places best known for gold refineries. In 2015, it was the world’s fifth largest producer of gold, particularly profitable because the government did not charge the value added tax (VAT) on it.

Gold digging May Mask Search for Uranium for Iran’s Nuclear Program

In fact, if not for South Africa’s gold reserves, Iran’s nuclear program would likely be nonexistent. South Africa and China are both emerging as two gold hubs, and coincidentally, two of Iran’s closest trading partners. So long as the collaboration continues, Iran will likely have free access to additional sources of gold. At the same time, South Africa is one of the biggest gold smuggling capitals in the world, with India and Turkey being two of the top consumers. Turkey, is in fact, the world’s fifth biggest gold consumer.

Isolated incidents to this day show that Iran’s quest for illicit gold is ongoing. Most recently, one man in Iran was arrested for hoarding gold coins. How did he get them?

Worth noting, however, is that Iran has internal ongoing gold mine exploration, largely with the help of the Australian mining companies.  If any gold is found, it is as likely to be trafficked out of the country for refinement abroad. Additional evidence of ongoing gold mining in Iran comes via a human rights abuse story, where a number of union workers who worked in those mines were sentenced to lashes for requesting to be paid. Whatever the profits of those mines, the workers hardly see a penny – where is it all going? Disgruntled and tortured miners likely would have some interesting stories to tell. However, if there is no gold to be found in Iran, the mines could be nothing more than a cover for gold trafficking to explain ongoing Iranian procurement of illicit gold and perhaps uranium.

These connections and schemes point to a systematic operational commitment on Iran’s part to utilize gold as a means of evading sanctions, finance its other illicit operations at home and abroad, and potentially mask its continuous quest for uranium.

For that reason, the Iranian official’s recent remarks pointing to Iran’s greater reliance on oil and gas for gold schemes, should be of particular interest to intelligence agencies, the law enforcement of African and other countries, and to governments interested in curbing Iran’s aggression.

Iran’s schemes to evade sanctions never fully ceased. Now Iran will be shifting to other models such as gold trafficking, which generally attract less attention and are harder to prevent and to stop. This might be one of the many operations Morocco’s Foreign Minister referred when he appealed to the United States in combating Iran’s threat in North Africa. Increased use of smuggling means increased reliance on Hezbullah, Morocco’s nemesis Polisario, and other dangerous groups, which threaten stability and security of both US allies and US interests in the region. Integrating US and Moroccan defense policies to prevent Iran’s destabilizing activity and proliferation of international proxies should become one of the priorities in responding to the Islamic Republic’s expansionism.

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