The following is an edited version of a speech made at the LBMA Bullion Market Regulation Workshop: Responsible Gold held in Montreal on 19 September 2011.
Gold has been a beautiful, valuable and desired metal for thousands of years. But the origin of gold, the circumstances of its extraction and the sometimes problematical history of its dealings have never faded from view. Recent years have seen particular attention given to environmental concerns, but also to money-laundering, social responsibility, and more. Now, added to those issues, is a renewed emphasis on the role of gold in inciting human conflict, most specifically in the conflict in Africa. It is an emphasis to which the worldwide gold industries must react with positive attention and effort.
The Ugly: The Democratic Republic of the Congo
“The horror! The horror!” 1 That memorable literary description of conditions along the upper Congo River is a reminder that it has been the scene of brutal conflict for more than a hundred years. For the last 15 years, the Democratic Republic of the Congo (DRC), primarily in its eastern region, has experienced the First and Second Congo Wars. Those wars have at times involved the armies of nine nations2, multiple ethnic and tribal militias, at times simply marauding bands of armed men who “kill, abduct, torture and rape civilians, and burn and destroy villages”3.Currently, the worst perpetrators are units of the national army of the DRC, the Forces armées de la République démocratique du Congo (FARDC)4. For the local populace, there has been little difference among them5.Millions of people have died in the Congo wars, many from disease andstarvation6. Mass rape has been regularly used to intimidate and control the population7, and even now, five years after the ‘peace accords’ and the end of formal war, and with the presence of UN peacekeeping forces, an estimated nine percent of the population of the war-torn area is the victim of sexual violence annually8. As the UN Group of Experts recently reported: “All parties to the conflict continue to commit frequent and flagrant violations of international humanitarian law, many of which involve the targeting of (non-combatant) women or children.” 9
The UN Group of Experts says that “in the Kivu provinces, it appears, almost every mining deposit is controlled by an armed group”.
The Bad: Gold in the Middle
The Congo Wars started in 1996 when ethnic civil war in Rwanda spilled over into eastern DRC, and the brutal warfare between Tutsi and Hutu armies became international. But after toppling the Mobutu government in Kinshasa in 1997, conflict in the eastern DRC didn’t end; it settled into a seemingly endemic condition, with no government able or willing to stop it. And gold is a factor in that condition. The DRC has large reserves of easily mined minerals and their exploitation has long been a prime activity in that country, dating back to Belgian King Leopold in the 19th century, to 20th-century national independence under Mobuto10, to the present day. The mining of DRC mineral reserves has historically created a great deal of wealth, albeit primarily for a very small number of people. The mines are now increasingly controlled by armies and armed groups, although mined by a desperate and vulnerable population, and their products are stolen from that population to feed appetites for guns and wealth. The UN Group of Experts says that “in the Kivu provinces, it appears, almost every mining deposit is controlled by an armed group” 11. Beyond direct control, there are protection fees paid by mining pit managers, forced civilian labour, theft and extorted illegal ‘taxes’, “an increase in pillaging and looting attacks by armed groups on mineral traders or transporters” and “use of intermediaries to invest and purchase minerals” 12.
In terms of worldwide production, DRC gold is almost insignificant. The U.S. Geological Survey has estimated DRC annual mine production most recently at 2 tonnes13. Another informed estimate of DRC national production is 8 tonnes14. In the conflict- affected eastern region, one estimate is 6.5 tonnes15. A leading human rights NGO has estimated 5 tonnes16. The UN Group of Experts, with on-the-ground investigators, has said that 4 tonnes of gold are produced in North and South Kivu Provinces17, the principal area of conflict and control by armed groups18. That amount is less than one- tenth of one percent of global production of more than 4,000 tonnes. But looking at the DRC from the global view can be misleading; even 4 tonnes of gold has a current London market value in excess of US$200 million, and in the country with the world’s lowest per capita GDP19, that is significant. And it is a significant source of funds for armed groups; gold has been repeatedly cited by the UN Group of Experts for its association with DRC conflict20. Thus what seems to be a small amount of gold to the world gold industry nevertheless pays soldiers, and buys guns, bullets and luxury goods.
