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EU Conflict Minerals Regulation

Monday, January 25, 2021

Frequently Asked Questions
If you require any further clarification in relation to the FAQ’s below, or there are questions that have not been addressed, please get in touch with the LBMA: ask@lbma.org.uk

Background
From 1 January 2021, the Conflict Minerals Regulation will enter into force. The Regulation was originally published in 2017 and applies to importers of “conflict minerals”: tantalum, tin, tungsten and gold.

Rather than prohibiting gold imports from certain areas, the Regulation requires companies importing conflict minerals into the EU to conduct due diligence within in their supply chain according to the OECD Due Diligence Guidance (the OECD Guidance). By implementing these practices, parties can continue to engage with legitimate sources while disengaging from sources which perpetuate armed conflict, violence and human rights abuse.

These FAQs are grouped in the following categories:
  • Scope
  • Requirements
  • Management systems
  • Risk assessments
  • Reporting obligations
  • Enforcement
  • Brexit
SCOPE

1. Which types of gold are in scope?
Annex I of the Regulation lists the categories of gold which are in scope:

Reference Description CN Code Classification Volume Threshold
Annex I, Part A Gold ores and concentrates ex 2616 90 00 Mineral 4,000,000kgs(1)
Annex I, Part A Gold, unwrought or in semi-manufactured forms, or in powder with a gold concentration lower than 99,5 % that has not passed the refining stage ex 7108 Mineral 100kgs
Annex I, Part B Gold, unwrought or in semi-manufactured forms, or in powder form with a gold concentration of 99,5 % or higher that has passed the refining stage ex 7108 Metal 100kgs
Gold, unwrought or in semi-manufactured forms, includes:
  • Mined gold, including alluvial gold, gold doré and mining by-products
  • Monetary gold, including gold exchanged between national or international monetary authorities or authorised banks
  • Non-monetary gold
This means bullion products, including London Good Delivery bars, are in scope under Combined Nomenclature (CN) Code 7108.

Note that the purity of the gold determines whether it is a “mineral” or a “metal” under the Regulation. The Regulation generally applies equally to minerals and metals however metals are subject to fewer obligations – see the section on Requirements below.

2. What if I import fewer than 100kgs a year?
If the annual import volume of gold is below the threshold set out in Annex 1, the Regulation will not apply. The 100kgs threshold was set to ensure most of the gold imported into the EU is subject to the Regulation.

Please note the Regulation empowers the Commission to amend these thresholds every three years.

3. Does the Regulation apply to imports of scrap or recycled gold?
No, the Regulation does not apply to recycled gold (2). However, the Regulation does require importers who “reasonably conclude” that the gold is derived from scrap or recycled sources to publicly disclose this conclusion and describe the supply chain due diligence measures it undertook in reaching that conclusion. This should be done in reasonable detail and with regard for business confidentiality and competition concerns.

4. Does the Regulation apply to mined gold produced as a by-product?
Yes, the Regulation applies to gold obtained as a by-product (4). The Regulation defines a by-product as “obtained from the processing of a mineral or metal falling outside the scope of this Regulation, and which would not have been obtained without the processing of the primary mineral or metal falling outside the scope of this Regulation”. For example, gold produced as a by-product from platinum group metals or copper mining would be in scope should it be imported into the EU in amounts of over 100kgs a year.

5. Does the Regulation apply to gold already in the EU?
No, the Regulation applies only to companies importing gold into the EU. Trade of gold within the EU is not in scope.

6. Does the Regulation only apply to refiners?
The Regulation applies to any companies importing over 100 kgs of gold into the EU. This can include refiners, mints, banks, traders and retailers.
 
7. Do I need to comply if I don’t source from CAHRAs?
Yes, the Regulation applies to all gold imported from outside of the EU. Additional obligations are placed on imports from conflict-affected and high-risk areas (CAHRAs).

The Regulation defines CAHRAs as those in a state of armed conflict or fragile post-conflict as well as areas witnessing weak or non-existent governance and security, such as failed states, and widespread and systematic violations of international law, including human rights abuses (5). Unlike some other pieces of legislation addressing conflict minerals (such as the US Dodd Frank Act), the Regulation is not restricted to certain named countries of origin.

Instead, the Commission will publish non-binding guidelines to assist importers with applying the criteria for CAHRAs (6). An indicative and non-exhaustive list of CAHRAs will also be published by the Commission, however importers sourcing from outside of these identified areas are still required to comply with the Regulation (7). To date, the guidelines and list have not been published.
 
