LBMA receives an audit report from a Good Delivery List (GDL) refiner for its previous 12 months’ production. For example, during 2021, LBMA reviewed audit reports for 2020 production. Audit reports for each year’s production are due within three months of the GDL refiners’ financial year end.

In 2021, the review process for all 2020 audits was further strengthened. This was supported through the addition of more resource, to provide for an enhanced first-level review, by both the Responsible Sourcing Manager (RSM) and the Responsible Sourcing Officer (RSO). During the assessment process, the Responsible Sourcing (RS) team routinely requests additional information from refiners and auditors in order for LBMA to achieve maximum comfort from the audit reports. However, during this year’s review, out of an abundance of caution and in line with changes made to RGG Version 9, refiners were asked to voluntarily disclose additional information on recycled material listed in their Country of Origin (CoO) data. This included disaggregating recycled material according to source (i.e. grandfathered stock, industrial by-products or jewellery), and listing the number of suppliers. While out of scope of RGG Version 8, most refiners willingly provided this information.

Each report received has always been assessed in conjunction with the previous year’s report, to help better understand the improvements and challenges – and to ensure that any previous non-conformances are not repeated. The RSM together with the RSO review all reports as a starting point and determine which reports will be escalated to the Compliance Panel. The review includes an assessment of a refiner’s compliance and management reports, CoO data and any Corrective Action Plan (where applicable).

Detailed reports are then provided to the Compliance Panel for review and discussion. Once the review is completed, provided that the only non-conformances identified are low risk, the refiner will pass the audit for the year. However, if any medium- to high-risk conformances are identified, the refiner will be given a period of time to address them. However, where there is a zero-tolerance finding, the refiner will be removed from the GDL and will not be able to apply to become GDL accredited for another five years. See Section 15 for details on programme deliverables, risk categorisation and the review outcomes.

During 2021, the RS team had several extended interactions with auditors and refiners to seek clarity regarding information in audit reports or concerns that were raised outside the audit process.

For example, one refiner disengaged from a high-risk supplier without naming them or giving the reason why. The supplier was also closely associated with an individual who had recently been listed on several sanctions regimes. In this instance, the refiner was asked to confirm that it had not taken any material from the sanctioned individual after its listing date – and to provide an assurance statement from its auditors attesting to that fact.

In another instance, our audit process uncovered that the business licence of one supplier in Latin America had been suspended and that the company had moved to a neighbouring country. This required the refiner to demonstrate to LBMA that the material in question had been sourced prior to the suspension and that the CoO data was correct.

In a third case, the audit discovered that a refiner did not make its suppliers sign its supply chain policy, which prohibits suppliers from breaching Annex II violations as defined in the OECD Due Diligence Framework. LBMA worked with the refiner to agree to a timetable by which its supplier contracts would be amended to correct this oversight. In 2020, no GDL refiner was moved to the Former List for failure to comply with the Responsible Sourcing Programme (Programme). Despite the higher than normal reliance on virtual audits, LBMA did not encounter any deleterious impacts to the integrity of the audit framework.

Whilst there were several escalations related to sourcing concerns during 2020, each one was addressed appropriately, with full co-operation from the GDL refiner in question. As highlighted earlier, LBMA relies on two important processes to help identify Responsible Sourcing issues. Firstly, the annual audit reports, and the information provided in these reports, will flag non-conformances. Also, market intelligence, media reports and credible NGO reports may provide information that will then instigate inquiries with refiners to better ascertain the circumstances surrounding a particular issue or incident. If the severity of a particular case warrants it, an Incident Review Process (IRP) will be launched.