Governments have seemed to be helpless in the face of these circumstances. Even after a decade of United Nations, United States and EU involvement, “eastern Congo’s provincial governments as of mid-2010 still struggle to perform basic governance tasks” 21 and “armed groups…continued to control hundreds of more remote mining sites and to pillage mineral markets, traders or transporters...[with] widespread involvement of criminal networks within FARDC in natural resource exploitation” 22.
And that exploitation has been tied to the atrocity, by “a nexus between the illicit exploitation of natural resources by armed elements and patterns of sexual violence” 23. The inability of national, regional and international governments to deal with this utterly failed state has led to a search for other possible approaches, and some now see the private sector as holding a key to a solution – cut off the finance of armed groups, by ending their participation in mineral transactions. Of particular interest, some DRC minerals are very important for modern industrial societies: tin, tantalum, tungsten and gold. And so industries that use these minerals, especially multinational industries that sell products to consumers, have become the target of campaigns to save the DRC through private sector control of its economic base.
Most of the private sector has no idea of the mining sources of the minerals that it uses, and so the efforts to break links between consumer goods and DRC mines must begin with finding those links, through supply chain due diligence. In its final report of 2009, the United Nations Group of Experts recommended “that the Security Council request Member States to take necessary measures to clarify the due diligence obligations of companies under their respective jurisdictions which operate in the Democratic Republic of the Congo mineral trading sector. The Group further recommends that Member States request companies to adopt codes of conduct detailing the procedures adopted to prevent indirect support to non- governmental armed groups through the exploitation of natural resources” 24. Last year, the United States Congress declared gold, wherever its origin might be, to be a “conflict mineral”, and directed that the use of gold in all products manufactured by U.S. publicly traded companies be publicly reported25. Furthermore, if the origin of that gold is the DRC or any adjoining country – an area comparable to the 48 contiguous states of the United States, with a population of 200 million – the Congressional directive is that a detailed audited report of its relationship to conflict must be submitted to the U.S. Securities and Exchange Committee (SEC). Congress based this requirement upon its “sense that the exploitation and trade of conflict minerals originating in the Democratic Republic of the Congo is helping to finance conflict characterised by extreme levels of violence in the eastern Democratic Republic of the Congo, particularly sexual- and gender-based violence, and contributing to an emergency humanitarian situation.”
And the concern with conflict has reached, at least potentially, well beyond the DRC. The Organisation for Economic Cooperation and Development (OECD) has turned its attention to the extraction of minerals in conflict circumstances, in unnamed countries but wherever they might be or arise, and has adopted and issued a guidance for governments and industries regarding what they should do: OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas26. The Guidance is made expressly applicable to gold27.
The consequences of gold being a “conflict mineral” are substantial. Estimates of the cost of Dodd Frank Act due diligence vary widely, but are likely to be in the billions. The U.S. Securities and Exchange Commission, in its proposed regulation to implement the requirement, estimated the total economic burden of due diligence and reporting to be only US$46 million28, but the National Association of Manufacturers estimates the total to be at least 20 times higher: US$9-16 billion29. Beyond the direct economic cost of due diligence are the broader consequences, not least the unintended shame, of being associated with atrocities. The UN Group of Experts has declared its intent “to identify the domestic, regional and international buyers, brokers and financiers that directly or indirectly facilitate armed actors’ involvement in resources trade and make it profitable” 30. Margot Wallström, UN Special Representative on Sexual Violence in Conflict, very recently called for punishment: “Those who [trade in conflict minerals] should face consequences from national police and international sanctions regimes.” 31 The UK government aligns the conflict minerals issue to action under the very stringent UK Bribery Act32. Because of the direct involvement of the national DRC military in conflict and human rights abuse, U.S. Government action under the Foreign Corrupt Practices Act (FCPA) is a possibility. And even if governments hold back in their enforcement, private litigation against a supply chain participant may include claims of involvement in human rights abuse under the Alien Tort Statute, claiming a “violation of the law of nations” 33. And there is as well a strident campaign by non-governmental organisations and ‘activists’ to attack and damage the reputations of manufacturing corporations that use conflict minerals, through shareholder scrutiny, negative media and consumer boycotts.
