Human rights and precious metal: tracing the story of ‘tainted’ gold

In the vaults underneath the Bank of England there are hundreds upon hundreds of investor-owned gold bars with a combined worth of hundreds of billions of pounds. If you were to examine any one of these at random to try and pinpoint where the gold that comprises it was originally mined, what would you find? Almost certainly nothing.

Once gold has been through the refining process, it is practically impossible to independently glean any information about its origins using chemical tests. Apart from in rare cases where databases make differentiation possible via comparisons of isotopic ratios, your investigations into the origin of the gold in your randomly selected bar would prove fruitless – regardless of the depth of your chemical or geological genius.

Refineries typically mix gold from multiple sources, meaning a randomly selected bar in circulation today on international bullion markets might, potentially, contain some gold mined thousands of years ago by the Ancient Egyptians. It might have within it an indeterminate quantity of gold that was once shipped out of Guinea by the Royal African Company (which also traded slaves). It might contain small traces of gold stolen by the Spanish Conquistadors, or looted by the Nazis (like that which the Bank of England secretly helped sell following the German invasion of Czechoslovakia in 1939). Depending on when your gold bar was produced, human rights violations of varying degrees might well have been entailed in its extraction. Then again, they might not have. Often there is just no way of knowing.

This ambiguity, alongside gold’s aesthetic allure, might help explain why it has held such extreme fascination for human beings since ancient times. It can be easily melted down, refined and reconstituted. It can shapeshift, so the story of its original extraction can be disguised or forgotten about.

Owing to its status as a de facto currency, gold has long been viewed as the perfect vehicle for thieves and money launderers eager to cleanse their ill-gotten gains.

As a recent report by the African Network of Centres for Investigative Reporting put it: “While currencies are attached to regulatory systems, reserve banks, and, ultimately, nationalities, gold is without identity, borderless and ever valuable.”

However, life is slowly getting harder for the criminals. The question “Where does your gold come from?” is now at least being asked.

Laws designed to crack down on organised crime and conflict minerals mean that, globally, the gold industry is more tightly controlled now than ever before. The Dodd-Frank Act, passed in 2010 in the USA, compels all companies using gold and listed on US stock exchanges to seek to determine whether the original source was the resource-rich and war-torn Democratic Republic of Congo (DRC) or one of several adjoining countries.

Smuggling of gold out of the DRC is believed to have helped line the pockets of militiamen, fuelling civil war. The Trump administration is currently attempting to have the Dodd-Frank Act repealed. Its efficacy has also been questioned by some academics who claim it merely entrenches poverty and conflict in various African countries by causing a flight of foreign capital. However, the Act has doubtlessly triggered global momentum around conflict minerals. Fresh legislation on gold was recently passed by the European Union and is due to come into force in 2021. This will further extend corporate due diligence systems. Meanwhile, many big players in the financial, jewellery and electronics sectors are voluntarily bolstering their oversight of supply chains, though the pace of change is still slower and more piecemeal than campaigners would like.

It will probably always be extremely difficult to discern the provenance of gold in bullion bars or jewellery that is more than a few years old. But what if your randomly selected gold bar happened to have been produced and brought onto the market relatively recently? Since the start of 2012, say?

Under Dodd-Frank, which began to come into force in that year, bullion bars, ingots and gold coins in circulation hitherto were deemed ‘grandfathered’, or effectively outside of the legislation’s purview. That meant this category did not require a determination of origin in order for a bank to hold it in its vaults. Therefore, if your randomly selected gold bar was produced prior to 2012, then, in addition to the near impossibility of successfully chemically investigating its past, there is unlikely to be any documentation on which to rely. Gold bars are periodically melted down and turned into luxury objects, so the history of the gold in your watch, necklace, bracelet or ring is likely to be equally murky.

The vast majority of gold bars in banks’ vaults worldwide are of the ‘grandfathered’ variety – but if your randomly selected bar was produced in 2012 or thereafter, there will at least be some kind of paper trail that might potentially allow you to independently trace where the material within it was originally extracted.

Let’s say you follow that trail. You might find that the gold was freshly mined by a modern mining giant such as Glencore at a particular mine in Australia. Alternatively, your gold might be a mix of freshly mined and recycled material, perhaps even including some that was once part of a circuit board inside of someone’s iPhone.

The London Bullion Market Association (LBMA), an influential quasi-regulator of the world’s major bullion market, operates a Good Delivery Refiners List encompassing refineries used by some of the world’s largest gold mining companies in North America, Europe, the Far East, Russia and Australia. Perhaps tellingly, it does not regulate the largest cash-for-gold market in the world, located in Dubai (of which more later).

