The #Laundry: City of Gold, part one

This story is part of our new series The #Laundry, which explores a vast, tangled web of international money laundering networks. You can read the introduction to this series here.

In April last year there was an escape attempt from Johannesburg Prison (aka Sun City).

It was a simple  plot: a SAPS detective, since arrested, allegedly fabricated an investigation which, the detective claimed, necessitated the booking out of the would-be escapee. The plan was foiled due to prison officials being wise enough to call up the real investigating officer.

The alleged criminal seemingly attempting a jailbreak? Flamboyant Zimbabwean businessman, fugitive and pastor Frank Buyanga Sadiqi.

Sadiqi faces a long list of charges, starting with an extradition request from Zimbabwe for alleged kidnapping (for taking his son across a border without his mother’s consent).

After his November 2022 arrest at an upmarket hotel in Sandton, he was slapped with local charges of fraud and contravention of the Immigration Act.

Then, in February this year, he was charged with fraud and tax offences to the value of R55-million.

Our questions to his romantic partner, who has his power of attorney, went unanswered.

The reverend finds himself a long way from his previous life, where he pulled enough weight in his native Zimbabwe to warrant a seat between Cyril Ramaphosa and president Joseph Kabila from the DRC during Emmerson Mnangagwa’s 2018 inauguration.

But whatever else Sadiqi may be, he is foremost a purveyor of Krugerrands.

Lots of Krugerrands.

Krugerrands worth up to a staggering R19-billion that have, to a very large extent, our evidence suggests, been destined for illegal smelting into untraceable “scrap” alongside other kinds of illicit gold.

This conclusion is also supported by a SARS tax audit (filed in court proceedings) of a major customer that we deal with in Part Two.

Sadiqi’s dealings have been extensive. From 2017 onwards, he rapidly came to occupy what was allegedly a prominent role in Johannesburg’s booming illicit gold trade and the colossal tax scam that has powered it (which we first reported on here).

It is understood that SARS raided Sadiqi’s offices in October 2020, after a tax inquiry into the gold sector unearthed evidence that he was allegedly introducing Krugerrands into the supply chain.

What was known at the time was that SARS had allegedly seized Krugerrands worth some R600-million in the raid.

Now amaBhungane has collected volumes of financial data and other internal documentation from Sadiqi’s company – African Medallion Group (AMG) – and other major players in the trade, as well as SARS audits filed in court that, put together, provide a spectacular window into the world occupied by men like Sadiqi.

This world includes the refineries dotted along Johannesburg’s ageing gold fields, money-laundering fronts locally and abroad, and cash-in-transit companies effectively working as unregulated financial intermediaries.

Our investigation has also uncovered a new set of actors in the mix: small-scale gold mining companies that allegedly just provide cover for the introduction of illicit gold into the legitimate system – something we will return to later in this series.

But first, back to Sadiqi and the special place he and others like him have occupied at one end of the illicit gold supply chain.

Money for nothing

It is worth recapping the by now notorious gold-based VAT scam that, according to SARS’ estimates filed in court, may have cost the state over R24-billion between 2012 and 2020.

The scam turns on the nature of Krugerrands being technically legal currency but also high purity gold.

Because they are a currency, trading Krugerrands incurs no VAT. It is, however, illegal to smelt them.

This dual nature of Krugerrands led almost inevitably to the creation of a vast industry: illegally smelting coins and then claiming the smelted gold came from jewellery or other “scrap” gold which does incur VAT.

Once this is done, it is simply a matter of fabricating VAT invoices for this “scrap” before it is sold again.

From the perspective of the scammer, the profit can come simply from charging 15% more for gold than it cost them – that is, the prevailing rate of VAT. They make their money by sourcing gold (Krugerrands not subject to VAT) that they then sell on at a price which includes VAT. This makes VAT their ‘profit’.

From SARS’ perspective the damage really gets done when the gold eventually gets exported, since exports of gold carry no VAT.

This means that any exporting refinery that claims VAT, real or not, can claim back that VAT as a refund.

It might not even be the exporter that is scamming the taxman. They may very well have unsuspectingly paid fraudulent VAT to a supplier who smelted Krugerrands without their knowledge.

For the fiscus, this makes no difference – VAT-free gold is entering the system somewhere and leading to fraudulent refunds irrespective of who profits.

This scam works just as well for other sources of gold that carry no VAT but which can be disguised as gold that does carry VAT: illegally mined or smuggled metal in particular, which we will get to later.

