The integrity of the global gold supply chain has been the subject of intense scrutiny of late, following a damning report by Swiss nongovernmental organisation SwissAid earlier this year, which claims that illicit gold trade amounts to between $23-billion and $35-billion a year.
However, the introduction of technologies such as the geoforensic passport, optical AI and blockchain – along with the updated Responsible Gold Guidelines (RGG), the more stringent Know Your Customer (KYC) Guidelines and the Organisation for Economic Cooperation and Development’s (OECD’s) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas – means that much of the framework needed to stymie illicit gold trade already exists.
Further, international gold industry association the World Gold Council (WGC) aims to increase the scope and effectiveness of this framework through initiatives such as the Gold Bar Integrity (GBI) platform, which forms part of its broader Gold247 vision.
Gold247 is meant to enhance supply chain management, while simplifying gold trading processes and increasing access for all stakeholders, including central banks, bullion centres, subsistence gold miners, smaller refineries and potential investors, explains WGC CEO David Tait.
He says that the ultimate goal is a “truly global network where anyone who sits outside the database should be very worried, as the very thought of procuring gold from outside of the system would be unthinkable”.
The realisation of such a network is nearly in sight, although both Tait and Argor-Heraeus co-CEO Robin Kolvenbach agree that general fragmentation, both from a regulatory and technological perspective, leaves room for improvement.
The GBI, AI and Blockchain
An integral part of the Gold247 vision is the GBI platform, which encourages the adoption of technology to enhance transparency and traceability throughout the entire supply chain.
The GBI pilot – which was jointly launched by the London Bullion Market Association (LBMA) and the WGC and ran from March to July 2022 – helped define the scope of the platform’s database. It also revealed longer-term goals, such as expanding the platform to include other gold products, secondary market materials and other precious metals, in addition to incorporating KYC requirements and other due diligence processes when on-boarding customers.
More than 30 participants took part in the pilot, including Rand Refinery and Argor Heraeus.
“We see the GBI as a crucial step forward in preventing ingress of illicit material into the LBMA gold ecosystem,” says Rand Refinery CEO Praveen Baijnath.
Argor-Heraeus co-CEO Hans Deutsch agrees, expanding on his company’s involvement in the GBI by citing its work with Swiss software company aXedras and US-based software company Alitheon – both of which are recognised by the LBMA.
He notes that the company uses aXedras’ Bullion Integrity Ledger, which helps to create “immutable provenance information”, while Alitheon’s software allows it to verify and trace its physical products.
“If you put these puzzle pieces together with geoforensic data analysis, you get strong systems that can ensure that no illegal gold is entering that supply chain,” adds Deutsch.
To illustrate the benefits of Alitheon’s optical AI solution FeaturePrint, Alitheon CEO Roei Ganzarski compares it to a human fingerprint.
“Fingerprints are unique; they are inherent and they are persistent,” he says, explaining that rather than using proxies, “like barcodes, stamps, tags, markers or tokens” – which can be removed, or faked or stolen to pass off counterfeit goods as the genuine article – FeaturePrint essentially creates a “digital fingerprint” based on the attributes and features that are inherently unique on each product owing to the manufacturing tolerances of that specific product.
Even gold bars produced by the same machinery in the same refinery, using the same moulds, have unique, inherent characteristics that are undetectable by the human eye, making them distinct from all others, “just like human identical twins still have slightly different fingerprints”.
While the bars are made to specific tolerances – in terms of weight, size and gold content – the individual products can fall anywhere within the manufacturing tolerance band.
FeaturePrint combines machine vision and patented algorithms to codify these inherent attributes to create a unique digital identity that can be used to “irrefutably identify, authenticate, and trace” a bar of gold or any other physical item. Any company or individual with the software can use a standard off-the-shelf digital camera or a mobile phone to identify, authenticate and trace an item.
Deutsch also cites the geoforensic analysis, which is a system that enables refineries to determine the origin of the gold doré it receives, using X-ray fluorescence and other analyses to determine the material’s elemental composition and matching that to the characteristics of the orebodies of doré providers.
“We work with two geoforensics providers and use our laboratory to conduct the statistical analyses to determine whether the material really fits into the elemental categories within the footprint of the mine . . . that helps us verify whether there has been mixed material added into that melt, if it’s original or recycled gold.”
