Big Four audit firm EY has been accused of covering up evidence of smuggling by an organized crime gang that was laundering British drug money, according to an investigation by the BBC.

Statement from EY Global

 

The following is a statement from EY, printed in full, in response to the accusations raised by the BBC:

 

The unfounded allegations raised in BBC Panorama’s segment on Kaloti are not new. Similar baseless allegations were first made and publicized over five years ago by a disgruntled former EY Dubai partner, Amjad Rihan. These allegations have resurfaced again now, many years after the events in question, as part of an employment related claim that Rihan has brought against certain EY entities seeking substantial sums of money. Rihan’s claim is denied and is being vigorously defended. In particular, Rihan’s suggestion that EY Dubai somehow helped Kaloti to hide irregularities related to its acquisition of gold is baseless and is denied.

 

The facts are that in early 2013, EY Dubai was engaged to review the supply-chain compliance and due diligence of Kaloti when sourcing gold. Through this process EY Dubai identified several compliance issues. EY Dubai’s assurance and management reports addressed to Kaloti identified these compliance issues and Kaloti, as required by local law/regulation, supplied these reports to Kaloti’s local regulator, the Dubai Multi Commodities Centre (DMCC). Separately, Kaloti prepared compliance reports, which were reviewed by EY Dubai, that further addressed its compliance deficiencies and related remedial measures. These reports too were provided to the local regulator DMCC.

 

EY is confident that all legal and reporting obligations have been complied with by the relevant EY entities. In particular, EY takes seriously all responsibilities to report suspicious monetary transactions to the authorities, but it is important to note that reporting rules may prohibit EY entities from publicly commenting on what specific notifications may or may not have been made to the authorities by relevant EY entities.

 

EY Dubai ceased acting for Kaloti in 2014, shortly after EY Dubai completed its reports on this matter. In 2015, the DMCC sanctioned Kaloti, removing it from Dubai’s list of approved gold refiners. It was the work of EY Dubai that brought Kaloti’s issues to the attention of its regulator, the DMCC.

In its flagship news program Panorama, the BBC said a criminal gang was laundering cash collected from drug dealers from the United Kingdom and other European countries by buying and selling gold on the black market.

As part of its money laundering activities, the gang is alleged to have sold 3.6 tonnes of gold bars to the Kaloti gold refinery in Dubai—one of the world’s largest. Some of the bars had been disguised as silver to avoid export limits on gold.

Documents seen by Panorama and French news agency Premieres Lignes apparently show Renade International—a company owned by a member of the money laundering gang—sold U.S. $146 million of gold to Kaloti in 2012 alone, the year before EY was engaged by the refinery to conduct a review of Kaloti’s compliance with rules designed to keep gold from illegitimate sources out of the global supply chain.

EY discovered Kaloti had paid out a total of U.S. $5.2 billion in cash in 2012 (in transactions that apparently required wheelbarrows to transport the funds), but the audit firm allegedly did not report suspicious activity relating to money laundering to authorities. Worse still, according to Amjad Rihan, the lead auditor for EY in Dubai in 2013, the firm altered a compliance report to cover the crime up and water down its significance.

Twenty-seven members of the money laundering gang were jailed in France in 2017.

In 2015, the Dubai Multi Commodities Centre (DMCC), Kaloti’s local regulator, sanctioned the company and removed it from Dubai’s list of approved gold refiners for failing to “meet all of the criteria required to retain certification.”

Both EY and Kaloti deny any wrongdoing. EY calls the allegations “baseless.”

The program also highlighted the fate of whistleblowers and the impact speaking up has on their careers. Rihan lost his job and has not worked for more than five years. He is currently suing EY.

Anna Waterhouse was Deutsche Bank’s general counsel and head of compliance in Dubai. She reported her suspicions about Kaloti’s large cash withdrawals to regulators (the Anti-Money-Laundering and Suspicious Cases Unit at the Central Bank of the United Arab Emirates and to the Dubai Financial Services Authority). She, too, is now unemployed after she was sanctioned by the Dubai regulator for conduct that breached rules relating to a separate case involving the bank’s private wealth division. She claims, however, that the bank cut a deal with the DFSA to avoid prosecution and she was “sacrificed” to protect other senior managers.

In an e-mailed statement, Deutsche Bank said: “We disagree with the depiction of events in the program including the alleged treatment of Ms. Waterhouse.”

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Neil Hodge is a freelance business journalist and photographer based in Nottingham, United Kingdom. He writes on insurance and risk management, corporate governance, internal audit, compliance, and legal issues.

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