KALOTIPREC OUS N4ETALS

DMCC Responsible Metals GuidanceSourcing of Precious

Compliance Report

1Q*r July, 201-4

.t{rLBMA

Providing Precious l\,4etals Refining & Trading SolutionHead offhe:UAE. Dubai, SheikhZayed Rd., Jumeirah Lakes Towers, Almas Tower (D MCC), Floor 35,oitice D,E,F,G Tel: +971 4 4486900, Fax:+971 14343006

Gold Souk office:UAE ' Dubai, DeiE Gold Souk, Gold Cenlre Blds. F37,38,392nd Floor, Zone 3, Tel:+97142256633, Fax +971 4 2255191

BackgroundIn April 2012, the DMCC issued a risk management reference manual in order to assist DMCC-licensedmembers and other industry participants in the UAE to enforce accepfable standards ofdue diligence andresponsible supply chain managementwhen sourcing gold and precrous metals from conflict affected andhigh-risk areas. The DMCC guidance incorporates a'5-Step'frameworkthat relies on each stakeholderwithin the supply chain to co llectively wo rk together to ensure due-djliSence is carried out at the highesflevel. ln November 2012, DMCC issued the 'Responsible Sourcing of Precious Metals Review Protocol' tohelp ensu.e that Dubai Good Delivery (DGD) accredited member refineries and global industry participantsthat have adopted the guidance are compliant with the DMCC issued guidelines. Version 3.1 ofthe ReviewProtocol was released in June 2013 with minor updates, which provided clarification on amended areassLrch as role ofthe DMCC review committee and definition of compliance with low risk deviations.

This Compliance Report outlines the steps taken by Kaloti Jewellery International DMCC (KJI) and Kaloti

Jewellers Factory Ltd. [KJF) to achieve full comp]iance with the DMCC's Responsible Supply Chain Guidanceas well as following all international regulations covering Anti Money Laundering and Terrorist Financing.Kaloti lewellery lnternational DMCC IKJi), which is based in Dubai, is responsib]e for the management of allaspects ofthe physical precious metals business in the United Arab Emirates. It is the licensed entiq/ thatfaces clients and counterparty service providers such as international bullion banks, security and logisticscompanies, insurance and airline firms. Kaloti Jewellers Factory Ltd. IKJF), an independent entitybased inSharjah, is the refinery service provider ofthe Kaloti's United Arab Emirates operations and is the entitythat enjoys Dubai Good Delivery accreditation. References to systems, procedures and controls in thisrefinery report collectively cover both Kll and KJF.

Details ofthe Reporting Entity

KALOIIPRE CJOUS I\4 ETALS

Name:

Reporting Periods:

Date ofReport

Senior ManagementResponsible for this Repoft

Our EvaluationThe requiremenls ihat need to be satisfied in order to be in full comp iance with the Dl\4CC's Practical Gu danceon Responsible Sourcinq of Go d and Precio!s IVIetals are set out below.

(,

)

Kaloti lewellers Factory, Sharjah, United Arab EmiratesKaloti Jewellery International DMCC, Dubai, United Arab Emirates

1$ 0ctober 2013 till 31$ March 2014

10eJuly,2014

Tarek El Mdaka, C0-CE0

{rLBMA

Providing Precious Metals Refining & Trading Solution

Head Office: UAE . Dubaj. She kh Zayed Rd. J u meirah Lakes Towerc, Almas Tower (DMCC) Floor35 Oifice D,E,F,G. Tel:+97144486900, Fax +9714 4313006

G.ld c.nnr Bldd F3738.3S2ndFloor.Zone3.Tel:+97142256633,Fax +97112255191

KALOTIPREC OUS [,4 ETALS

Step 1, Establish Robust companv supplv chain management svstems

Comphance Statement:We are fully complialt.

We have developed and implemented robust policies and processes for responsible supplychain, the role ofour compliance officers, appropriate security requirements and training onresponsible supply chain.

a. Has the refinery adopted a company policy regarding due diligence for supplychains ofgold?

Compliance Statement: We are fully compliant.

