Gold Fraud - The case of missing funds

A gold bullion center, Dubai is well placed to rival London and Shanghai as a gold investment hub. However, authorities in the United Arab Emirates have been cautioning its residents from investing in gold of late. Why? Recently clients of a Dubai based gold company invested nearly $60 million in the company. About half of those funds are said to be missing. The company alleged to have carried out the fraud is Gold AE.

A company that allows online trading of gold and silver, Gold AE was the first to launch ‘gold ATMs’ in 2010. Gold ATMs are probably what Gold AE is best known for. Recently, the Dubai Multi Commodities Centre (DMCC) free zone terminated Gold AE’s license. DMCC stated that it had terminated the license of Gold AE because some of the activities undertaken by the company were in breach of DMCC’s rules.

So what were the activities that breached DMCC’s rules and forced the authority to terminate Gold AE’s license? Headquartered in Dubai, Gold AE was the main channel through which Turkish ‘physical’ gold made its way into the United Arab Emirates. From the UAE, the gold was off-shored to Iran. However, the gold didn’t leave for Iran until substantial ‘commissions’ were pocketed.

The company announced in December 2015 that it had unexpectedly and suddenly become bankrupt. Furthermore, an interrogation by minority shareholders revealed that the whole previous management team of the company unanticipatedly resigned without notice. Additionally, the shareholders made a shocking revelation—some of the management and majority shareholders had withdrawn a substantial amount of money from the company’s account to deposit it into their personal accounts.

In simple terms, over the last several years Gold AE was utilized as a means to camouflage Turkey-Iran gold smuggling trade worth billions. However, the fraud of Gold AE was only revealed after the company unexpectedly and suddenly became insolvent and all of its holdings had been completely ransacked. The ransacking of holdings included looting of customer accounts.

According to grieving customers of Gold AE, the company discontinued its services without warning in November 2015. However, customers claim that they their accounts were inaccessible weeks before the company made the announcement to quit. Furthermore, the customer's claim that they haven’t been told what’s happening with the company and whether their money will be returned. According to some financial experts in the UAE, recovery of any of the funds involved in highly unlikely. This means that approximately $30 million has fallen prey to gold fraud.

Apart from the loss of $30 million, the fraud carried out by the management and majority shareholders of Gold AE has resulted in one of the biggest gold smuggling gimmicks in history. Investigators both within the UAE and abroad are looking for perpetrators. However, little progress has been made in that regard so far. There is little chance of the victims being reunited with their lost money. However, there is a valuable lesson for us in this—think twice before making gold investments in the United Arab Emirates.