Refineries on the LBMA’s list must meet a set of standards intended to assure investors and consumers that all relevant gold stocks are conflict-free. Neil Harby, the LBMA’s chief technical officer, points out that there is an economic incentive for refiners to be on the list, since “if you’re on the Good Delivery List, you can sell your gold at the right price, on the right market” – namely, the wholesale London market, the world’s largest for over-the-counter trading.

“Each refiner undergoes an annual third-party audit to verify exactly where the gold comes from,” he says over the phone from his office in the Royal Exchange building in the City of London. “We do as much management on the auditors as we do on the refiners. We’re constantly quality controlling the reports and questioning the auditors.”

Critics argue that there needs to be greater public scrutiny over these processes to ensure trust in the system. They are also concerned there may be significant loopholes in other gold markets worldwide.

Refineries are key to rooting out irresponsibly sourced gold as they are the supply chain’s major choke points. Gold’s entry into the smelting process usually marks the final point at which it is chemically possible for forensic geologists to scientifically determine the mine of origin. Investigations might take the form of comparing geochemical ‘gold fingerprints’. These are isotopic ratios of specific elements. Deposit samples are held on databases in South Africa and Australia (though these are, it must be said, not particularly extensive). The presence or absence of trace impurities in a particular batch can help narrow down any search for the mine of origin.

Other identification techniques are being tried too. At least one Swiss refinery routinely takes high-definition photographs of the entire surface of pieces of gold to aid traceability, while material extracted from the Cononish mine in Scotland was impregnated with a novel type of chemical signature when ScotGold minted its first Scottish gold coins in 2016. Techniques like these add expense, but there are obvious reputational reasons why companies using gold are keen to avoid complicity in fuelling foreign conflicts or the abuse of workers. Possibly the most significant steps have so far been taken by the electronics sector, a relatively small but significant buyer of gold which uses it in circuit board bond wires owing to its conductivity and the fact that it doesn’t corrode.

“Smartphones took off when the civil war in the DRC was at its height, so this was a big PR risk,” one industry watcher says. “There are so many different sources where you can get gold from that it just doesn’t make sense to take the chance of sourcing it from somewhere questionable nowadays.”

Assheton Carter, chief executive of the Dragonfly Initiative, which advises businesses on how to source gold legally and ethically, explains: “It’s certainly true to say that from the luxury sector and the consumer electronics sector, and even the investment sector, there is a realisation, driven now by regulation, that there is an opportunity for companies to differentiate themselves by showing they have influence to improve the conditions of mining upstream, either through their supply chain and direct sourcing, or through joining NGOs and product developers upstream to join in responsible extraction.”

He adds: “What has happened with the conflict minerals is that they [the authorities] have focused on aggregation points in the middle of the supply chain and have put pressure on them to ensure they’re not taking in illegal gold and material from elsewhere and mixing it with legitimate gold.”

Juliane Kippenberg, who works for the charity Human Rights Watch (HRW), is concerned that processes in many parts of the world are still far too weak and lack transparency.

She advocates increased use of a technique called batch processing, which entails segregating different batches of gold before, during and after smelting.

“This type of batch segregation does already happen, and there are some refining companies that already do it for gold,” she says. “It’s more expensive, but it can be done. What we are saying is that, in the long term, companies should switch to batch processing to be able to tell for sure where their gold is actually coming from.

“However, even now they should be able to get much, much more information about this and, actually, they should require traceability evidence from their refiners. That isn’t necessarily happening.”

‘We have reviewed the HRW report and reject the suggestion that RJC has got ‘flawed’ standards.’

A critical report on the jewellery industry was published this year on the eve of Valentine’s Day by HRW. It claimed some leading brands could not be confident that their jewellery was not linked to human rights abuses.

HRW claims many companies fail to publicly report on due diligence efforts they undertake, saying audits, when they are carried out, can be too superficial.

“Too many companies point to their membership in the Responsible Jewellery Council (RJC) as being all the proof they need of responsible sourcing, but that is not enough to truly ensure clean supply chains,” Kippenberg says.

She adds: “The reason we have focused on jewellers is that we see very little movement in the jewellery industry compared with, for example, the electronics sector.”

Gerhard Humphreys-de Meyer, from the RJC, rejects HRW’s criticism.

“We have reviewed the HRW report and reject the suggestion that RJC has got ‘flawed’ standards, governance and certification systems,” he tells E&T. “In their correspondence with the RJC, HRW have themselves recognised that the RJC has helped make jewellery companies ‘aware of the importance of responsible sourcing and adopt more responsible practices’.”