Our policy is published on our website htto://www.kaloticoAnd sets out our responsibility and full commitment to establish and maintain strongmanagement systems in order to:

i. Fight human rights violation.ii. Avoid any actions that might contribute to conflict.iii. Fight money laundering and the fjnancing ofterrodsm.iv. Conduct stringent and systematic due diligence across the entire supply chain and

monitor all customers and transactions using a aisk based approach.v. Maintain up to date supply chain documentationvi. Conduct on-goingtraining for all employees involved in the precious Metals supply

chain.Senior management's misston is to continually update and strengthen its compliance policyp arti cularly with respectto the suppl, transport and trade in Gold and other precious Metals,and for the policy to be in line with the Practical Supply Chain Guidance issued bythe DubaiMulti Commodity Centre [DMCC), which is based on the 0ECD Due Di]igence Guidance forResponsible Supply Chains ofMinerals from Conflict-Affected and High-RiskAreas

b. Has the refiner assigned a dedicated compliance or risk officer?

Compliance Statement: We are fully compliant.

o We have established a robust risk management and compliance system under the directionofa ChiefCompliance 0fflcer (CC0).

o The CC0leads a Compliance team ofsix that is responsible for the implementation andenforcement ofthe company's Compliance Policy with the full support ofseniorManagement.

o The CC0 and all other Compliance 0fficers possess the necessary competence, knowledgeand experience to oversee the supply chain due diligence process.

{rLBM}.

"fProviding Precious Metals Refining & Trading Solution

Head oiiicerUAE - Duba, Sheikh Zay.d Rd. Jumeihh LakesTowers, Almas Tower (DllCC), Floor35,ofiice 0,E,F,G. TBI:+97144486900 Fax: +971 4 1343006

cold souk ofiicerUAE. Duba . Dena Gold Souk. Gold Cenhe Bldo F3738.392ndFloor.Zone3.Telr+97142256633.Fax:+97142255191

KALOII

{}LBMA

PRE C!OUS METALS

The main duties ofthe Compliance Officers are fully in line with the requirements setbyour regulator, the DMCC.0ur Compliance team works closely with the Comphance and lnspection Departments ofour regulator, the DMCC, calling on their expertise and assistance to assist us in ensuringfull and complete implementation ofthe DMCC due diligence guidelines on responsiblesupply chain.The Compliance Department utllizes a wide range ofavailable resources including WorldCheck, online verification, UN reports and maintaining relations with regulators andgovernment departments in .elevant countries in order to delermine the authenticiq/ andverifi caiion of all documents.Our Compliance Department has established its own independent processes and shares theCompliance Policy and other relevant information with employees and suppliers_0ur Compliance Department has developed I(YC forms and informatjve notes to supportclients and suppliers ln the due diligence process.0ur Compliance team condircts on-site visit to our suppliers' business premises to revieu,their procedures, due diligence process and for compliance discussion and awareness.

Has the Refiner developed internal documentation and records ofsupply chaindue diligence to cover internal inventory and transactional documentation?

Compliance Statement:We are fully compliant

o Th€ company maintains full documentation and client files with respectto the client on-boardinS KYC due diligence process.

o All transaction related documents are kept on the clients' files with this jnformationincluding invoices, customs papers and full details ofthe goid supplied by clients includingthe form, weight and purity.

o A new system was installed called the FACTS Compliance system during 2013; this hasimproved the compliance team's ability through the system to "track and trace,, expireddocumentation. lt provides accuracy for dates on documentation and an alert systembefore the document is expired.

o The FACTS Compliance system also keeps all employees updated with the status ofthecllent, risk assessment, expected purity levels and all their supplier information on a readonly page which is integrated into the accounting system.

o The FACTS client read only page has to be printed, crossed checked and signed before anytransactions takes place, this helps highlight "Red Flags,, ie;- purity variations, documentvariation and any change in source ofsupply/

o The FACTS Compliance system can hold scans ofrelevant documents which will bemaintained under the client's profile.

tr0Providing Precious Metals Refining & Trading Solution

HeadOfrice UAE. Dubai, Sheikh Zayed Rd. June rah Lakes Towerc Almas Tower (DMCC). Floof 35.ofihe D,E F,G. Tel:+97144486900, Fax +9714 4343000

KALOTIPREC OUS N4ETALS

d.

e.

