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Responsible gold sourcing and the long road from DRC to Dubai


By David Whitehouse

Attempts by the London Bullion Market Association (LBMA) to achieve responsible gold sourcing will founder unless it can get to grips with east African supply chains used to move conflict gold in the Democratic Republic of Congo (DRC) to Dubai.

The LBMA in November said it would only permit its Good Delivery List (GDL) refiners to source material from bullion centres which meet OECD standards. Its latest draft for its “Responsible Sourcing Programme” is scheduled to come into effect on January 1, 2022.

The Sentry, an investigative and policy group in Washington, estimates that $4 billion in high-risk gold from central and east Africa enters international markets each year. Sasha Lezhnev, The Sentry’s deputy director of policy , takes a positive view of the LBMA’s moves. Their pressure on Dubai and other global gold trading centres to close their loopholes on conflict gold is a “game changer,” he says. The threat of a pull-out from trading centres, may have a “major impact on conflict gold supply chains.”

Others question how much progress is really being made. In March, the campaigning NGO Global Witness argued in an open letter to the LBMA that its responsible sourcing programme fails to address human rights abuses and illicit gold in the supply chain.

The development NGO Swissaid was one of the signatories to that letter. Marc Ummel, Swissaid’s programme officer for raw materials, points to a lack of clear sanctions and questions what it actually takes for a refinery to be delisted by the LBMA.  Its rules, says Ummel, are not currently robust enough for the EU to adopt. Gold refinery auditors are not qualified enough and there are questions over their independence, Ummel argues. Auditors should be changed much more often, rather than remaining in place for 10 or 15 years. Two or three years would be a realistic timeframe, he argues. There is “still major work to be done.”

The LBMA is involved in an “incremental” process of improvements through building relationships with the supply chain, says Alan Martin, the LBMA’s head of responsible sourcing in Ottawa. Some NGOs need to accept, he argues, that dealing with issues such as artisanal and small-scale (ASM) mining involves dealing in “shades of grey. You’re going to have to deal with people who have a past.”

East African Corridors

ASM gold in the DRC is often mined in dangerous conditions, with workers vulnerable to human rights abuses. According to the United Nations, conflict gold provides the largest source of revenue to armed groups in the eastern DRC. The DRC’s tax rates on gold in transit, which vary between the country’s regions, make it hard for officially declared gold exports to be economically viable.

The result is that much of the DRC’s gold is illegally exported to east African countries including Uganda, Rwanda and Burundi. Uganda is a “global magnet” for the gold trade, with significant amounts coming in from the DRC and south Sudan, says Marcena Hunter, senior analyst at The Global Initiative Against Transnational Organized Crime (GI-TOC) in Brisbane, Australia. Uganda’s gold taxes are low, and the country has the infrastructure to facilitate gold movement. Global Witness gives the example of gold exported by the Uganda-based company African Gold Refinery (AGR) which would, according to UN rules, be designated as originating in Uganda and so  unlikely to be viewed as high risk. AGR, according to The Sentry, sources conflict gold from the DRC – claims which AGR CEO Alain Goetz has denied.

Uganda’s gold exports have grown since the 1990s to become the highest in the region. The country exported gold worth US$1.25 billion in 2019, more than double than in 2018, and compared with less than US$10 million a decade ago. And official export data is likely to understate actual gold exports because of smuggling – Uganda’s declared gold export figures do not tally with the UAE’s import data. Research by Hunter for GI-TOC includes an account from a local dealer who said that most of the gold received in Uganda is in transit, and that almost 95% of it is illicit. Dealers pass the gold off as being of Ugandan origin, supported by fraudulent documentation which the authorities can’t easily disprove. The country has seven registered gold refineries – more than enough for its actual production. Dealers told GI-TOC that almost all the gold shops and companies in the city have agents with direct links to the large gold producers in eastern DRC.

From east Africa, gold of unclear origin is flown by courier to Dubai, where no proof of origin is needed. As late as 1996, the United Arab Emirates was not among the world’s top hundred importing countries. By 2018, it was in the top four, with imports from more than 100 countries.  A report from  Carnegie Endowment for International Peace sums up the role of Dubai in gold trade. “Far from competing with the traditional gold centres, Dubai does what other hubs will not—or legally cannot—do.”[1]

The LBMA’s initiative is “definitely a step in the right direction,” says Joanne Lebert, executive director of the Canadian conflict minerals research group IMPACT. The requirement for international bullion centres (IBCs) to know the origin of supply for all recycled bullion is “particularly important,” she says. Lebert also welcomes the requirement for IBCs to implement the most recent recommendations from the Financial Action Task Force, the global money laundering and terrorist financing watchdog. 

But those steps “will only be meaningful if there are consequences linked to non-compliance,” Lebert says. Progress on implementation must be publicly reported in a timely way and with disaggregated country-level data, she adds. The effects will only be real if all the IBCs implement the recommendations equally. “Otherwise, gold of unknown or dubious origin will easily find its way into the IBCs with the weakest implementation.”

Artisanal Mining

LBMA-listed refiners currently self-report sourcing a meagre 1% of gold from artisanal mining, versus 55% recycled gold. Shedding light on recycled gold starts to demonstrate the extent to which LBMA refiners’ gold is in fact artisanally mined, Lebert says. The reality, she points out, is that millions of people depend on artisanal mining for their livelihoods and responsible artisanal production has the potential to contribute to poverty reduction.

Global Witness argues that the LBMA should make public reporting on the countries of extraction and the names of gold suppliers in high-risk locations an obligation for refineries on their Good Delivery List. The danger is that refineries will seek to limit risk by avoiding high-risk sources altogether. A good faith attempt to source gold from a high-risk, artisanal source could mean penalties. The overall system of control is more important than focusing on specific high-risk sources, says Ummel at Swissaid. He fears that good suppliers will be blocked if whole countries are blacklisted. Legitimate producers in the DRC would be marginalised – but gold from the DRC will still make it onto international markets, he argues.

‘Catch 22’

The LBMA faces a “Catch 22” situation, Hunter says. The best way to resolve it, she argues, is to engage more with mining operators and communities. Refineries should be encouraged to research and engage with artisanal mining sources, she argues. Blacklisting individual African countries is not the solution. “It’s a difficult balance to strike.”

It has been easier to make progress on responsible sourcing in Latin America than in sub-Saharan Africa, as Latin America has more large-scale mines which are more practical to monitor, Hunter says. Africa’s gold mines are further-flung and with much smaller average volumes.

One solution, Hunter says, is to concentrate research efforts on the “aggregators” who buy gold from mines scattered around a region before selling it on. This would be “one of the best potential ways” to engage with African artisanal mining. More manpower will be needed to research the vast territories involved and the LBMA could do more to support such research, Hunter says.

Martin at the LBMA agrees that developing relationships with east African traders will be key. There’s a “divorce”, he says, between OECD conferences which discuss sourcing standards and the absence of people actually involved in gold trading. Many of these traders operate as part of long-established networks. Corporate buyers of gold will have to get used to “mitigating risks in the grey zone,” he says. “We have to find ways to open a conversation.”

David Whitehouse is a freelance journalist and business editor of The Africa Report in Paris.

[1] Dubai’s Role in Facilitating Corruption and Global Illicit Financial Flows, Carnegie Endowment for International Peace, 2020.

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