On November 5, 2013, the M23 rebellion in the Democratic Republic of Congo (DRC) officially announced the end of their insurgency in the Eastern Provinces of the country. Just one day earlier, the Swiss Federal Prosecutor’s Office opened an investigation into the refiner Argor-Heraeus for allegedly laundering significant volumes of illegally extracted gold from the DRC between 2004 and 2005.
The two events are part of the larger picture of the illegal exploitation of natural resources in the DRC and in particular the linkages of the illegal trade in gold with activities of armed groups. Despite the official ‘end’ to the M23 rebellion, it is important to remember that the Congolese Army (FARDC) and the still operating armed groups, such a…, which is said to have links with Islamist Al-Shabab, continue to profit from the predation on artisanally mined gold. The Congolese Army (FARDC) is now being hailed as the victor over M23, but one must not forget that the FARDC is also known to be amongst the greatest perpetrators of human rights abuses and, further threatening companies’ reputational exposure.
As illustrated by the criminal case in Switzerland, the issue of “conflict minerals” is by no means new or restricted to specific parts of the DRC, or about to somehow ‘whither away’. While today’s attention is centered on North and South Kivu, the gold referred to in the case of the Swiss investigation reportedly originated from Orientale Province, home of some of the DRC’s most productive artisanal gold mines and also one of the geographical foci of a renaissance in industrial gold mining.
The rebel group cited in the Argor-Heraeus case, the Nationalist and Integrationist Front (FNI), which is also said to have traded gold for weapons from UN peacekeepers, officially put down its weapons in 2007. While places and actors have changed over the past decade, the way gold is used as a conflict financing vehicle has not.
Refiners, however, are now subject to stricter (self-)regulations to ensure their gold is sourced responsibly than they were in 2004. In particular the Swiss gold refining businesses are subject to strict Anti-Money Laundering (AML) regulations, monitored by the Swiss Financial Market Supervisory Authority (FINMA). These include annual third-party audits of the refiner’s AML practices. As a result when industry mechanisms such as the London Bullion Market Association (LBMA) and the Responsible Jewellery Council (RJC) started defining requirements for the responsible sourcing of gold, Swiss refiners were among the first to get involved, oftentimes pointing to existing controls on and reviews of their AML systems. Some of the Swiss refiners continue their engagement with responsible gold sourcing mechanisms, including information sharing on their AML programs to benefit other refiners but also more directly through the Swiss Better Gold Initiative to source gold from the DRC in a legal and sustainable manner that benefits local communities.
Considering the increased controls and third party verifications of refiners’ sourcing practices, the question remains though how far due diligence measures can be expected to extend into the supply chain. Although the Gold Supplement to the OECD Due Diligence Guidance defines a supplier as “any individual or organization who is considered to be a participant in the supply chain for the supply of gold and gold-bearing materials”, the expectation under the OECD framework – and consequently the LBMA and RJC – are for refiners to have controls in place only over their direct counterparty. On the other hand, the statement released by “Track Impunity Always” (TRIAL) on 4th November 2013 says the refinery “should have assumed that the gold resulted from pillage”.
Without commenting on the specific case referred to by TRIAL, the expectations that refiners should go beyond the facts at their disposal and make assumptions on actors and their linkages in the gold supply chain presents a number of practical challenges. In-depth investigations into gold supply chains may be feasible for a refiner with a dozen or maybe even a hundred counterparties. However, refiners with thousands of counterparties may find it difficult to gather detailed information not only on the counterparties themselves, but the entire gold supply chains.
Nevertheless, full transparency can only be achieved if all actors in the supply chain enforce Know Your Customer (KYC) requirements. Refiners may be able to use their influence and knowledge to work beyond their first tier contacts, looking into the entities supplying gold to their counterparties. For example, refiners could request information on the sources of gold from recycling businesses selling gold material to them. They could provide technical assistance to counterparties on AML and KYC standards and requirements, offering tools or templates for smaller businesses to use. Any such measures may be tailored to the type of counterparty as risks for conflict minerals in the supply chain or money-laundering practices may be smaller if the customer is a renown international bank, rather than an international recycler. Equally, the refiner’s influence over the latter may be larger.
The criminal investigation in Switzerland highlights that the gold sector in this country continues to undergo intense scrutiny for its past and present actions. The only way to respond for the Swiss refiners is to continuously improve their due diligence systems and push for all actors in their gold supply chains to do the same.
My thanks to Nicholas Garrett for his contribution to this post.