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A new conflict-free standard can build confidence in gold

08-06-2012

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++ GUEST CONTRIBUTION ++

Mining is a driver of development but despite its capacity to create wealth and alleviate poverty, it can also be a potential source of finance for armed conflicts in certain high-risk and fragile areas. A number of multilateral initiatives are under way to address this issue and to reduce the risks. The World Gold Council is pioneering in developing a “conflict free gold standard”, and ECDPM will hold a consultation to gather inputs from various stakeholders before the World Gold Council finalises the standard. In a guest contribution Terry Heymann, Director, Responsible Gold, World Gold Council provides an overview of this important process.

Responsibly undertaken, mining plays a crucial role in contributing to sustainable development and alleviating poverty in many developing countries. The direct economic contribution of professional gold mining creates new possibilities for the countries and their local communities in companies operate.

Regrettably, some of gold’s special characteristics – its intrinsic value and portability – have made it a potential source of finance for armed groups involved in civil conflicts, insurgencies and criminal networks. The actual proportion of newly-mined gold that is diverted to finance conflict is extremely low – probably less than 1% of annual production – but this is still a potentially important revenue stream and it is important that responsible actors take steps and try to block this gold from the market.

With this in mind, the World Gold Council, the market development organisation for the gold industry, instigated work to devise a ‘Conflict-Free Gold Standard’ in early 2010.

Why do we need a standard?

Subsequent to initial work by the World Gold Council on a standard, the USA passed legislation (Section 1502 of the Dodd-Frank Act, July 2010), which declared four minerals – tin, tantalum, tungsten and gold – to be potential ‘conflict minerals’ – although the implementing regulations for this, from the Securities and Exchange Commission, are still awaited.

The Organisation for Economic Co-operation and Development (OECD) also developed guidance on the responsible sourcing of minerals, which was published in May 2011. The US law is focused upon Central Africa – the Democratic Republic of Congo and adjoining countries. The OECD, like the approach taken by the World Gold Council, has global application to minerals produced in areas considered ‘conflict affected or high-risk’. Finally, in Europe, the European Union is also exploring means to improve the traceability of minerals through through its Raw Materials strategy.

The Conflict-Free Gold Standard is designed to apply to gold miners operating in the formal sector. The Standard has been developed to establish a common approach by which gold producers can demonstrate that their gold was extracted in a manner that does not fuel conflict or fund armed groups or the abuse of human rights generally associated with such conflicts.

The OECD provides a framework that covers all three main gold feed-stocks – newly-mined gold from the professional sector; newly-mined gold from artisanal and small-scale producers, and recycled gold. There is a tension in relation to artisanal gold since it is the most vulnerable to extortion or exploitation by armed groups and yet it is the sector which will find it most difficult to satisfy the due diligence requirements that will, increasingly be needed by the leading gold refiners. We have no desire to see legitimate smaller-scale miners excluded from the market, given the importance of artisanal and small-scale producers’ activity in many developing countries. Thus, we support Appendix One of the Gold Supplement of the OECD Guidance which sets out a road map for all stakeholders towards supporting the increasing formalisation of artisanal mining in order to reduce its vulnerability to exploitation and as a way of improving social and environmental practices.

Gold mining should be a source of economic and social development wherever it is found and any possibility of gold mining funding conflict should be eradicated.  Most development and conflict experts agree that a fragile area is more likely to descend in to active conflict if the mainstream economy – and the jobs and infrastructure which it supports – collapses. The Conflict-Free Gold Standard supports the existence of mines in ‘conflict-affected and high-risk areas’ as long as they can credibly demonstrate – through a demanding set of benchmarks and processes – that they are not fuelling to the conflict. The Standard relies on leading international instruments – like the Voluntary Principles on Security and Human Rights – as well as requiring for robust management systems to be in place to demonstrate this.  Implementation of the draft Conflict-Free Gold Standard is subject to independent, external assurance and public reporting requirements.

No industry-led initiative

For the World Gold Council it is important for that this is seen as an industry-led but not industry-dominated initiative. The issues covered by the Standard span a large number of countries and the interests of a wide range of stakeholders from the private sector, governments and civil society. In our first round of consultations on a draft framework in 2011, we received input from governments (including Ghana, Switzerland, the UK and US); civil society (such as the Enough Project, the International Institute for the Environment and Development, the Red Cross and International Alert) and industry. We have tried to ensure that the Standard reflects these views. A more advanced ‘Exposure Draft’ of the Standard was published at the end of March 2012.

Following on from 3 roundtable consultations last year in London, New York and Johannesburg, we are now undertaking a further round in different locations. We had a very productive discussion in Lima in May and are looking forward to further roundtables in Dar-es-Salaam and Melbourne shortly. All of these events have been externally facilitated and we are delighted to be partnering with the European Centre for Development Policy Management for a Brussels consultative roundtable on 12 June. We chose ECDPM because of their impressive reputation in the European development policy environment. Limited seats are available for the consultation event in Brussels, please contact ECDPM for registration.

We welcome a robust debate on the Standard because we believe that it represents an effective model for addressing a complex issue such as conflict minerals. Thus we seek your comments and suggestions on the draft ‘Conflict-Free Gold Standard’.

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Terry Heymann is Director, Responsible Gold, at the World Gold Council.

 

This blog post features the authors personal views and does not represent the view of ECDPM.

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African institutions and regional dynamicsSecurity and resilienceBusiness and DevelopmentExtractive SectorsAfrica

External authors

Terry Heymann