In such cases, a 15% profit margin is summoned into existence out of nowhere, although in reality this is paid for by the state.

On gold sales, this 15% represents a gargantuan mark-up (typical margins on gold trading are at best around 2,5%), rendering VAT fraud a huge threat in light of the sheer scale of the sector’s dealings.

In 2019, for instance, the major exporting refinery that features in this story – Rappa Resources – purchased gold worth R52-billion, mostly from a core of four suppliers themselves accused by SARS of participating in such schemes.

Although it is unrealistic and unfair to assume that all of this gold was tainted by illegality, it theoretically represents R7,8-billion in pure profit in a single year, although, as explained above, it would not necessarily be Rappa raking in the cash as opposed to its suppliers.

Zooming out, within the illicit gold trade there are in reality two schemes afoot: the tax fraud just described, but also a formidable, interrelated money laundering service. Essentially anyone with dirty money can buy gold and run it through the system. And the refineries churn so much money that it is easy to mix fake income with real gold sales. We’ll examine this gold-laundering business more closely in later installments of The #Laundry.

The take-off

When looking at data provided to AmaB by the South African Reserve Bank, it appears that the Krugerrands VAT scam dramatically turbocharged demand for the coins, especially since 2015 when the players in this story entered the picture.

The correlation between exports of gold by two major refineries and the sale of Krugerrands is unmistakable:

In fact, while few South Africans realise it, for a period Krugerrands came to completely dominate the gold market, with production and sale of new coins rocketing from about 8% of the volume of gold coming out of the country’s mines in 2015 to a mind-boggling 61% by 2019.

In other words, while gold production over the period was static or declining, the amount of gold being sold in the form of Krugerrands grew exponentially.

Where Krugerrands had in days past largely been an export product, domestic sales rose from less than four tons in the 2014 financial year to over 66 tons in 2019.

It was a free-for-all.

Refiners would even receive bars of gold with the coins still clearly visible.

However, while sources tell stories of fly-by-night traders literally showing up at refiners’ doors with bags of coins during this period, the trade rapidly came to be dominated by a few giants.

This dramatic supply trajectory was unexpectedly interrupted in March 2020, when the production of coins was completely suspended due to the Covid lockdown. Demand has essentially disappeared since then.

However, no one with insight into the industry could possibly have missed the astronomical surge that fed tons of gold into the domestic market – seemingly to a large extent through suspect intermediaries like Sadiqi.

Rand Refinery and the South African Reserve Bank

Two parties in particular would be hard-pressed to claim ignorance: Rand Refinery and the South African Reserve Bank (SARB).

Rand Refinery is both the country’s largest smelter of gold and the holder of an official monopoly on the sale of new Krugerrands. It is jointly owned by the major mining groups but operates independently.

Shockingly, its partner in the minting of Krugerrands is the SA Mint Company, a subsidiary of the SARB.

Their joint venture, Prestige Bullion, provides hundreds of millions of rands of income to the central bank every year – income that surged during the period of rocketing Krugerrand sales. The central bank’s dividends from the SA Mint reached R1,4-billion in the year before the Covid crash in Krugerrand demand.

The SARB is, moreover, the majority shareholder in Prestige and recently increased its shareholding from 60% to 80%.

The division of labour within Prestige is that the SA Mint produces the Krugerrands with gold sourced by Rand Refinery, after which Rand Refinery markets them.

This effectively makes the partnership of the SARB and Rand Refinery the source of the gold fueling the massive scam and means they are profiting from it, even if only indirectly.

In response to questions the central bank provided figures for Prestige Bullion’s total revenue for all products, saying that information on Krugerrands specifically would be “commercially sensitive”.

These figures, however, show a clear correlation between Krugerrand sales and Prestige’s income.

Asleep at the wheel?

Only a small number of authorised dealers can buy directly from Rand Refinery to introduce new coins into the market.

Among these was Sadiqi’s AMG, which was approved as a dealer in November 2017 after what Rand Refinery, in response to questions, defended as “comprehensive due diligence”

Rand Refinery kicked Sadiqi out again in 2021, but failed to answer our question about what triggered their change of heart after AMG had already managed to push through R19-billion worth of business.

They also declined to explain how this reflected on their “comprehensive due diligence”.

R19-billion is a lot of coins. In fact, that easily amounts to 20% of new Krugerrands sold in the period based on figures amaBhungane received from the SARB and which were also used by SARS in its research into the sector. And that’s only the trade Sadiqi’s company did.