Non-conformances: What the numbers tell us

Metal Year Low risk Medium risk High risk Total
Gold 2020 31 10 0 41
2019* 82 9 5 96
2018 29 8 2 39
2017 37 2 0 39
2016 33 5 0 38
2015 46 4 1 51
Silver 2020 45 12 2 59
2019 93 35 10 138
2018 64 44 24 134

*First year of RGG Version 8

Gold – Non-conformances

Overall, 2020 saw a marked decline in the number of non-conformances from the previous year, and a return to the median recorded over the earlier years. The improved numbers were largely reflected in the low-risk category, while the number of medium non-conformances remained steady. The implementation of RGG Version 8 in 2019, specifically the transition from the ISO to ISAE 3000 assurance framework, was largely responsible for the increase in non-conformances as refiners adapted to the new reporting requirements. The improved audit reports demonstrate a better awareness of supply chain vulnerabilities by refiners. In line with LBMA best practice, all medium-risk non-conformances for gold were referred to the Compliance Panel for consideration.

No zero-tolerances or high-risk non-conformances were reported in 2020. However, LBMA did suspend one refiner— Kyrgyzaltyn JSC—for failing to meet the requirements of the Programme. The audit of another refiner determined it to be non-compliant with the RGG and required the implementation of a 90-day Corrective Action Plan to bring them back into conformity. All CAPs require an additional assurance statement from their auditors confirming that identified non-conformances have been remedied before the annual certificate can be issued.

Silver – Non-conformances

As with gold, there was a significant drop in reported non-conformances in silver, with incidents dropping by more than 50 percent from 2019 figures. Improvement was noted across the risk spectrum and indicates refiners have moved past some the teething stages associated with 2019 implementation of RGG Version 8. It was especially welcomed to see progress in the more complicated medium and high-risk non-conformances which dropped to their lowest levels since LBMA began keeping records. No refiners were found to have any high risk or zero-tolerance non-conformances.

Common Themes of Medium and Low-Risk Non-Conformances

Below is a breakdown of the most common types of non-conformances raised against the five steps of the RGG and RSG.

The most common gold non-conformances (54%) is related to Step 1 of the RGG which requires refiners to establish and demonstrate strong company management systems. The second most often cited non-conformances (35%) is linked to Step 2, the identification and assessment of risk in the supply chain. Less common were vulnerabilities in Step 3, which covers a refiners’ implementation of a management strategy to respond to identified risks. The low numbers related to Step 5, the public reporting on supply chain due diligence, demonstrate the greater acknowledgement refiners have to publicly report information, in line with the OECD Due Diligence Framework.

While each of the Steps are important, LBMA has identified the need to focus on further education with refiners on how to improve risk mitigation strategies (Step 2). LBMA believes disengagement should be a last resort; and that in instances of sourcing challenges, refiners should work with suppliers to educate and resolve any identified issues. Some may feel avoidance of certain risks (such as ASM material) is the best defence, but the interconnectedness of the gold market means those challenges, left unopposed, will eventually affect and taint the entire market. Risk mitigation requires asking questions, visiting suppliers to understand the nuances and challenges of their lived reality, sharing perspectives, and responding to outside criticism that offers constructive solutions. Incrementally, risk mitigation builds trust and understanding between people and across positions, which is why it cannot be overlooked in our journey to build a more responsible gold supply chain.

Examples of Common Themes

Communication and acknowledgement of supply chain policy.
A gold refiner had provided suppliers with its supply chain policy but applied an inconsistent approach to suppliers' adherence to the policy. While all suppliers had supply chain policies consistent with the refiner’s, the refiner insisted it could not legally force all suppliers to sign their policy. Through the audit assessment process, the refiner accepted their policy would have to supercede that of their suppliers; and that all supplier contracts would have to be amended to reflect that.

Communication of confidential grievance mechanisms.
During the year there were several examples of gold and silver refiners either not possessing a grievance mechanism or having one that was not easily accessible to employees and the public. In some instances the policy was not published in English, or buried on their website. Through corrective actions, all affected refiners took steps to simplify access to their grievance mechanisms.

Staff supply chain training programmes.
A refiner had a turnover of middle and senior management but induction training on responsible sourcing was delayed for several months. The lack of awareness about the importance of due diligence and risk mitigation practices posed a potential risk to the refiner’s conformance with responsible sourcing. The audit process revealed this vulnerability, and the refiner took immediate action to provide the needed training and put in place measures to avoid this from reoccurring in the future.

