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Banks and commodity traders handling African-origin gold risk exposure to serious human rights and environmental abuses, even when working with refineries certified by the London Bullion Market Association (LBMA), researchers warn.

The majority of industrial gold mined in Africa is processed by LBMA-certified refineries in Switzerland, South Africa and India, according to a report by non-governmental organisation Swissaid.

Institutions involved in trading gold from those refineries often take comfort from the market’s backing, Swissaid researchers say.

The LBMA, which is the world’s largest bullion market and includes dozens of international banks among its members and market-makers, says on its website that refineries only appear on its Good Delivery List if their bars meet “exacting standards for trading” on the global over-the-counter market.

It does not require refineries to disclose publicly the identities of their mining company suppliers.

But the Swissaid report identifies 125 industrial mines in Africa that supply gold to LBMA-certified refineries, based on disclosures by those mining companies and data from other commercial and public sources.

It says “serious problems” were found at the majority of those mines, particularly in relation to human rights violations and environmental damage.

Concerns include deaths and serious illnesses among workers, land pollution driving food insecurity, and forced displacement of local populations. Swissaid also finds examples of illicit financial flows, including in relation to corruption and tax fraud.

Its research examines mines in numerous African countries, including Burkina Faso, the Democratic Republic of the Congo, Ghana, Mali, Tanzania and South Africa.

The report calls for the association to strengthen its disclosure standards so market participants are aware of their potential exposure to illicit activity, saying: “The level of information that LBMA refineries have to disclose is clearly insufficient.”

Co-author and researcher Marc Ummel, head of Swissaid’s commodities unit, warns that currently, LBMA certification risks giving banks and traders a false sense of security.

“What we hear from the majority of banks and traders is more or less always the same. If it’s LBMA gold, where is the problem?” he tells GTR. “Banks play a very important role because they don’t just buy the gold directly; they also pre-finance the extraction of the gold.

“They have a responsibility to their clients to know where their gold is coming from and in which conditions it was produced. Banks should not simply rely on the LBMA standard. They have to monitor their supply chains.

“The LBMA standard has serious weaknesses and banks cannot have confidence that the LBMA’s Good Delivery gold is free of human rights abuses, environmental degradation or illicit trade.”

Quoting an unnamed industry source, Swissaid suggests a refinery would only refuse to name its suppliers “to avoid being associated with the problems of the mines from which it sources its gold”.

But Ummel points out that as researchers continue to uncover links between specific mines, refineries, banks and commodity traders, those relationships will become “more visible in the public domain”.

“As banks and traders become more exposed, they will face more responsibility around what they are doing in terms of due diligence, to be sure there is no problem,” he says.

 

Mounting pressure

The Swissaid report adds to growing pressure on the LBMA to improve oversight of its certified refineries’ supply chains.

In March 2021, a group of NGOs including Swissaid and Global Witness penned an open letter to the association warning of “significant gaps” in its reporting requirements, which it said run counter to recommendations set by the Organisation for Economic Co-operation and Development (OECD).

“LBMA refiners’ public annual reports often lack much of the information on identified risks and steps taken to address them as set out by the OECD guidance,” the letter said.

“The OECD guidance is also clear that companies should disclose suppliers in red-flagged locations and that this information cannot be subject to business confidentiality. Yet, refiners on the [Good Delivery List] do not always do so.”

That is despite “specific cases detailing allegations that LBMA-approved refiners were associated with conflict gold or gold originating from a mine with a troubled human rights record”, the letter added.

The association updated its guidance in November that year, but stopped short of requiring such disclosures to be made publicly, stating only that “future versions… will focus on fuller public disclosure” in line with the OECD’s recommendations.

In December last year, the LBMA was hit with a UK High Court lawsuit alleging it certified gold from a Tanzanian mine despite allegations of human rights abuses.

The claims, brought by the families of two men shot and killed at a mine in North Mara in 2019, say the organisation has continued to certify gold from the mine as compliant with human rights standards despite numerous allegations against its security staff.

The LBMA said at the time the claim has “no merit”, though expressed its “deepest sympathies” to the victims’ families.

 

LBMA responds

When contacted by GTR, an LBMA spokesperson says: “LBMA’s disclosure of information is consistent with the OECD due diligence framework.

“During consultations related to the drafting of the latest version of the Responsible Gold Guidance, RGG9, LBMA engaged with relevant stakeholders to commit a road map to improve transparency, including the public disclosure of suppliers.”

The spokesperson adds the LBMA is aiming for continuous improvement by strengthening transparency and building on earlier versions of the guidance.

“For transparency to be effective, it must be done incrementally, in order to give refiners the opportunity to implement the ongoing changes,” they say.

“We engaged with Swissaid on this point of disclosure, and a range of other points, prior to publication of their report, and underlined our intentions to add additional disclosure requirements, beyond the OECD requirements, in future iterations of the guidance.”