The Good: Gold Industry Initiatives
The formal gold industry is not a part of the DRC conflict gold supply chain, at least not intentionally. DRC gold is mined artisanally, informally and illegally, and is smuggled out of the country, primarily to Dubai.34 But gold is a fungible commodity that trades internationally in thousands of daily transactions, among some parties who are unconcerned with the circumstances of its origin, even when they know of it. Even with the efforts of the formal gold industry to avoid involvement with the DRC, suspicion remains.35 And not entirely without justification; earlier this year, a United States- registered, Houston, Texas-based Gulfstream jet was stopped just before takeoff on the runway at Goma, North Kivu, carrying 435kg of gold, intended destination unknown. If a jet airplane that is capable of intercontinental flight can land and take off at Goma airport, there are no destinations beyond the range of DRC conflict gold.
This reality is being addressed in a number of worldwide gold industry initiatives. The Responsible Jewellery Council (RJC), the World Gold Council (WGC) and the London Bullion Market Association (LBMA) have each launched or amended existing initiatives to encompass conflict, and to guide gold supply chain due diligence. And an electronics industry initiative, responding directly to the U.S. Dodd Frank Act, has created its own initiative to investigate, audit and certify gold used by manufacturers of electronic devices as DRC conflict-free.
The RJC is a worldwide association of more than 300 mines, refiners, manufacturers and retailers that several years ago established a code of practice for its members, based upon a full range of corporate social responsibilities: business ethics, human rights, and social and environmental performance. The RJC requires that its members’ operations and practices be verified by its accredited auditors to a comprehensive standard, and certifies their compliance. The RJC is developing an additional chain-of-custody standard for transactions among its members, to add additional assurance that gold is responsibly produced and conflict-free, with an anticipated completion in early 2012.
Over the next six months, there will be a great deal of activity by governments, intergovernmental bodies (OECD, UN) and industry organisations to address and bring some order to the association of gold with conflict and abuse of human rights.
The WGC, a worldwide association of gold-mining companies representing the majority of gold mined throughout the world, has issued a draft Conflict Free Gold Standard that declares its principles to be respect for human rights, no involvement with armed groups, transparency of government payments, and acceptance of only gold that conforms to those principles. The WGC Standard requires that a company assesses its area of operations for conflict, assesses itself for policies, systems and management skills to avoid conflict, and ensures responsible conflict-free management at all stages of production: mining, transport and refining. As with the RJC, the WGC anticipates completion and initial application of its standard in early 2012.
The LBMA, an association that accredits the highest tier of gold refiners – with 61 refiners on six continents designated as Good Delivery – has created a draft Responsible Gold Guidance. This guidance is directed at its LBMA-accredited refiners, and will require that they be conflict- free in their operations and sourcing, with verification by a third-party audit. The LBMA Guidance follows the general structure recommended by the OECD: create a strong management system; assess risks associated with all sources; respond to and mitigate risk, especially risk associated with conflict; engage an independent third-party audits of those efforts; and publicly report the audit results. The LBMA anticipates application of this requirement as of 1 January 2012, with implementation to follow during the year.
The electronics industry response is being carried out by two non-profit organisations: the Electronic Industries Citizenship Coalition (EICC) and the Global e-Sustainability Initiative (GeSI). EICC-GeSI has formed a Gold Working Group with gold industry participation and has created a Gold Refiner Audit Protocol. This initiative is directed squarely at Dodd Frank Act compliance, and thus at conflict gold from the DRC. It too is grounded in the OECD structure, with the expectation that gold refiners will create strong management systems and will assess all of their sources for risks. The EICC-GeSI protocol then looks at four geographical zones, based upon proximity or association with the DRC, with increasing levels of risk assessment and due diligence, ranging from normal commercial practices to on-ground assessments and DRC site audits. As with the RJC, WGC and LBMA initiatives, an independent third- party audit to verify high standards of due diligence is required. The EICC-GeSI Gold Refiner Audit Protocol is anticipated to be complete before the end of 2011.
