A study of global gold trading data has uncovered signs of smuggling in several major markets, warning that metals traders, refiners and banks should pay closer attention to potential red flags.

According to research by investigative campaign group Global Witness, many countries are currently exporting quantities of gold far in excess of their reported production and imports.

Though this can be partly attributed to flaws in how data is recorded and presented, the report warns that in many cases it suggests gold is being smuggled across international borders in order to disguise its dubious origins.

“When gold is smuggled into a country, it is not reported as an import, but it often leaves the country through legal channels and shows up in the export figures, leading to gaps between production and net export figures,” Global Witness says.

It adds that by tracking cases where gold may have originated from or transited through conflict zones, it appears some companies “claiming to adhere to the highest due diligence standards in the gold sector either did not do the most basic checks or seemingly ignored the red flags”.

The risk to the financial and trading sectors is that conflict or illegally mined gold can often be linked to criminal activity. In the case of Colombia, recent research has suggested that illicit gold trading is proving more lucrative to organised criminal groups than cocaine.

The report centres on 15 countries that had the largest gap between reported gold production and net exports in 2017, the most recent year for which extensive data is available.

Of those 15, it says eight are countries “where gold smuggling is widely known”, citing Bolivia, Togo, Peru, Sudan, Suriname, Egypt, Hong Kong and Japan.

Togo, for example, exported almost 20 tonnes of gold despite zero reported gold imports and minimal domestic mining activity.

Research by Public Eye, a Swiss NGO, has previously linked the West African country to gold originating from mines in Burkina Faso known to use child labour for extraction.

Bolivia also exported around four times the amount of gold than it produced, which the report says could indicate smuggling from Peru’s Madre de Dios region – notorious for its links to illegal mining and deforestation.

In the UAE – not listed as one of the eight high-risk countries for smuggling but long identified by campaign groups as a hub for trading gold of questionable origin – the report finds a significant gap between official gold imports and the equivalent recorded exports from African countries.

In terms of dollar value, the gap in 2018 was estimated to stand at around US$2.7bn. This is problematic, the report says, because gold refined in Dubai is labelled as originating in the UAE meaning its “real and potentially problematic origin” is concealed.

And in Hong Kong, official records show that more than 5 tonnes of scrap gold was imported from Suriname in 2018 – yet Suriname’s data shows the same amount labelled as raw gold.

Mislabelling high-risk gold as scrap is “a typical way of attempting to escape scrutiny”, the report says.

“Since scrap gold mostly consists of old jewellery which is usually of a lower purity, and therefore of lower value than pure gold, this raises questions as to whether Hong Kong really imported scrap gold,” it says. “Since Suriname is known as a hub for high-risk gold, this is all the more concerning.”

Alex Kopp, a campaigner at Global Witness and author of the report, says banks financing gold trading activity can reduce their exposure by combining customer due diligence with an examination of publicly available trade data.

“As a first step they should ask some questions, for example where refineries’ gold is sourced from and if high-risk suppliers are involved. Banks should also check if a refinery has a solid due diligence system in place,” he tells GTR.

“It’s important not to rely just on a refinery’s due diligence, however. Banks can use trade data to do certain checks.”

In some cases, Kopp says, trade data can reveal activity that is “clearly dodgy”, giving the example of a single US refinery that in 2014 imported more Bolivian gold than the country produced.

“These are obvious things where you would have to think there’s something wrong,” he says. “Basic checks on trade data can give an idea where banks should investigate further.”

However, in some cases, there are issues with the reliability of that data. The quality and availability of data is not consistent globally, for instance, and many of the world’s 3,000 free trade zones and ports do not report trade data at all.

Other quirks come from rules around gold purity. Global Witness points out that Argentina appears to be one of Latin America’s largest gold exporters despite limited production and almost no import activity.

That is because the vast amounts of silver mined in Argentina – in excess of 1,000 tonnes in 2017 – often contains more than 2% gold content and so is categorised as gold rather than silver.

The report suggests that the World Customs Organization proposes clearer and more uniform subcategories for different types of gold exports, and that countries should have to report both where gold was extracted and where it was substantially transformed.