In the recent past, Kenya has hit many international headlines for scandals involving gold. From the infamous Goldenberg Scandal of the 1990s, all the way to 1.3 Million US Dollar gold scam in the year 2024.

You can ask yourself how easy it is for the scam. The purpose of this short article is to show you how a typical gold scam works. This will help you avoid being scammed.

How the scam is set up

A typical gold scam will have the following parties:

(I) An investor: This is an individual or a company that is often outside Kenya

(II) The gold seller: This is an individual or a company that is in Kenya with the alleged gold.

(III) Freight agent: This is an agent who is tasked with transporting the paid-for gold to the investor.

In a typical scam, the foreign-based investor will be introduced to the gold seller through a middleman. The gold seller will tell the investor that he/she has gold ready for shipping. The seller will demand an assay report on the gold. If it is a huge amount of gold, such as 500kg and above, the seller will inform the investor that an assay evaluation cannot be done on the entire amount of gold, but only on a small fraction of it.

The investor will then agree to have a small percentage of the gold product tested. The seller will take a small percentage of genuine gold and use it for the testing. The test will come out positive for the quality the investor wants. 

Since the bigger bulk of the gold remains untested and unassayed, the seller will coordinate to have fake gold to constitute the untested sample and deliver it to the freight agent for transmission to the investor. 

The investor will then make payment for the full consignment solely based on trusting the assay report. The consignment of fake gold will then be transferred to the freight agent (who is usually contracted by the seller). 

Once the fake gold arrives at the investor’s location, he/she discovers that the larger consignment is fake. He cries foul, but the freight agent denies liability, stating that the company’s job was to merely transport. The seller will also deny liability, seeking to rely on the assay report and lapses in the chain of custody.

How to avoid the scam

If you are interested in purchasing gold from any seller in Kenya, follow the following steps:

1. Find out the source of the gold and where it was mined. 
2. Get credentials of the mining company through due diligence such as their mining license.
3. If the seller is not the mining company, demand documents showing the transfer of ownership of the gold from the mining company to the seller showing that the seller has rights to sell. The seller must also provide a mineral dealer license as required by Section 159 of the Mining Act.
4. Have a comprehensive gold purchase agreement drafted by a lawyer. In a subsequent post, I will share the essential ingredients of a gold purchase agreement.
5. Demand that the assay test be done on the entire consignment to be delivered, or the alternative, have your expert conduct an assay test on the entire consignment before payment of the purchase price and before taking custody of the consignment.
6. Have a separate contract of undertaking with the freight and charter company stipulating risks transference. The charter company should acknowledge the quality and quantity of the gold being transferred.
7. Have escrow accounts set up with both lawyers for your company and the seller’s lawyers.
8. Have the purchase price settled through the escrow accounts.

CONCLUSION

It is important to follow due process to avoid losing money through fake gold scams. The cardinal principle for gold transactions is that you rush, you lose.