In the meantime, the OECD Guidance provides further details on CAHRAs stating that:
 
"Conflict-affected and high-risk areas are identified by the presence of armed conflict, widespread violence or other risks of harm to people. Armed conflict may take a variety of forms, such as a conflict of international or non-international character, which may involve two or more states, or may consist of wars of liberation, or insurgencies, civil wars, etc. High-risk areas may include areas of political instability or repression, institutional weakness, insecurity, collapse of civil infrastructure and widespread violence. Such areas are often characterised by widespread human rights abuses and violations of national or international law."
 

REQUIREMENTS

8. Who needs to comply with the Regulation?
The obligations fall onto the importer of the mineral or metal as the point of import can be seen as the riskiest point of the supply chain. This is the individual or company declaring the mineral or metal for release for free circulation within the EU(8).

Although the Regulation itself is not entirely clear on this point, it is likely that an "importer" for purposes of the Regulation does not need to be an entity established in the EU. Regulation applies to all companies importing gold into the EU (not just those established in the EU), UK counterparties can still be subject to the Regulation's requirements regardless of the UK ceasing to become an EU member state. Therefore, as such, non-EU entities will also need to comply.

9. What do I need to do?
The Regulation requires that EU importers comply with the supply chain due diligence obligations, which involves adopting a supply chain policy that aligns with the model supply chain policy contained in Annex II of the OECD Guidance (9), formalising management systems (10), and risk management (11). Importers must also keep evidence documenting their compliance with the Regulation, including the results of any third-party audit (12).

To reduce the risk of gold being sourced from CAHRAs, the Regulation mandates a process based on the OECD Guidance’s five-step framework:
1. Establishing a management system
2. Identifying and assessing supply chain risk
3. Designing and implementing a strategy for responding to the identified risks
4. Third party independent auditing of supply chain due diligence
5. Reporting on due diligence

10. What data do I need to collect and share with my customers?
The Regulation sets out different requirements regarding traceability for importers of minerals and of metals. This due diligence must be made available to immediate downstream purchasers, with due regard for business confidentiality and competition concerns (13).

10a. I import gold with a purity of less than 99.5%:
For minerals (including unrefined gold with a concentration of less than 99.5%), companies must operate a system that provides (15):

  • Description of the metal, including its trade name and type
  • Name and address of the supplier to the EU importer
  • Name and address of the refiners in the supply chain of the EU importer
  • Records of third-party audit reports of the refiners, or demonstrated reliance on a recognised supply chain due diligence scheme (such as LBMA’s Responsible Gold Guidance), if available
  • If the records are not available, the system must provide:
    • Countries of origin of the minerals in the supply chain of the refiners
    • Where metals are based on minerals sourced from CAHRAS, additional information in accordance with the specific recommendations for downstream economic operators set out in the OECD Guidance.
11. What steps do I need to take after collecting this data?
For minerals, importers must identify and assess risks in their supply chain identified through their traceability systems. They must implement a strategy to prevent adverse impacts by reporting findings of their risk assessment to senior management, adopt risk management measures, implement a risk management plan, and undertake additional assessments for risks requiring mitigation.

For metals, importers must identify and assess risks based on the third-party audit reports of their suppliers. Any findings should be reported to senior management and they should implement a response strategy designed to prevent adverse impacts.

The assessments and strategies noted under this section must be consistent with the OECD Guidance’s model supply chain policy and its specific recommendations.

If an importer can demonstrate that all refiners in its supply chain comply with the Regulation (including but not limited to via third-party audits carried out in respect of these refiners), they will be exempt from having a third-party audit conducted against their own activities (16).

This exemption can be satisfied if the importer can show they are sourcing exclusively from “white-listed” refiners (this "white list" to be produced by the Commission (17), but no timeline for publication is currently available).

12. Has LBMA applied for recognition of its Responsible Gold Guidance?
Yes. LBMA has applied to the European Commission for recognition.

LBMA requires all its Good Delivery List Refiners to comply with the Responsible Sourcing Programme, which includes the Responsible Gold Guidance. The Responsible Gold Guidance was established in 2012 to help verify the legitimacy of the gold supply chain. The Responsible Gold Guidance follows the five-step framework for risk based due diligence of the OECD Due Diligence guidance. For more detail on the wider Responsible Sourcing Programme, please see the 2020 Responsible Sourcing Annual Report.  
 
