Responsible Sourcing Report 2021
Section 14: Residual Risks
LBMA’s Responsible Sourcing Programme (Programme) plays a fundamental role in providing trust and confidence in the global precious metals market. LBMA can effectively remove a refiner from the Good Delivery List (GDL) for Responsible Sourcing failures. Yet, unauthorised material may still potentially find its way into the Good Delivery system. This is the residual risk arising from illegitimate activity.
This residual risk can arise under many circumstances, and mainly through the secondary/recycled material market. Examples include:
- The inability to identify the ultimate origin of recycled material
- Recycled material – potentially illegitimate – being re-refined by a non-GDL refiner, which is then sent to a GDL refiner
- Fraudulent trading.
In summary, it’s clear that there is potential for the origin of some material to be doubtful. The risks are heightened where recycled gold is coming from or through regions where the authorities are not appropriately supervising and enforcing due diligence requirements. For example, the risk of fraud can only effectively be addressed with support from national authorities and crime prevention units that have the powers to investigate and impose appropriate criminal sanctions to deter such practices.
Furthermore, the industry has seen a number of challenges with regards to Artisanal and Small-Scale Mining (ASM). Over the years, some refiners have disengaged given the high due diligence risks. Proactive engagement undoubtedly does involve risk. At the same time, disengagement with Artisanal and Small-Scale Miners, or aggregators, can have a devastating impact on local communities and economies, far outweighing the reputational or commercial concerns at stake. And gold from such communities may simply be re-routed to support the illegitimate market. There is no shortage of ASM material being produced, yet very little is being processed through the GDL refiners. Where does that material end up?
There isn’t a perfect solution. A global effort, amongst all the value chain actors, as well as national authorities, and law and enforcement agencies, is required to continue addressing the outstanding challenges and risks. LBMA is committed to working with all legitimate stakeholders but needs full engagement and co-operation as its own standards can only reach so far.
Creating Demand for Responsible ASM
There needs to be real downstream demand for responsibly sourced gold from Artisanal and Small-Scale Mining (ASM). If not, it is likely that such gold will support the illegitimate market. Sourcing gold responsibly from artisanal miners should be something that adds to a company’s reputation. Currently, the opposite is true and these miners bear the highest costs as a result. While LBMA can help create and grow the supply of responsibly sourced ASM gold, downstream actors and other global stakeholders need to work collectively and urgently to create and sustain demand.
Dealing with Recycled Material
Given the challenges in due diligence, LBMA recognises that more needs to be done in order to address such risks, particularly for recycled metal.
This supports LBMA’s focus on working with its GDL refiners and the relevant national authorities in the major ‘recycled hubs’ to call for higher and better standards that can be enforced.
This has resulted in LBMA developing recommendations for International Bullion Centres.