April 18, 2023

LBMA Response to SwissAid Letter Dated 29 March 2023

LBMA welcomes the opportunity to respond to SwissAid's recent Report "Out of the Shadows: Business relationships between industrial gold mines in Africa and refineries".

Since the OECD's Due Diligence Guidance for Conflict Affected and High-Risk areas (OECD Guidance) was launched in 2012, LBMA has been at the forefront of developing credible sourcing standards, through its Responsible Sourcing Programme (RSP) and improving transparency in the gold sector, most notably for refiners on our Good Delivery List (GDL). Our RSP is part of a wider ecosystem, where responsibility is shared amongst all actors in the value chain to ensure that bullion is ethically sourced. Collaboration, intelligence-sharing, and consultation are crucial to ensuring the highest standards of responsible sourcing across the industry. We consider opportunities to engage with civil society groups such as SwissAid to be a critical part of that engagement.

While LBMA supports the Report's overarching call for greater transparency, it also contains a number of factual errors and what we believe to be a misleading assessment regarding current disclosure requirements in the Responsible Gold Guidance (RGG). The Report also conveys an erroneous impression of the African continent as one conflict-affected and high-risk area (CAHRA)— which it is not. It also alleges, that a "majority" of mines from which GDL refiners source are linked to either human rights abuses or environmental problems—which is equally not justified. Furthermore, the report fails to reflect the challenges of Artisanal and Small-Scale Mining (ASM), and reflect on the work that LBMA has been doing in this area, more recently the feasibility study that was commissioned last year.

This letter provides some context and response to some of the key claims made in the Report.

Data secrecy:

Increasing the disclosure of information by refiners has been an incremental process since the launch of the LBMA’s Responsible Sourcing Programme in 2012. As the Report notes, the Responsible Gold Guidance version 9 (in force since January 2022), and the accompanying Disclosure Guidance (DG 2) (in force since January 2023), have continued to strengthen transparency and build on the work done by previous versions. Both RGG 9 and DG 2 introduced significant changes in reporting requirements expected in a refiner's annual and public facing compliance report. Many of these changes are in line with the Report's recommendations, and include disclosure of:

  • The number and/or percentage of zero-tolerance and high-risk suppliers identified.
  • The nature of the zero tolerance and high risks.
  • The steps taken to mitigate these risks, including any communication with the regulators, or LBMA, and the Enhanced Due Diligence procedures followed.
  • The breakdown of recycled material (i.e., by-product, jewellery, electronic scrap or investment bars).
  • The identity of suppliers or local exporters located in high-risk locations (except in cases of disengagement).

With respect to any sourcing incident, the Disclosure Guidance provides further direction to refiners on how relevant information should be shared proactively and transparently with external stakeholders. Pages 13 and 21 of that document provide a full list of questions refiners should ask when responding to an incident, and the information to disclose.

Regarding disclosure of trade data and the names of suppliers, the collection of such information by LBMA began five years ago. While some refiners may voluntarily disclose details of their counterparties, both the OECD Guidance and the RGG are fully aligned in placing reasonable and realistic provisions for the protection of commercially sensitive information. Not all refiners have the same supply chains or commercial agreements, and changes to contracts must be negotiated between all parties. Whilst transparency is improving, realistically it takes time to revise contracts and to build agreement on how and what can be disclosed.

RGG-OECD alignment:

One recommendation made in the Report is for LBMA to "revise the RGG so that it is fully aligned with the OECD Guidance." We can confirm that this is already the case.

During the public consultation of RGG 9, there was a lot of focus on Footnote 59 of the Guidance, which relates specifically to balancing commercial sensitivities and information regarding suppliers in CAHRAs covered in the Report. It is worth noting the last sentence of that footnote: "All information will be disclosed to any institutionalised mechanism, regional or global, once in place with the mandate to collect and process information on minerals from conflict-affected and high-risk areas."

LBMA's Responsible Sourcing standard is a commercial necessity for any major refiner, as it allows access to the Loco London, the largest marketplace in the world for precious metals. Loss of LBMA accreditation would have serious commercial consequences for refiners. Given that LBMA is effective in its ability to enforce its standards, including disclosure requirements, and our processes can be interpreted as an 'institutionalised mechanism', we are well placed to aggregate and disseminate the information prepared by refiners.

We are committed to continuous improvements in transparency, but recognise, alongside other international organizations, that achieving effective transparency is an incremental process. Future iterations of the Responsible Gold Guidance will detail requirements driving more and better disclosures—as was shared with SwissAid in the production of this report.

Due Diligence Standards:

Complying with the highest due diligence standards is not a voluntary requirement of GDL refiners. All GDL refiners must constantly review their processes to make sure they address their risk profile and draw on intelligence provided by credible organisations to inform ongoing due diligence.

GDL refiners also rely on external feedback to inform their KYC and due diligence practices. For example, LBMA is a partner in the online cross-industry Minerals Grievance Platform (MGP) designed to screen and address grievances linked to minerals supply chains. The MGP enables external stakeholders anonymously to raise any grievances that may concern any GDL refiner. Every time a concern is raised against either a refiner or one of its suppliers (including large scale mining companies operating in Africa), LBMA tasks the refiner to establish the facts of the case and requires evidence of a mitigation strategy if the circumstances warrant. Failure to comply may lead to suspension of a refiner's GDL status. Had the "majority" of African mining suppliers been guilty of sourcing breaches, as the Report alleges, the entire Responsible Sourcing Programme would not be operable. It is, therefore, entirely inaccurate to suggest that LBMA and GDL refiners are indifferent to mitigation or regular KYC checks (particularly of high-risk suppliers). Indeed, in every instance cited in the Report, LBMA and the GDL refiners in question have acted in strict accordance with the mitigation requirements and expectations set out in the RGG and the OECD Guidance.

In addition to a continually improving RGG standards, LBMA and the World Gold Council introduced the Gold Bar Integrity programme (GBI) in 2022, which looked at how technology can help to monitor gold moving through the global supply chain by confirming provenance and providing transparency over the chain of custody of material. By digitizing the gold value chain, participants were able to register and exchange data among parties in an efficient and secure manner. In doing so, the GBI represents a significant development in supporting the chain of custody of gold bearing material.

Artisanal and Small-Scale Mining (ASM):

We also note that the Report does not comment on ASM. We estimate that up to 20% of global production of gold is derived from ASM sources; however, less than 2% is accepted by LBMA refiners. If anything, past improvements in RGG may have introduced further barriers to such material being accepted by GDL refiners. But that does not stop ASM production which simply flows in the non-GDL sector and potentially supports various undesirable activities. This is truly where ‘The Shadows’ are. Given that ASM mining is unregulated and often illegal, we believe that this sector is where the most egregious human rights abuses and exploitation of workers are taking place. This matters given the millions of individuals who work in or are supported by such activity.

For this reason, LBMA has introduced initiatives to work with local governments and industry players to bring ASM mining 'out of the shadows’ and into the GDL sector. This will take time and depends crucially on all stakeholders engaging constructively with local communities. We would welcome the support of SwissAid and other civil groups in pursuing these endeavours.