All of these initiatives vary somewhat in their approach, but all are now collaborating with the others, so that gold industries’ efforts to be conflict-free, and verifiably so, can be both rigorous and efficient as well as productive. All of these industry initiatives are also actively participating in the OECD Gold Working Group, so that the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas and the forthcoming Gold Supplement, anticipated in early 2012, will continue to be a central point of focus and collaboration.
Concerns and Conclusions: What’s Next?
Over the next six months, there will be a great deal of activity by governments, intergovernmental bodies (OECD, UN) and industry organisations to address and bring some order to the association of gold with conflict and abuse of human rights. There are still issues of particular concern in this activity. Beyond the DRC, what other areas of conflict and high risk might require application of enhanced due diligence? This is a very serious question for many stakeholders, because the designation of the DRC as such an area has created a flight of industry from it and a de facto boycott that has exacerbated the economic difficulties of the region. So while there is concern to prevent gold from finance of conflict, there is as well a concern that honest production of gold and the well-being of people and countries not be unduly damaged. That concern arises especially in the circumstances of artisanal mining, which is both vulnerable to conflict and abuse of human rights, and not capable of the high levels of organisation and formality that enhanced due diligence seeks.
So the efforts being made now with attention to the DRC are also learning experiences, guiding all participants in what might be done in other circumstances, and what should not be done. It is understood that the DRC conflict is horrendous and also, unfortunately, that it is not ending soon. These are very long-term undertakings. But it should also be understood that a direction has been set: there is certain to be a greater expectation of gold supply chain due diligence, by all participants in gold industries, from mine to investment to retail. Law and guidance to require such due diligence are being prepared now, as are gold industry tools for response. The primary conclusion for gold industries is to participate where possible and in every case to watch closely for developments.
John Bullock is a United States attorney with a twenty-five year specialisation in precious metals. He has provided in- house and outside legal counsel to precious metals companies, industry associations and governments, and for 20 years has been Chair of the Environmental and Regulatory Affairs Committee of the International Precious Metals Institute. In the new area of conflict gold, he is an active participant in initiatives of the LBMA, the intergovernmental Organisation for Economic Cooperation and Development, the electronics industry, the Responsible Jewellery Council and the World Gold Council.
- Joseph Conrad, Heart of Darkness, dying words of trading company agent Kurtz to narrator Marlow. The conflict mineral of that day was ivory.
- In addition to the DRC itself: Angola, Burundi, Chad, Libya, Namibia, Rwanda, Uganda and Zimbabwe.
- U.S. Department of State, 2010 Human Rights Report: Democratic Republic of the Congo, April 2011
- United Nations Group of Exports on the DRC, Final Report – S/2010/596, November 2010; Tony Gambino, Background Case Study: Democratic Republic of the Congo, World Bank, World Development Report 2011, p.11: “The Congolese Army continues to commit horrible abuses against civilians, including sexual violence” and p.12: “the primary perpetrator of these abuses today is the Congolese Army itself”.
- A number of militia groups have been nominally incorporated into the national army, without effective change of control. One of its most prominent generals, Bosco Ntaganda, has been under indictment by the International Criminal Court for five years, for war crimes committed as a militia warlord, but walks free in Goma. ICC Case: ICC-01/04-02/06.
- International Rescue Committee, “While the precise number will never be known – it is clear that millions of people died unnecessarily because of the war.”
- “All parties continued to use mass rape and sexual violence with impunity, often as weapons of conflict, and to humiliate and punish individuals, victims, families, and communities.” U.S. Department of State, 2010 Human Rights Report: Democratic Republic of the Congo, April 2011.
- United States Government Accountability Office, Report to Congressional Committees, The Democratic Republic of the Congo, Information on the Rate of Sexual Violence in War-Torn Eastern DRC and Adjoining Countries, July 2011, citing a study by McGill University, August 2010.
- UN Group of Experts, Interim Report - S/2011/345, June 2011, para. 92.
- Gambino, Background Case Study: Democratic Republic of the Congo, 2011, p.3. Under Mobutu, “the government existed as a structure for individual enrichment and patronage”.