{rLBMA

n/. (

Providing Precious Metals Refining & Tradlng Solution

Head Office:UAE - Dubai, Sheikh zayed Rd., Jumei6h Lakes Towerc,A mas Touer (DMCC), Floor 35,0ll ce D,E,F,G. TeL +971 4 4486900, Fax:+97144343006

GoldSoukOricerUAE-Dubai,0emGodSouk,GoldCentreBldg.F37,38,39zndFloor zone3 Tel +97112256633 Fa\t +97142255191

o With respectto our production we keep detailed records ofall gold barc produced at therefinerywith each bar having a unique serial numberthat allows us to track and trace thebars,

Has the refiner strengthened company engagementwith gold supplyingcounterparties, and where possible, assisted gold supplying counterparties inbuilding due diligence capabilities?

Compliance Statement: We are fully compliant

We have taken practical steps aimed at strengthening our engagementwith gold supplyingcounterpafties to assist them in building their own due diligence capabilities.o We have communicated our Responsible Supply Chain policy to suppliers by electronic

email and conducting on-sites visits.o We followan on-goingprocess ofCompliance and Due Diligence awareness email

communication with suppliers.o We have shared the DMCC practical guidance with all existing clients and this is included as

a standard part ofthe neu/ client on-boarding process.o Our Compliance Department has developed KYC forms and informative notes to train and

support clients and suppliers in the due diligence process.o our Compliance team conducts on-site visit to our suppliers' bLrsiness paemises to review

their procedures, due diligence process and for compliance discussion and awareness.o We have sponsored the Turkish language version ofthe DMCC Guidance on Responsible

Supply Chain.o We have sponsored the Spanish language version ofthe DMCC Guidance on Responsible

Suppiy Chain and distributed during the 11th International Gold Symposium in Lima, Peru20tt to 22r,t May 2074.

o We sponsored the DMCC's Responsible Sourcing Workshop held on 2 April 2013 fo. oursuppliers.

Has the refiner developed adequate security requirements?

Compliance Statement: We are fully compliant.

We have established and maintain the highest standards ofsecurity at our Refinery with keyfeatures including:

All material received from clients is segregated on receipt and recorded by origin andtype ofsupply, i.e. mine supply Dore bars or scrap jewellery Dore bars to assist our track and traceprocedures.

KALOIIP R. E C I O U S I\4 E T A LS

{r

The materiai remains segregated and held securely during the first stage assaywith the initialpurity and weight results verified against the oaiginal documents and transmitted to the clients.Then we proceed wlth the melting process at which point the material is co-mingled with otherclients' material as a batch for efficient refining purposes. We are always able to track and traceall ciient supplies back to the date ofthe original melt batch.

our Refinery's process requires all material received to be melted into grains with the grainsbeing refined on a daily basis into kilo bars, large bars (12.5 kgJ; ten tola, 100 gram cast bars,and minted bars. Every kilo bar and large bar [12.5kg] produced by the refinery has its ownunique serial number. This enables us to track and trace each ofthese Kaloti bars back to theoriginal date of production.

f. Has the refiner conducted necessary training for persons involved in supplychain due diligence?

Compliance statement:we are fully compliant.

We conduct the necessary due diligence and KYC training for all persoI1s involved in the supplychain. There is an ongoing process ofcompliance training and awareness ofall risks, especiallyred flags, through the following:

i. Internal Compliance training to front office employees (Customer RelationshipManagers, Dealers, Finance Department). we regardthis grolrp as the first line of"RedFlag Defense".

ii. Compliance awareness communication with suppliers.iii. Compliance awareness email communication with all staff.iv. Sponsoring Responsible Sourcing Workshops held by DMCC on 02-04-2073v. Pafticipation ofcompliance personnel on the following compliance seminars:

a. Due Diligence for Responsible Sourcing ofPrecious Metals and EnsurinBResponsible Supply Chain Management held by DMCC held on 11-07-2012

b. "Compliance & Anti Money Laundering Seminar" held by Thomson & Reutersar,d. DMCC on 24 -09-2072

c. "Anti Money Laundering briefin8" held by DMCC and ICT onternationalCompliance Training Middle Eastl on 7 -10 -2013

d. 6th Meeting of lGGLR-OECD-UN GoE joint forum on responsible mineralsupply chains- Kigali, Rwanda 13tb - 15ih November 2013

e. UAE Central Bank - AML Workshop Dubai, United Arab Emirates 20thFebruary 2014

I Govemance, Risk and Compliance Workshop Series - Thomson Reuters &DMCC - Dubai, United Arab Emirates 31st March 2 014 -21$April 2014.

