Breaking Silence is Golden: why collaboration is key for a higher standard of gold sourcing and putting an end to elitist, industry hypocrisy
Long before the dotcom era, trust and reputation were paramount to commodity traders. Anyone caught either selling fraudulent products or reneging on agreements were immediately expelled from the community to ensure a higher standard of trading integrity. In principle this philosophy remains the same; however, today we are faced with two significant challenges; the use of conjecture by historically important institutions to thwart competition and the application of variable bias for the sake of double standards.
As one of the few business figures to experience both eras, Mohamed Shakarchi grew up in his father’s trading business in Lebanon, before moving to Switzerland in the 1970s. Having forged a successful commodities trading business, a false accusation of money laundering in 1988 from the US district attorney forced Mr Shakarchi to close his business due to the reputational damage caused, in spite of being exonerated just 21 days later. Re-establishing himself in Dubai in the early 90’s, Mr Shakarchi pioneered the kilo bar, and today continues to run Emirates Gold Refinery; one of the world’s most respected producers [1]. While Mr Shakarchi was able to recover and rebuild, despite the damage caused by unfounded conjecture; no lessons appear to have been learned about the spreading of politically charged, false information, where the consequences depend on who you are and where you’re located. The repetition of powerful offenders receiving a slap on the wrist when found irrefutably guilty and innocent businesses being penalised on the first hint of rumour without evidence has gone on long enough, and it needs to stop.
Fast forward to present day, and the year of COVID-19, an unfounded action by an international organisation came from the Commodity Exchange, Inc. (COMEX). Faced with a shortage of physical gold, COMEX took the decision on July 27th, 2020, to swiftly blanket approve 51 LBMA accredited refineries to its delivery list, in addition to the 20 LBMA accredited refineries already present - an apparent move to gain access to physical gold. Earlier that month, Al Etihad Gold Refinery DMCC, a highly respected gold refinery based in the UAE was listed with COMEX on July 9th, 2020. However - on 31st July, just a few weeks later, COMEX back-pedals and delists the company without providing a single reason. It furthermore failed to provide Al Etihad Gold Refinery DMCC with a 30-day notice, which is official procedure.
So, what happened during this time for COMEX to change its mind, weeks after it had issued approval for good delivery? Geo-political pressure? Bank influence? Undue pressure from competitors or markets? Or was Al Etihad Gold Refinery DMCC a convenient, temporary measure to meet demand while many refineries remained under lockdown? It is important to note that the Swiss refineries and their tradeflows were the most negatively impacted by Al Etihad being approved by COMEX.
I’m sure many of you won’t be surprised that July was also the month in which Carnegie Endowment for International Peace published its targeted attack on Dubai, designed to garner the precise reaction that COMEX has provided in delisting a fully compliant organisation without specifying a shred of reason. In fact, according to Reuters, Al Etihad was told by CME it had no problem with the way it operates and in a further piece published by Nasdaq on 11th August [2], CME declined to comment on its reasons why the refinery had been removed from the list.
The question which should be asked is, if COMEX views LBMA as the trusted party on the approval of refineries, how come Russian based JSC Novosibirsk Refinery, which is suspended by LBMA, remains on the COMEX list? Inconsistencies seem to be the only constant.
Before getting started on the gross corruption and hypocrisy of CME’s delisting, it’s worth going back to the basics of regulation in order to understand the difference between various jurisdictions, and how organizations such as CME Group react to factual, suspected or unfounded breaches.
Responsible sourcing of gold first came to the forefront in lieu of the OECD due diligence guidance for responsible supply chains of minerals from conflict-affected and high-risk areas. On 17th July 2012, a reference to the supplement on gold was included, in light of which both Dubai Good Delivery (DGD) Standard by DMCC (Dubai Multi Commodities Centre) and London Good Delivery standard by LBMA (London Bullion Market Association) took note. DMCC insisted its members to undergo the review of its responsible sourcing for the period starting from 01st June 2012, while LBMA took a more flexible approach, allowing its members until 01st January 2013 to comply. While DMCC required three reports to be submitted to the administrators of the program (Dubai Good Delivery), namely a compliance report written by the member refinery, an assurance statement from the reviewer and a management report which the reviewer provides the member; LBMA-certified refiners were only required to produce the compliance report and assurance statement without the management report. Whether this is intentional or not remains to be seen. In spite of the increased auditing transparency by DGD, LBMA is still regarded as the de facto criteria globally for acceptable gold and silver bars and while LBMA members have come under fire from civil society, it seems to enjoy a practical immunity of ‘innocent until proven guilty’, which isn’t extended to DGD-members. Similarly, despite Dubai’s refineries having the same auditors and standards for DGD compliance as other organisations, LBMA has yet to delist any of its members, as opposed to DGD, which has taken action against several refineries who were unable to meet the required standards.
