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Why soft law is powerless to clean up the gold supply chain

The human rights and environmental risks that taint the supply chain of gold and other mining commodities will be no surprise to anyone who reads the newspapers. North Mara gold mine in Tanzania made headlines just last week after an investigation into mass murder and rape of local villagers and deadly contamination from a leaking tailings dam.

Similar stories are reported and remain unreported across sub-Saharan Africa, Latin America and other major mining regions in the Global South.

Also no surprise is the ability of powerful multinational mining corporations to gain large concessions of land with long durations and generous tax breaks in resource-rich, corruption-riddled countries like the DRC.

The scale of money laundering involving gold is perhaps also unsurprising. This ranges from the laundering of bribes and cash from stolen gold to the Colombian narco-traffickers “who make billions turning cocaine into clean cash by exporting [gold] to Miami.”

What is surprising is that anyone can seriously argue that soft law and industry self-regulation are sufficiently tough to deal with these risks.

Currently, the sourcing of metals and minerals from conflict-affected and high-risk areas is governed by soft-law instruments like the OECD Due Diligence Guidance and its Supplement on Gold. A cluster of trade associations, such as the London Bullion Market Association and Responsible Jewellery Council, are responsible for regulating the very same companies they represent.

Does this system work? The mining corporations, refineries, traders and jewelers say yes. I examine the problems with self-regulation in detail in my recent book, Gold Laundering, but the short answer is no. Weakened versions of the OECD guidance limit due diligence requirements to the immediate supplier, ignoring the parts of the supply chain where the corruption and human rights risks are greatest. Audits demonstrate a tick-box approach to compliance and there is little or no transparency.

There are “weaknesses in company sourcing practices, including among those participating in industry programs,” says the OECD diplomatically.

The United States seemed to be leading the way in cleaning up the gold trade — as it did in combating corporate bribery with the FCPA — when it enacted the Dodd-Frank Act of 2010. Section 1502 introduced a transparency concept that obliged U.S. companies to implement a compliance program and report on compliance efforts to the U.S. Securities and Exchange Commission. It was a step in the right direction towards ensuring a supply chain free of human rights abuses, conflict and corruption.

I use the past tense because key sections of the Dodd-Frank Act, including Section 1502, have since been repealed by the Trump administration.

Meanwhile, Europe is moving ahead: the new Conflict Minerals Regulation due to enter into force in 2021 will in effect make the OECD guidance binding for companies in EU member states sourcing tin, tantalum, tungsten and gold. China launched a similar initiative to develop due diligence guidance for responsible mineral supply chains in 2015.

For the rest of us, including the United States and my own country of Switzerland — which imports and refines up to 70 percent of the world’s gold every year — the industry is still fiercely opposed to mandatory regulations enforcing transparent reporting and proper due diligence on the supply chains of gold and other mining commodities.

The corruption that fuels conflict and opens the door to rampant human rights abuses and environmental damage flows right down through the gold supply chain to the doors of the refineries. Here, the gold is “laundered” of its dirty history and sold on to be transformed into our watches, our wedding rings and the components in our laptops and cell phones.

Soft law needs teeth to tackle the hard problems of corruption, money laundering, conflict, child labor and other social and environmental atrocities that taint the gold supply chain — and perhaps more importantly, the rare earth elements that are the “gold” of the future. 

The EU is taking a step in the right direction with its Conflict Minerals Regulation. Will the rest of us follow?


Mark Pieth, pictured above, is Professor of Criminal Law at the University of Basel and President of the Basel Institute on Governance, a research and policy institute he founded to help combat public and private sector abuses of power. He was a founding member of the Financial Action Task Force on Money Laundering, Chair of a UN Intergovernmental Expert Group on illicit drug trafficking, and served 24 years as Chair of the OECD Working Group on Bribery.

His latest book, “Gold Laundering: the dirty secrets of the gold trade – and how to clean up” offers an in-depth insight into the risks and regulations around corruption, money laundering, human rights and the environment in the global gold trade. It is published by Salis in English and German.

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1 Comment

  1. Dodd-Frank Section 1502 and the implementing regulations have not been repealed. They are still on the books and remain legal mandates. What has changed is the SEC's official position on enforcement of certain aspects of the regulation.

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