"fLB,IIA

Providing Precious Metals Refining & Trading Solution

Head Office: UAE . Duba , She kh Zayed Rd. Jumeimh Lakes Towerc, Almas Tower (DMCC) Floor35 orice I E,F,G. Tel:+97144486900. Faxr+97111343006

n.ld ccntlr Bldd F37383g2ndFloor.Zoie3.Tel:+97142256633.Faxr+97142255191

oKALOTIPRECIOUS I\4ETALS

Ttr,lGGLR-oECD-UN GoE forum on responsible mineral supply chains -Paris, France 26 - 28 May 2014Ghana, Country Focus Briefing - Dubai Chamber of Commerce & Industry11rt lune 2014

Step 2. Identifu and assessing the risks in the suDDly chain

Compliance Statement: We are fully compliant.

a. Does the Refiner take into account geographical, counterparty and transactionalrisk?

Compliance Statement: we are fully compliant

Our policy is to "Know Your Geography (KYG)", "Know Your Customer (KYC)", and "Know Your

Transaction [KYT)". We have modified and upgraded our procedures and po]icies with the aim

ofensuring that we take into account all geographical, counterparty and transactional risks'

"Know Your Geography IKYG]"We conduct enhanced due diligence on supplies from countries assessed as hiSh risk [Red Flag]

and countries bordering Red Flag areas

We have also conducted several site visits to Low and Medium risk suppliers in various areas inSouth America, West Africa and the lndian subcontinent.

"Know Your Customer [l(YC]"The customer risk classification is determined at the on-boarding stage by reference to the

content and quality ofdocumentation provided bythe client, and the geographic locationwhere the customer is based, taking into accountthe countrys financial and regulatory system,

records on human riShts abuse, and whether sanctions exist or have existed For example we

do not accept over the counter [orwalk in) customers

"Know YoLrr Transaction IKYT]"Prior to each and any transaction the risk ofthe deal is assessed taking into account the formand quality ofthe precious metal, the odginal source ofthe precious metal, the nature ofthecustomers' buslness, and the customers' historical tradi ng activity. The risk assessmentprocess includes actionable points to mitigate any risk identified Byway ofexample we have

adopted a zero tolerance approach to cash transactions which means that we will not accept

cash in payment for physical Sold bars, nor will we pay cash for the supply ofscrap or dore gold

bars,

"f

h.

triE[{A

Provid!ng Precious l\,4etals Refining & Trading Solution

Head oll]ce:UAE. Dubai, Sheikh zayed Rd,, Jumeirah Lakes Towe6, A]maS TowellDt.lcc), F!ool35, offj6e D,E,F g, Tel| +971 1 1186900, Fax: +971 4 4343006

cord souk oflicer uAE. Dubat , Deira Gold souk, cotd centre Btdg F37 38,39 2nd Floor, Zone 3 , Teli+971 12256633 Fax: +971 4 225s191

oKALOTIPREC OUS N,4 ETALS

Step 3.

Has the Refiner conducted enhanced research on red flagged customers withrespect to locations?

Compliance Statement: We are fully compliant

We conduct enhanced due diligence on red flagged customers with respect to geographiclocation. This includes:o Organizing site visits to high-risk clients, taking pictures and issuing visit reports to

determine the complete supply chain.o We have appointed a Compliance 0fflcer to oversee the transactions originated from key

clients, associates and, or subsidiaries to coordinate, train, guide and monitor the source ofsupply and the measures in place for responsible sourcing.

o We perform in depth due diligence on medium and high risk as per DMCC requirements byenhanced investigation into gold supply chain in order to identii/ the actual source ofgoldand mitigate identified risks.

Has the refiner conducted enhanced research on red flagged supplier prior toengaging with them?