Maintaining adequate records.
A gold/silver refiner used a transport provider in a medium risk location that did not have an adequate human rights policy. This raised the concern that the transporter could compromise the refiner’s sourcing practices. The refiner subsequently ensured that all transport suppliers drafted and approved a human rights policy consistent with both the RGG and Annex II of the OECD Due Diligence Framework.

Escalation due to inaction of earlier non-conformances.
Should any low risk non-conformance(s) appear two years in a row without successful remediation, it is automatically escalated to a higher non-conformance (i.e. low to medium; medium to high). For a refiner with an otherwise low-risk supply chain this can result in a Corrective Action Plan and greater scrutiny by LBMA, including an automatic referral of their audit assessment to the Compliance Panel. Whether through a CAP or the regular assessment process, any medium or high-risk non-conformances must be corrected within 90 days, and prior to their certificate being issued.

Case Studies

Every year, we highlight gold-related case studies that best exemplify the broad range of sourcing experiences and challenges faced by Good Delivery List (GDL) refiners. Below are three case studies that summarise the issues raised during the audit process as well as the follow-up actions taken.

Perth Mint: Case Study One: Incident Review Process (IRP)

An IRP was invoked in June 2020 in response to media allegations regarding the Perth Mint sourcing from an aggregator in Papua New Guinea (PNG). Engagement with the refiner and its auditors confirmed that while The Perth Mint had suitable systems and controls in place, LBMA considered that “there was a lack of clarity” in the application of The Perth Mint’s policies and procedures to a particular gold aggregator in PNG. Notably, the refiner’s country and risk assessment procedures did not flag the need for an in-country assessment due to an assessment process weighted to country rather than counterparty risk. As part of the IRP, a second special audit was undertaken with an audit firm chosen by LBMA. The initial auditor was removed from the list of LBMA approved auditors. While no zero-tolerance non-conformances were identified, a Corrective Action Plan was put in place to address improvements to the refiner’s management systems. The Perth Mint fully complied during the IRP and implemented all the required improvements outlined in the Corrective Action Plan in October 2020. Subsequently, The Perth Mint has introduced additional measures above those identified in the CAP to further enhance their risk assessment processes.

PX Precinox: Case Study Two: Allegations of illegally mined Peruvian ASM

In September 2020, Peruvian police alleged that a criminal gang was laundering illegally mined gold through Dynacor, an ore processing plant that supplies PX Precinox with legally mined ASM material.

The refiner stood by its due diligence and sourcing practices, having created a tailor-made traceability system with Dynacor. Miners selling ore to Dynacor have to meet a strict list of criteria, including being registered with the government, and having a tax ID number and the right to work on a concession. Verifications are done on every single transaction. PX Precinox had also made a long-term commitment to source ASM material in Peru. Through its partnership with Dynacor, PX Precinox offers an attractive alternative to the illicit market, thanks to a chemical extraction process that does not use mercury and recovers almost double the gold of traditional methods. The higher recovery rate encourages the miners to sell their ores rather than extracting the gold using mercury.

Throughout the police investigation, PX Precinox kept LBMA informed of the situation and maintained its engagement with more than 500 ASM miners that supplied Dynacor. The criminal investigation involved five ore producers with no allegations or charges being laid against Dynacor or PX Precinox.

MMTC PAMP: Case Study Three: North Mara Update

LBMA invoked an IRP in June 2019 in response to the human rights and environmental allegations relating to the North Mara mine in Tanzania (formerly owned by Acacia Mining).

While details of this process have been already been covered in the 2020 Responsible Sourcing Report, we highlight it again because of the ongoing commitment and engagement by both the refiner and miner to prevent and mitigate potential and actual adverse impacts. This is evidenced by the continued appointment by the refiner of independent expert consultants to monitor and provide suggestions on ways to mitigate potential risks. This is a high risk mine dealing with legacy issues that will require continual engagement between stakeholders and, as such, represents a model others in similar circumstances may want to emulate.

Last Resort

LBMA’s starting point for GDL refiners is that disengagement from suppliers should be considered as a last resort, and only where the adverse impact is irremediable and there is no prospect of change.