As with many precious resources around the world, there is always room for regulatory improvement in order to avoid corruption and adhere to best practice when it comes to sourcing; however, the role of the select, corrupt NGOs, who produce conjecture as fact in order to sway the market has reached a point where it needs to be highlighted for what it is. I’m prepared to acknowledge that while not all NGOs are propaganda merchants or funded by bodies with specific, often political interests, I believe that as a group of organisations, they would collectively benefit from an approach of international collaboration, as opposed to geopolitical finger pointing. Case in point, SWISSAID’s recently published, ‘Golden Detour – the hidden face of the gold trade between the United Arab Emirates and Switzerland.’ As the title suggests, several refineries are highlighted in both countries, however, you will notice that only the Dubai-based refineries seem to be consistently on the end of speculation and action, while the other stakeholders who are publicly acknowledged to be part of the supply chain continue with business as usual. And it doesn’t stop with the NGOs.
The hypocrisy of major corporations such as Apple removing several UAE-based refiners from its supplier list on 31st December 2019, in light of its Risk Readiness Assessment and Responsible Sourcing Standard, which considers the risks associated with conflict minerals, human rights abuses and environmental issues is laughable if it wasn’t so sad. As a company that since 2010, has had repeated workplace suicides in ‘tragic displays of desperation’, according to one piece in The Guardian [3], while a China Labour Watch report published only last year stated how: “Apple is now transferring costs from the trade war through their suppliers to workers and profiting from the exploitation of Chinese Workers”[4]; it would seem Apple would be better off addressing its own proven human rights violations before taking action on businesses within its supply chain. It is of course ironic, that in spite of removing the UAE refineries, they continue to source gold from the very Swiss refiners from whom Dubai exports to.
Other examples of selective outcomes include RAID’s recent report [5] which highlights why LBMA-member MMTC-PAMP should be delisted for its failure to act over human rights abuses at the North Mara gold mine in Tanzania. If there were an automatic blanket policy of delisting or suspension upon the first signs of smoke, but no fire, at least there would be consistency, but the truth is some get a free pass; while many in the emerging refinery markets don’t. Why does MMTC-PAMP retain its Good Delivery status, while Al Etihad is delisted?
The bottom line is, as an emirate that has had to go the extra mile to provide transparency in order to position itself as a top commodity trading centre in the world, it is only to be expected that it would attract its share of ‘haters’, but this idea of cherry picking unfounded issues as part of a greater supply chain, with whom, the same detractors continue to work has now made the hypocrisy untenable.
Let it be known, this skewed sense of international supervision is motivated by a paranoia of losing market share while attempting to stem the conversion of gold into kilo bars (DGD Standard). While it will be unpalatable for the traditionally powerful markets to hear, Dubai has achieved its success by providing a more efficient model in almost every aspect from cost, time, security and connectivity, while creating an industry that today, can stand shoulder-to-shoulder with London. As part of its global responsibility, Dubai has taken the initiative to work with groups such as DDI and Resolve, that are focused on solving the issues surrounding responsible sourcing for various commodities. From a personal standpoint, in my capacity as KP Chair, I consistently pushed for greater international collaboration and a level playing field where all parties adhere to the same set of rules and were treated equally.
Today, I call upon the international community to realise the inherent double standards being applied and to take action. If you are amongst the NGOs that sincerely and altruistically want to change the world for the better; stand up to those who are giving your industry a bad name. As we enter an era with an ever-changing landscape, we are given the opportunity to improve our checks and balances through unilateral action and constructive criticism. I openly welcome stakeholders from the international gold community to reach out and discuss practical ways in which we can work more closely as traders, while protecting the interests of those from where our minerals our sourced.
https://www-nasdaq-com.cdn.ampproject.org/c/s/www.nasdaq.com/articles/cme-delists-dubai-gold-refinery-three-weeks-after-listing-it-2020-08-11?amp
https://www.washingtonpost.com/technology/2019/09/09/apple-accused-worker-violations-chinese-factories-by-labor-rights-group/