- UN Group of Experts, 2010 Interim Report - S/2010/252, May 2010, para 77
- UN Group of Exports, 2010 Final Report – S/2010/596, November 2010, para 173.
- USGS Minerals Yearbook 2009, Table 8.
- Philip Olden, Implications for the Supply Chain of Gold and Other Precious Metals Report to OECD, August 2010, citing GFMS for 2009.
- BSR, Conflict Minerals and the Democratic Republic of Congo, May 2010
- The Enough Project, reported by CBS News – 60 Minutes
- UN Group of Exports, 2010 Final Report – S/2010/596, November 2010, para. 293.
- “In North and South Kivu, the illegal exploitation and trade of natural resources by armed actors, including criminal elements of the FARDC, continued to prolong the conflict, facilitate the purchase of small arms to commit abuses, and reduce government revenues needed for increasing security and rebuilding the country.” U.S. Department of State, 2010 Human Rights Report – Democratic Republic of the Congo
- International Monetary Fund, World Economic Outlook Database-April 2011; World Bank, World Development Indicators.
- UN Group of Exports, 2010 Final Report – S/2010/596, November 2010, para. 38, 49, 68, 84, 119, 133, 178, 180, 181, 185, 197, 199, 201, 203, 204, 205, 207, 210, 212, 218, 219, 225, 226, 227, 229, 230, 231, 232, 234, 235, 240, 241, 243, 245, 246, 247, 287, 293-302.
- Gambino, Background Case Study: Democratic Republic of the Congo, 2011, p.7.
- UN Group of Experts, Interim Report - S/2011/345, June 2011, para. 64.
- Margot Wallström, UN Special Representative on Sexual Violence in Conflict, quoted in U.S. Department of State, 2010 Human Rights Report: Democratic Republic of the Congo, April 2011
- UN Group of Exports, 2009 Final Report – S/2009/603, November 2009, recommendation 6.
- Dodd Frank Wall Street Reform and Consumer Protection Act, Section 1502. The law declares that ores of tin, tantalum, tungsten and gold, and their derivative products, are “conflict minerals” for which countries of origin must be investigated.
- Adopted May 2011.
- A Gold Supplement with more detailed and mineral- specific guidance is being prepared. The OECD Guidance as adopted contains specific guidance in a supplement for tin, tantalum and tungsten, but gold was considered so different that a separate working group has been created to write a supplement.
- SEC: “We estimate the PRA burden for the audit and due diligence requirements to the industry would be approximately $46,475,000.” 75 FR 80966, December 23, 2010
- NAM comment to SEC, http://sec.gov/comments/s7-40- 10/s74010-183.pdf, p 2, 23-28
- UN Group of Experts, Interim Report, S/2011/345, June 2011, para 65
- Letter to the New York Times, Aug. 11, 2011; Ms. Wallström’s letter was then endorsed by a coalition of human rights organisations that included it a comment to the SEC, August 24, 2011.
- http://www.fco.gov.uk/en/global-issues/conflict- minerals/intro-to-conflict-minerals/
- See, for example, Doe VIII v. Exxon Mobil Corp., No. 09-7125, 2011 WL 2652384 (D.C. Cir. Jul. 8, 2011), in which residents of Indonesia claimed human rights abuse by members of the Indonesian army who provided security to an Exxon gas operation, and asserted that Exxon aided and abetted such abuse.
- “The Group has investigated networks that transport gold from the eastern part of the Democratic Republic of the Congo through regional capitals such as Kampala to refineries in the United Arab Emirates and Hong Kong, and considers it likely that other networks may be transporting it elsewhere too.” UN Group of Exports, 2010 Final Report – S/2010/596, November 2010, para. 296.
- “The Group is also aware that many refineries worldwide have policies in place to refuse to buy gold from the Democratic Republic of the Congo, or indeed from anywhere in the Great Lakes and East African regions where they do not know its precise origin. Yet traceability once gold leaves a refinery is, in the opinion of gold experts, impossible, unless the refinery is treating gold from a single source. Even then, it seems, there is a strong likelihood that refined gold from a single source will at a later date be blended with gold from other sources.” UN Group of Exports, 2010 Final Report – S/2010/596, November 2010, para. 296