The LBMA-approved geoforensic passport service providers have a database of all gold doré providers, which they use for their analyses.
“The fact that the doré- and bar-related data is stored in a secure, centralised database managed by the LBMA is a major enhancement. This database – in addition to the blockchain that serves as a comprehensive ledger of all certified gold bars, and coupled with optical AI to provide another means of verification – is a game changer for the industry,” Baijnath summarises.
Further, RGG Version 9 – which Kolvenbach notes “introduced tighter control mechanisms related to fraud and illicit activities” – further bolsters responsible sourcing activities, as it helps to ensure that gold products generated by these refineries are not tainted by illegal or unethical activities.
“Rand Refinery and other LBMA-accredited refineries are committed to internationally accepted responsible sourcing practices laid out by the RGG and OECD Due Diligence Guidance. Further, we apply robust KYC, ‘Know Your Product’, as well as anti-money laundering (AML) and countering the financing of terrorism (CFT) policies and procedures,” says Baijnath.
“In terms of continuous improvement, besides using world-class AML, CFT and sanctions-checking and media monitoring tools that use advanced algorithms, Rand Refinery is also trialling the use of AI in lead identification and customer due diligence.
“We envisage AI to play a key role in changing due diligence by simplifying data collection and analysis, document review, risk identification and escalation and reporting,” he comments.
Tait adds that there are 65 LBMA- accredited gold refineries globally, hence there are many smaller operators that do not necessarily adhere to the RGG or any other guidelines. A key priority will be to get these refineries, through training and other programmes, to the point where they can join, or return to, the LBMA’s Good Delivery List.
Kolvenbach says that better monitoring of refineries and increasing the enforcement of guidelines is also needed.
Standardisation Issue
Tait reiterates that the two areas of concern, in terms of eradicating illicit gold flows, are the informal mining sector and secondary gold markets, primarily because of the lack of regulatory consistency and a lack of buy-in from associated stakeholders.
Many of the concerns regarding secondary market players could be addressed by including them in the broader GBI network, as they would have to comply with the same guidelines and principles on responsible sourcing and KYC processes. Their products could also be tracked, traced and verified using the blockchain ledger and other technologies.
In terms of informal mining, Tait notes that legislation across the various mining jurisdictions differs on defining and facilitating artisanal and subsistence mining. Further, “illegal mining” and related activities are judged very differently, as “what some governments deem an egregious crime, others find permissible”.
It does not help that the laws and standards governing the sale, transport and recycling of gold materials also vary across countries.
However, while criminal organisations with large-scale mining and smuggling operations care little for laws, there are also groups of subsistence and artisanal miners who, while sometimes complicit, are not actively trying to subvert the law.
The general idea seemingly is that, by bringing responsible informal miners into the formal gold network, and through consensus on what does and does not constitute gold-related illegal activity, there would be fewer loopholes, and people, for the wanton criminals to exploit.
Kolvenbach agrees, explaining that, while it is evident that the technology exists to completely avoid any informal gold flows, “we should not forget that we are also facing social issues that cannot be resolved by simply closing our eyes and excluding informal participants”.
Baijnath suggests that refineries should, therefore, assist gold-supplying counterparties or prospective suppliers, including legitimate artisanal and small-scale miners (ASM) and local traders, in improving their supply chain practices.
“In many instances, this involves refineries working with government departments and central banks to ensure that local policies and regulations enable transparency and help screen out illicit flows, all while allowing legitimate ASM participants to continue to earn a living.”
To that end, Tait points to the WGC’s plans and initiatives to formalise ASM, including the London Principles, to which four central banks have already committed, with numerous others, including the Brazilian and South African central banks, expressing interest.
The London Principles help structure and formalise Central Bank-ASM domestic purchase programmes.
“So far, the signatories include the centrals banks of Columbia, Ecuador, Mongolia and the Philippines,” Tait says, reaffirming his belief that if ASM participants are willing to comply with the necessary standards – for example, eliminating the use of mercury, and refraining from the use of forced and child labour – and are offered financial incentives that are equivalent or better than those offered by illegal mining operations, such programmes would go a long way towards reducing illicit flows, without harming legitimate subsistence miners.
He concludes that there is “no point pretending that something’s not happening”, regarding the illicit gold trade, stressing that, while it is not an “overnight fix”, the WGC, its members, partners and affiliates are doing what they can to solve the problem.