RJC members are obliged to sign up to and be certified against a code of practice based on UN human rights principles. These requirements are currently being reviewed to align with the EU Conflict Mineral Regulation.

The HRW report ranked 13 major jewellery brands in terms of responsible sourcing. None received the top score of “excellent”, and only one, Tiffany and Co, was graded “strong” for having taken “significant steps towards responsible sourcing”.

London-based Boodles was ranked “weak” for due diligence. Its press office told E&T the company has “historically relied on our trusted suppliers to identify and mitigate against human rights risks” but said it recognised there was more to be done.

Meanwhile, in a high-profile case likely to be closely watched by the jewellery industry, a rare window onto the inner workings of Dubai’s refiners might soon be opened up in the High Court in London.

Amjad Rihan, a former partner at Ernst and Young, went public several years ago about alleged anomalies he uncovered during a 2013 audit of Dubai-based Kaloti Jewellery International.

According to court documents seen by E&T, he claims to have uncovered billions of pounds’ worth of cash transactions carried out by Kaloti that were allegedly not reported to Dubai or United Arab Emirates authorities. Large amounts of gold are said to have been accepted from ‘walk-in’ or ‘call-in’ customers without proper verification having been carried out.

Rihan also claims Kaloti dealt with suppliers linked to conflict zones in the DRC, and that it imported from Morocco into Dubai around 4-5 tonnes of gold bars coated in silver worth over US$200m.  

These were declared as silver to the Moroccan authorities and as gold to the Dubai authorities, Rihan says. He also claims Kaloti admitted this was done to disguise the gold bars for the purpose of evading Moroccan restrictions on gold exports. These findings, which referred to a period during which Kaloti’s share of the refining market in Dubai was around 50 per cent, were allegedly suppressed by Ernst and Young – something the auditing firm denies.

Ernst and Young has previously rejected the suggestion that it “did anything but highly professional work in relation to our compliance engagement with Kaloti”. E&T emailed Kaloti for comment but received no reply. The company has previously stated that any allegation relating to its non-compliance in the gold trade business was “without merit”.

Rihan is now suing Ernst and Young, claiming he was “forced out of the firm simply because he tried to do the right thing”. He also claims he was left fearing for his life and his family’s safety but that Ernst and Young provided him with no protection.

For Juliane Kippenberg, the case goes to the heart of a fundamental disagreement between campaigners and the industry about the trustworthiness of existing due diligence practices in many parts of the world.

“What really, ultimately, will be needed is national legislation,” she argues. “All the different countries, the countries of origin as well as all the countries that trade and import gold and so on, will need to bring in legislation.

“We’ve seen that when countries actually do introduce legislation on this, then there is a change. We’ve seen it in the US with the Dodd-Frank Act. That has really been a game-changer in the gold industry, because then, suddenly, the companies absolutely had to report under this law.

“It’s only a very limited law, because it’s only focused on the DRC and eight neighbouring countries. Nonetheless, it has really changed things. Suddenly, companies needed to look at their supply chains, and to report on those publicly, and to justify themselves.

“This is also the context in which some of the electronics firms, like Apple, have been quite good at dealing with this issue.”

In future, blockchain electronic ledger technology could play an increasingly important role in helping to track the journey of gold from the mines through the refineries and on to the jewellers, smartphone manufacturers and the bullion market. However, this is far from being a ‘silver bullet’.

“My sense is that blockchain could potentially be a tool by which to establish a digital process for chain of custody,” Kippenberg says. “However, it doesn’t seem like a tool that would be useful in having any sort of human rights assessment on the ground. It would only, possibly, allow for traceability.”

Worldwide, an estimated 40 million people work in small-scale mines or mine gold or diamonds by hand, according to HRW. One million of them are said to be children.

As consumers wise up about issues surrounding gold and other precious metals, increasing numbers might demand that the complex supply chains be demystified. They might even pay a premium for specialist “ethical gold” used by companies like UK-based specialist jewellery group Flux, or Fairphone, which uses Fair Trade-certified gold (with the emphasis placed on improving working conditions for artisanal miners) in all its electronic devices.

Small, local operations like the Clogau St David’s Mine in Wales, where the gold used in Prince Harry and Meghan Markle’s wedding rings comes from, might also become fashionable among buyers keen to understand mining processes and perhaps even visit mines themselves.

As for people’s abiding fascination with gold, that is unlikely to change.