Responsible Sourcing Newsletter: March 2023

The Return of the Mercenary: The Wagner Group and Its Implications for the Gold Industry

What does the war in Ukraine have in common with conflicts in various parts of Africa and increased scrutiny of the international gold sector?

Answer: The Wagner Group, a secretive Russian mercenary company with an over-sized presence in a growing list of mineral rich and war-torn countries on the African continent.

Western governments and investigative researchers have been following Wagner’s rise for several years, primarily after their presence was first noticed in the Central African Republic (CAR) in and around 2016.

Wagner has since expanded operations to three of the top five biggest African gold producers, notably Burkina Faso, Sudan, and Mali. In addition to providing paid military support to security forces in these countries, Wagner is reported to also have ownership stakes in mines or front companies that traffic gold to the international market, mostly through Gulf states.

Run by Yevgeny Prigozhin, a former convict and President Putin’s former chef, Wagner operated largely under the radar until the Ukraine war (indeed it wasn’t until last September that Prigozhin formally admitted his relationship to the company).

While Wagner’s presence has upset traditional relations between regional and international partners of some of these African countries, a bigger concern is that Wagner is using revenues derived from its African activities to bankroll its campaign alongside Russian forces in Ukraine.

One security analyst recently told me that Wagner’s African plunder to date may exceed $1 billion annually. Once a force of approximately 5,000 before the Ukraine war, its ranks have swelled to over 50,000, including through the conscription of hardened Russian convicts.

And it is this link between Ukraine and gold rich African countries that is drawing the increasing scrutiny of Western governments and has specific import to the gold industry.

Earlier this year, the EU levelled additional sanctions against Wagner. The listed individuals include two Wagner commanders actively involved in the capture of the town of Soledar in Ukraine in January 2023, the head of the Wagner in Mali, where Wagner mercenaries have been accused of multiple human rights abuses, including extrajudicial killings, as well as various high-profile members of the group in CAR. The latter include the security advisor to the President of CAR, who doubles as Wagner’s spokesperson in the country. The group’s activities in Sudan are also targeted, with new listings against Wagner related companies like Meroe Gold and M-Invest.

The US issued simultaneous measures, labelling Wagner a transnational criminal organization, and also referenced human rights abuses linked to the group in CAR and Mali. Wagner is firmly on the radar of the G7 and more announcements are undoubtedly coming.

What does this mean for the gold industry?

In recent weeks LBMA has heard multiple rumours of Western governments contemplating a blanket ban on Russian bars, perhaps inspired by recent comments a senior US official made to the Indian diamond industry.

While such a move is highly unlikely—as LBMA has already suspended all Russian refiners from the Good Delivery List and material produced after March 7, 2022 is undeliverable to the Loco London market—what is a certainty is that GDL refiners (and the entire gold value chain) should expect renewed calls to demonstrate enhanced due diligence in the recycled gold market, particularly of suppliers in high-risk trading hubs known for laundering illicit gold.

Doing so is a sound mitigation strategy, and an insurance policy against being caught offside of Western action against the Wagner Group that promises to only intensify overtime.