On June 27, 2023, the Treasury Department’s Office of Foreign Assets Control (“OFAC”), in conjunction with USAID, and the Departments of Commerce, Homeland Security, and Labor, published an Africa Gold Advisory identifying risks related to the gold industry. At the same time, OFAC added several entities in the industry to its list of Specially Designated Nationals and Blocked Persons (“SDNs”) for their connections to and support of the Russian mercenary group, the Wagner Group, and its leader, Yevgeny Prigozhin. The Advisory highlights the sanctions, corruption, and other key risks associated with the gold industry and provides guidance on how to mitigate those risks.
U.S. parties with business in Africa’s gold industry face heightened risk of a counterparty being designated as an SDN, particularly given the Advisory and recent SDN designations. As a reminder, SDNs are subject to “blocking sanctions,” meaning that U.S. persons are broadly prohibited from conducting business with the SDN or any entity owned 50 percent or more by SDN, and U.S. persons must formally “block” (freeze and report) any property or interests in property that are in an SDN’s possession or control. The Advisory notes several possible reasons for designation, including human rights violations, support for terrorist or armed forces organizations, or support for Russia’s war efforts. Even if OFAC does not designate a contractual counterparty, U.S. persons could face liability or reputational damage if the African entities are supporting SDNs or other sanctioned actors, or engaging in other malign activity such as corruption, money laundering, or smuggling.
It is critical to conduct fulsome, risk-based due diligence prior to engaging with the gold industry. Due diligence should not end at onboarding, and companies should develop procedures for ongoing auditing to quickly detect and deter any compliance concerns. Rights to exit the contractual relationship are also essential to avoid breach of contract concerns when terminating dealings with a newly designated SDN. As with other industries flagged by OFAC as high-risk (e.g., shipping, aviation), the gold industry presents unique challenges that require close attention and a robust compliance program to avoid potentially costly mistakes.