REPORTING

14. What do I have to report?
Importers must publicly report, as widely as possible, each year on their supply chain due diligence policies and practices for responsible sourcing (18). The Regulation suggests making this information available via the internet.

The report must provide information on the steps taken to comply with Articles 4 and 5 (management systems and risk management obligations). The report must also summarise relevant third-party audits and include the name of the auditor.

15. How does the LBMA Responsible Gold Guidance fit into this?
The Regulation invites parties to submit supply chain due diligence schemes for recognition by the Commission . This will assist parties throughout the supply chain to comply with obligations on data collection, sharing with customers and public reporting.
 
The Commission will establish and maintain an online register of recognised due diligence schemes (20)  that mirror the OECD Guidance. LBMA has applied to the Commission for assessment of the Responsible Gold Guidance.


This process builds on the alignment assessment undertaken in 2017 to close any gaps between the OECD Guidance and the Responsible Gold Guidance. Recognition by the Commission of the Responsible Gold Guidance will ensure that Good Delivery refiners’ ongoing and future responsible sourcing efforts are recognised under the Regulation and can also be relied upon by upstream parties in their compliance efforts under the Regulation.

Following the recognition of supply chain due diligence schemes (21), the Commission will publish a list of global responsible refiners compliant with those schemes (22).

However, each importer remains individually responsible for ensuring that they satisfy the relevant due diligence requirements.

ENFORCEMENT & BREXIT

16. How is the Regulation enforced?
Each EU Member State’s authorities are tasked with carrying out ex-post checks (23) to ensure compliance. For example, in the UK, the Office for Product Safety and Standards (OPSS) has been designated as the competent authority. These checks will be conducted on a risk-based approached and can be in response to substantiated concerns from third parties (24). Records of checks will be shared between authorities and kept on file for at least five years. 

The checks will include (25):
  • Examination of the importer’s implementation of supply chain due diligence obligations, including those related to management systems, risk management and third-party audits
  • Examination of records demonstrating compliance with the above
  • On-the-spot inspections, including at the importer's premises

The Regulation does not set out penalties, financial or otherwise, for non-compliance. The rules regarding infringements will be set by Member States’ authorities rather than the Commission (26). By January 2023 and every following three years, the Commission will consider whether authorities should have the ability to impose penalties on importers for persistent failures to comply with the Regulation (27).

17. Will this Regulation apply in the UK?
As the Regulation applies to all companies importing gold into the EU (not just those established in the EU), UK counterparties can still be subject to the Regulation's requirements regardless of the UK ceasing to become an EU member state.

Whilst parts of the Regulation applied from 2017, its key operative provisions do not apply until 1 January 2021, after the end of the Brexit 'transition period'. Therefore, the Regulation is not currently set to form an operative part of retained EU law in Great Britain (though it will take effect in Northern Ireland).

Given the UK's involvement in the development of the rules, the UK is ultimately likely to "on-shore" the Regulation. The OPSS has already been designated as the UK's competent authority with powers to enforce the Regulation. However, detailed guidance from the OPSS, including on the UK-specific rules regarding infringements, is yet to be published.

It remains to be seen how gold moving from the UK will be treated upon arrival in the EU and whether this will be classed as an import.
 
(1) The volume thresholds in Annex 1 of the Regulation were amended in June 2020. The relevant data to calculate these thresholds was not available when the Regulation was published in 2017 therefore the Commission agreed to publish the thresholds before July 2020.
[2] Article 1(6)
[3] Article 7(4)
[4] Article 1(8)
[5] Article 2(f)
[6] Article 14(1)
[7] Article 14(2)
[8] Article 2(l), defined therein as "Union importers".
[9] Article 4(a) to (e)
[10] Article 4(c)
[11] Article 5
[12] Article 3(1)
[13] Article 7(2)
[14] Article 4(f)
[15] Article 4(g)
[16] Article 6(2)
[17] Article 9(1)
[18] Article 7(3)
[19] Article 3(3)
[20] Article 8(8)
[21] Article 8
[22] Article 9
[23] Article 3(2)
[24] Article 11(2)
[25] Article 11(3)
[26] Article 16(1)
[27] Article 17(3)

Disclaimer
Please note these FAQs are produced as guidance only and should not be read as legal advice. LBMA encourages all parties to obtain legal advice if in doubt of their obligations under the Regulation.

Resources
Regulation (EU) 2017/821 (Legal text), EUR-Lex

The Conflict Minerals Regulation explained, European Commission

OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, OECD

Responsible Gold Guidance, LBMA
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