But the rot goes further.

Rand Refinery also sold one of its own subsidiaries to Sadiqi at the same time he made it onto their list of dealers.

Another authorised dealer, The Cape Mint, was sold by Sadiqi in 2021 as his fortunes waned.

The buyer? The “brains” allegedly behind major regional gold-based money laundering activities, Alistair Mathias, who was outed by the influential Al Jazeera hidden camera documentary Gold Mafia last year.

Mathias, who is based in Dubai, boasted to Al Jazeera’s undercover journalist that “gold is cash. It’s better than any currency. As long as you’re in gold trading you can move money anywhere.”

When later confronted, he denied ever having laundered money or gold.

Mathias was also named in an International Consortium of Investigative Journalists exposé regarding his association with one of two phantom gold refineries channeling millions of dollars to Dubai through a Swazi special economic zone (SEZ).

Whatever the case, between 2021 and late 2023 Mathias was the proud owner, through The Cape Mint, of an authorised Krugerrand dealer, although we do not have transaction data for its activities.

Rand Refinery told us that “due diligence was conducted on Mr. Matthias at the time of his purchase of the Cape Mint, and Krugerrand buying volumes associated with the Cape Mint were closely monitored”.

“Under Mr. Matthias’ ownership, the volumes were never material enough to merit further action. Following a review, The Cape Mint was offboarded as a customer in 2023.”

As with Sadiqi, it is not clear why Mathias was “offboarded”, but he sold The Cape Mint immediately afterwards.

How were people like Sadiqi and Mathias able to pass probity checks on these high risk assets though?

The SARB passed the buck to Rand Refinery, saying that they were responsible for sales.

It did, however, admit that the increase in gold sales “was considered unusual, particularly from 2017”.

“Rand Refinery, as the selling party, informed, on numerous occasions, the relevant authorities of the trends and concerns about the potential risks of illicit uses of Krugerrands. The SA Mint and SARB also communicated information about the trends and risks to the relevant authorities.”

Rand Refinery in turn told us that to a large extent it piggybacks on the banks when vetting dealers:

“All funds received from domestic Krugerrands dealers are received from bank accounts held by the counterparty at large South African commercial banks, meaning that the funds received by Rand Refinery for all domestic sales of Krugerrands were already in the regulated and controlled South African banking system.”

In other words, if the money came through a bank it was regarded as ‘clean’. As we will see later though, using the “large commercial banks” is not even remotely a guarantee of probity.

Likewise, Rand Refinery claimed that after coins were sold to the authorised dealer there was really no way to monitor what happened to them.

“Rand Refinery does not have the tools to directly monitor what authorised dealers do with the coins after purchase; however, we ensure that all dealer volumes are fully reported to the relevant authorities on a regular basis.”

Rand Refinery added that the Krugerrand trading surge coincided with “extensive marketing efforts that significantly reinvigorated the brand’s recognition across key markets”.

But as we will see, the real “marketing” was done elsewhere.

In fact, we have detailed bank statements for AMG and related companies for a key period – late 2017 to late 2018 – that paints a detailed picture of how everything worked.

Smoke and mirrors

The first strange thing about Sadiqi’s AMG was that its primary client was, at least at an initial glance, itself.

Internal records obtained by amaBhungane show the overwhelming majority of onward sales being made to one of four companies: Hamilton Lifestyle, Cavendish Gold, Orchid Funeral Assurance and F10 International.

All four appear to be proxies for Sadiqi.

Hamilton had Sadiqi himself as sole director. Orchid and F10 International are both registered at Sadiqi’s (former) address in Sandton’s exclusive Michelangelo Tower.

Lastly, Cavendish has as director Sadiqi’s romantic partner Melinda Busi Dube who, for reasons unknown, legally changed her name to Melinda Hamilton in 2021, around the time things went South for AMG. (As an aside, Sadiqi also previously changed his name to adopt his current surname.)

But why the self-dealing?

Even though AMG technically sold its coins to itself – or at least to closely related entities –  these entities did not in fact pay for them. The transactions overwhelmingly appear to be fake and seemingly serve to obscure the real clients buying tons of gold from Sadiqi.

Despite the apparent internal transactions, following the money leads somewhere else entirely – deep into the heart of Johannesburg’s illicit gold trade and a number of familiar characters amaBhungane has encountered before.

Follow the trail with us in Part Two, coming soon.