Compliance Statementr We are fully compliant

Our standard client on-boarding process requires us to conduct a "Know Your Customer" riskanalysis on all potential suppliers prior to engaging with them. If we classify a potentialsupplier as high risk we conduct enhanced due diligence on all aspects ofthe cli€nt so that wefully understand the actual source ofgold to be supplied and the nature of the client. Unless weare fully satisfied that risks can be mitigated so as to comply with the DMCC guidance we wilireject such clients and supplies

Has the refiner developed and implemented a risk mitigation/control plan?

Compliance Statement:We are fully compliant.

o We have designed and implemented a strategy for risk management ofany identified byeither:

i. Mitigation ofthe risk while continuingto trade with the customer, ori i. M itigation of th e risk while suspending trade with the customer until the risk has

been resolved. oriii. Disengagement from the risk.

{riBMA

rrfProvidlng Precious l\.4etals Refining & Trading Solution

Head 0ffice I UAE . Dubai, Sheikhzayed Rd.. Jumeirah Lakes Towers, Almas Tower (D MCC), Floor 35, Office D,E,F,G. Tel +97114486900, Faxr +971 4 4343006

Gold Souk oiiice:UAE - Dubai, Deira Gold Souk, Gold Cenire Bldq. F37,38,39 2nd Floor, Zone 3, Telr+9714 2250633, Fax:+97142255191

h.

KALOTIPREC]OUS I,4 ETA LS

Step 4.

o 0ur policies and procedures as part ofthe on,going strategy is to mitigate geographlcal,counterparty and transactional risk. These steps includei

. The Internal Quaiity Team conducts periodic internal audits.

. We have implemented the "FACT" system in the Compliance Department toautomatically monitor client files with aespect the expiration ofessentialdocuments allowing us to request updates from the clients.

. 0ur Physical Department repofts to Compliance Department for review any caseswhere inconsistency has been observed, for example purity, contents, t)?e or formof material and documentation,

Carrying out independent third party audits ofgold and precious metalscompanv's due diligence practices.

Compliance Statement:We are fully compliant.

We have arranged for annual independent third party audit ofour gold and precious metalscompliance and due diligence practices by engaging Grant Thornton, United Arab Emirates.They have completed a reasonable assurance audit ofour due diligence practices in line withthe Suidance andprotocols provided bythe DMCC. Boththe original reviewand the subsequentfollow up review were conducted on both KJI and KJF in accordance with the InternationalStandard in Assurance Engagements ISAE 3000 Assurance Engagements other thanAudits orReviews of Historical Financial Information.

Reporting annuallv on responsilrle supplv chain due dilisence

Compliance Statement: We will be fully compliant upon the release ofthis report_

Step 5.

{rProviding Precious l\,4etals Refining & Trading Solution

Head office UAE.Dubai, Sheikh Zayed Rd. Jume rah Lakes Tosers Almas Tower (DMCC). Floor 35,offhe D,E F,G. Tel:+97144486900, Faxr+971 4 4343006

t,

KALMIPRE CIOUS N4ETALS

Management Conclusion

ls the Refinery in compliance with the requirements ofthe DMCC Responsible coldcuidance for the reporting period?

Yes we are fully compliant.

We have tully implemented all aspects ofthe Practical Supply Chain Guidance issued by the Dubai MultiCommodity Centre (DMCC) which is based on the OECD Due Diligence cuidance for R€sponsible SupplyChains ofMinerals from Conflict-Affected and High-Risk Areas.

We are fully committed to adopting any future guidelines, rules or regulations with respect to theresponsible supply ofgold and precious metals and all other internationalrules relating to anti-moneylaundering and the fighting ofterrorist financing. We will continue to shive to upgrade and improve ourrisk classification and risk mitigation processes and educate our staffand our suppliers on an on-goingbasis to ensure that the highest possible standaads ofresponsible supply chains aie maintained. lfusers ofthis report wish to provide feedback to Kaloti International DMCC or have any questions they can contactour Compliance Department by sending an email fo dubai.comDlia!]eet@kalotico.com

10

flIBMA

Providing Precious l\.4etals Refining & Trading SolutionHead otiice UAE. Dubai, Sheikh zayed Rd, Jume rah Lakes Towers Almas Tower(DMCC) Floor35,office D.E F,c. Tel: +971 4 4486900, Fax +971 4 4343006