How gold trade data could be better used for due diligence

Gold leaves traces when it crosses borders since shipments of gold are usually registered by customs when leaving and entering countries. 

Along with other organisations, we have reported extensively about conflict, human rights abuse and environmental problems which are often connected with gold supply chains.

Identifying these risks in the supply chain and adequately dealing with them should be key elements of companies’ due diligence systems. Trade data can be a means of carrying out simple checks for red flags related to the gold they source.

While the analysis of gold trade data can be complex, we found cases in which very basic checks would have raised red flags of links to conflict, human rights violations and environmental damage.

Key findings

By reviewing cases of high-risk gold entering supposedly clean supply chains, we found various cases in which companies claiming to adhere to the highest due diligence standards in the gold sector either did not do the most basic checks or seemingly ignored the red flags:

• The fact that Bolivia almost quadrupled its gold export from one year to the next without increasing its gold production didn’t seem to raise red flags for various refiners. One refiner alone sourced more gold from Bolivia than the country officially produced. Much of the gold, it turned out, was smuggled from Peru and linked to crimes.
• Another refiner sourced large amounts of gold from Togo despite the fact that the country didn’t officially produce any gold. The gold turned out to be from Burkina Faso and mined using child labour.
• The UAE reports importing twice as much gold from African countries than these countries report exporting to the UAE. Despite this strong indication of smuggling, many refiners don’t seem to carry out appropriate due diligence when sourcing from the UAE.

For government bodies, such as police and customs authorities, who are tasked with the enforcement of regulations related to supply chain due diligence, trade data can help indicate high-risk gold. However, the value of gold trade data as a tool for better due diligence depends on the availability and quality of the data – and our research indicates that there is much room for improvement. Important data is often not publicly available or the categories used are not helpful. Furthermore, we have detected errors and inaccuracies in trade data. As a consequence, available trade data often hides problems rather than helping to uncover them. 

• Less than half of countries have reported gold imports and exports throughout the period from 2012 to 2019.
• Free trade zones and free ports which exempt companies from reporting gold imports and exports add further gaps to the available data.
• The gold industry claims that confidentiality bars them from disclosing the names of suppliers despite the fact that such data is partly available in commercial databases and the OECD standard calls on them to disclose the names in certain circumstances.
• The trade code used for gold exports and imports doesn’t distinguish between mined and refined gold. Even silver or copper containing as little as 2% gold is officially exported as gold.
• In our research we found that customs have erroneously declared gold labelled as “scrap gold” under 14 different incorrect customs categories.

Recommendations

We recommend the following measures in order to improve the use and usefulness of trade data in ensuring responsible gold sourcing:

• Companies in the gold supply chain should make better use of the available trade data to check for potential risks in their supply chains and facilitate fulfilment of their due diligence obligations.
• The London Bullion Market Association should make public reporting on the countries of extraction and the names of gold suppliers in high-risk locations an obligation for refineries on their Good Delivery List.
• The World Customs Organization should propose meaningful sub-categories for the HS code 7108.12 and the member countries should uniformly adopt them.