Signup for our free newsletter:

Is YOUR Gold Safe?

Written By Geoffrey Pike

Posted December 29, 2015

goldscamHow gold investors lost everything in Dubai gold scam

While I often hail the United Arab Emirates as a place of relative economic freedom with its low taxes and friendly business environment, it does not mean that corruption doesn’t happen there. It also doesn’t mean that there aren’t political games being played.

A rather bizarre story is shaping up from a gold trading company based in Dubai. Gold AE recently shut its doors and sent notification to its customers that a criminal case was filed in the Dubai Courts. Meanwhile, the customers are wondering if they will ever see their money again.

Gold AE is a subsidiary of Gold Holding Ltd, which is a major gold investment company headquartered in Dubai. It all of a sudden gets political when you consider that a major shareholder of Gold Holding is the son of the President of the UAE. He is perhaps the second most powerful person in the UAE, and obviously quite wealthy.

While Gold Holding Ltd is attempting to distance itself from Gold AE, the connection and implications are obviously there.

The problem is that this isn’t just a story about mismanagement and a company going out of business. This is likely a large-scale criminal case, but we still can’t be certain who the guilty parties are at this point.

Back in March, the management team at Gold AE was replaced. The now-acting management team is accusing the former management team of wrongdoing.

In its email correspondence to customers on December 16, the acting management team stated that an internal investigation uncovered wrongdoing by the previous team that “had used significant amounts of client and shareholders’ money and transferred [it] to multiple locations, including Switzerland, Jordan, Turkey and Saudi Arabia.”

The acting management team does not have access to the accounts, which means current customers are basically out of luck at this point, unless the court system can help them retrieve some of the funds.

It is not clear why the previous management team was replaced, although we now know that it likely included criminal activity. It is also unclear why it took 9 months for the new management team to uncover this, but things can take a while when you have to involve lawyers. Still, a good portion of the company’s funds were essentially stolen, so why did it take even 9 months?

Gold Smuggling

As reported by ZeroHedge, there was something of a smuggling ring going on in the Middle East, although it may include major players outside of the Middle East as well.

An article by Reuters over 3 years ago detailed a gold smuggling ring in which gold would be transported from Turkey to Dubai, where it would then be sent to Iran.

The claim is that Turkey was buying oil and gas from Iran and making its payments in gold, funneled through Dubai. This is obviously facilitated when you have the son of the dictator who is a major shareholder in the parent company. We can’t be sure this is what happened, but suspicions are definitely warranted. On the other hand, we could give him the benefit of the doubt, as it is possible he is the one who suspected something and replaced the previous management team.

It makes sense that Turkey would buy resources from Iran and make payments in gold. With the heavy sanctions enacted against Iran, this is a realistic way to trade and to avoid getting caught.

There was essentially a banking embargo, among other things, against Iran. In today’s digital world, it is difficult to circumvent such an embargo. That is why officials will turn to the world’s original money, that being gold. Gold is the perfect money to be used to hold value and to transfer with privacy.

If this story pieces together as it appears, then this is just another reason that U.S. sanctions have backfired. People find ways to get around restrictions. This is what Russian officials had to do to get around certain U.S. sanctions. Now Russia is using U.S. dollars less and less in transactions.

In this case with Iran, the Iranian officials still found a way to sell oil, although it was certainly made more difficult, and probably a bit more expensive. But this is likely what led to this gold smuggling ring. And in this case, the victims are innocent investors who did business with a gold investment firm. Now it appears that Iran got its gold for oil and the previous management team siphoned off the rest.

It is still curious how so much money and gold could vanish. Maybe more will be revealed as more of this story comes to light.

Don’t take this as an indictment of the relative free enterprise system of Dubai. Corruption and theft happen everywhere. Let’s not forget Bernie Madoff and his Ponzi scheme. Let’s not forget Jon Corzine and his bankrupting of MF Global by raiding personal accounts. Corzine has yet to go to jail for what he did.

As long as politics exist, there will be corruption. There will always be theft. A free market system minimizes the cases of corruption and theft, and it also limits the damage.

In this case, let’s hope the victims are able to recover some of their lost wealth.