Last Updated : Nov 13, 2020 04:48 PM IST | Source:

LBMA comes up with new norms on gold sourcing, irks Indian bullion sector

In its advisory, the Sentry said that the destination for 95 percent of the gold from East and Central Africa is Dubai, where criminal networks, armed groups and the corrupt use it for money laundering with these “conflict” gold.

Subramani Mancombu

A move by the London Bullion Market Association (LBMA) to check laundering and “conflict” gold by fixing some norms has irked Indian bullion industry.

LBMA, one of the most influential gold market authorities, has in a letter to various countries with large gold markets, said that it would stop gold from these countries if they don’t meet the regulatory standards.

The association has sent letters to India, United Arab Emirates (UAE), China, Hong Kong, Singapore, Russia, South Africa, Switzerland, Turkey, the UK and US.


The LBMA has said that if these countries do not meet the standards, they would be blacklisted.

The association is, perhaps, acting on an advisory issued this month by The Sentry, a US-based investigative and policy body that tracks dirty money connected to African war criminals and trans-national war profiteers. It attempts to stop those benefiting from violence from the international financial system.

A look at the advisory and the LBMA letter, perhaps, indicates that the UAE is probably the target of the norms announced by the London market authority.

In its advisory, the Sentry said that the destination for 95 percent of the gold from East and Central Africa is Dubai, where criminal networks, armed groups and the corrupt use it for money laundering with these “conflict” gold.

The Sentry terms it “conflict” gold in view of armed conflict and corruption in countries such as Congo, Sudan, South Sudan, and Central African Republic.

As gold prices have gained in recent years, there has been a rush in gold mining and refining in these “conflict” areas and nearly all the gold from these centres reach Dubai. These gold find their way into Dubai after being exported or smuggled to neighbouring nations such as Uganda, Rwanda, Cameroon, Kenya, Chad and Burundi.

The Sentry’s advisory said that UAE should plug the regulatory loopholes and gold industry actors such as LBMA should engage UAE authorities to press for third party audits and cap gold cash transactions above a certain limit.

Already, the Organization for Economic and Development Cooperation, a group of 37 nations, has come up with responsible sourcing guidelines for gold.

The LBMA’s move is the first initiative by a market or State authority in trying to combat illegal and unethical gold production and trading. LBMA Chief Executive Ruth Crowell told Reuters that the London body wants to work jointly with key markets rather than disengaging them.

But the bullion industry is in no doubt that the UAE, particularly Dubai, is the target as there are issues with gold trading in the Gulf region. If the issue is not addressed by the UAE within a specified period of time, refiners across the world could be asked not to source gold from Dubai and UAE.

That could undo all that the Gulf nation has done in the last two decades in making the country an important gold trading hub. The UAE Foreign Ministry has said that it will examine the concerns raised by the London body and come out with a mechanism to “address the challenges”.

Indian industry calls for setting its own standards

LBMA’s directive cannot be ignored as international and Indian banks prefer dealing only with refineries accredited by the association.

The LBMA letter has irked the Indian bullion industry, which feels that the London body has acted arbitrarily. There are suggestions that the Indian bullion trade join hands with Dubai trade and come out with their own standards that will be widely acceptable.

The sentiment in the Indian bullion sector is that formulating such a standard will render the LMBA redundant with India being the largest consumer of gold accounting for nearly 30 percent of the total global consumption.

But those who are not enthused by the move to take on the LBMA on the issue are of the view that the Indian industry needs to address a few issues such as responsible sourcing. They also wonder how jewellery exporters would meet their buyers demand to prove that the gold they used was from an LBMA approved refiner.

In particular, jewellery exporters feel they could face financial problems since some of the global banks catering to them ask for sources accredited by LBMA. This could result in some banks avoiding Indian exporters, which could in the longer prospects hurt the industry.

Bullion industry players are of the view that Indian refiners need to comply with global standards and it is time for such an initiative.

The LBMA letter has also led to fears that it could lead to vested interests monopolising the trade and this is one reason why Indian players think that main gold buying nations such as India and China could come together and set new norms in bullion trade.

The other suspicion is over why the London association move has targeted only selective markets. If the LBMA has issues with the origin, then it should bar gold from those origins than targeting trading centres.

A general view in the Indian bullion industry is that LBMA is an association set up to protect the interest of its members and the initiative should probably come from the United Nations Security Council the way it passed a resolution on “blood” diamonds.

Incidentally, the “blood” diamonds also came from these same sources which are now accused of trading “conflict” gold.

(Subramani Ra Mancombu is a journalist based in Chennai, who writes on topics in commodities and agriculture)
First Published on Nov 13, 2020 04:47 pm