DMCC’s Responsible Sourcing Initiatives and Guidance for Market Participants India International Gold Convention 16 th August 2013 Presented by Chirag Sharma Commodity Services, DMCC
Key developments and implications for the Indian gold industry • OECD guidance is a globally accepted benchmark for conducting due diligence for responsible sourcing of gold • US regulation - Section 1502 of the Dodd-Frank Act requires companies to publicly disclose their use of conflict minerals (i.e. tin, tantalum, tungsten, gold , etc) – Directly or Indirectly , this requirement is applicable to gold exporters to the US – India exports a significant portion of jewellery to the US directly and via other regional jewellery hubs • The EU and Canada are developing responsible sourcing regulations using the OECD guidance as a base • Compliance with the OECD guidance can assist the Indian gold industry to comply with US regulations and potentially future regional/national regulations
Dubai Good Delivery (DGD) standard incorporates OECD’s guidance • DGD standard is an internationally accepted benchmark for the quality and technical specifications for the production of gold and silver � Robust technical evaluation by expert testing agencies for 1kg gold bars of minimum 995 purity (and/or high purity 999.9) – this form of gold is relevant for ANY jewellery producing hub � Currently, 14 gold refiners across 10 countries as DGD members � Compliance with OECD’s guidance on responsible sourcing is a MANDATORY requirement for member refineries, along with adherence to DMCC’s AML/CFT policy and other requirements • Dubai Multi Commodities Centre is a ‘Government of Dubai’ authority and is the regulator and owner of the DGD standard � DMCC approve refinery membership applications and enforces DGD rules to ensure all members are fully compliant • A significant portion of the gold used in jewellery manufacturing in India is produced by DGD refiners � In 2011, India imported 23% of their annual gold bars requirement from Dubai (222 tonnes) of which 90% are produced by DGD refineries
DMCC’s involvement with the OECD • Since 2011, DMCC has been a member of the OECD’s drafting committee for developing the OECD’s guidance, alongside other gold industry participants • Joint OECD/DMCC seminars held in Dubai • Following OECD’s finalization of their guidance, DMCC was part of their Interim Governance Group , and assisted the group to globally implement the OECD’s guidance • In 2013 the OECD’s new Multi-Stakeholder Steering Group was constituted, wherein DMCC is one of the six members representing the global gold industry (others include LBMA, PAMP, RJC, Signet Jewelers and WGC) � Development of guidelines and/or regulations including existing OECD guidance � Increase outreach by innovative channels (i.e. simplified multi-lingual guidance, pictorgraphs, webinars, etc) � Development of tools for the industry to use for conducting due diligence
DM CC’s implementation of the OECD’s guidance • Issued a ‘Practical Guidance for responsible sourcing of precious metals for market participants’ based on OECD’s guidance in April, 2012 • Mandatory requirement for DGD refineries to implement the practical guidance since June 2012 • Issued the ‘Review Protocol’, a guidance to assurance providers for conducting operational audits on DGD refiners supply chains • Approved list of assurance providers comprises the big 4 auditing firms (Deloitte, E&Y, KPMG and PWC) � All UAE based DGD refineries (Emirates Gold, Kaloti and Etihad Gold) have engaged approved reviewers • Conducted workshops for UAE governmental agencies, members and DGD refineries • Launched Arabic, Hindi and Malayalam translated versions of the Practical Guidance DM CC is committed to complement efforts of the OECD and assist market participants for implementation of the OECD’s guidance
DMCC’s initiatives complement the OECD’s efforts on outreach Globally • 14 DGD refineries across 10 countries • 500+ DMCC licensed companies in the precious metals segment United Arab Emirates (UAE) • Various UAE ministries • Customs • Other bodies such as Law Enforcement Agencies, Trade License Authorities, Chamber of Commerce, etc
Challenges in implementing responsible sourcing practises and potential solutions • Non standardized risk matrices and evolving metric of conflict affected and/or high risk area � Global gold industry should develop and standardize these risk assessment tools • Source of origin documentation is falsified directly by government entities to hide the original origin � OECD through their multi-stakeholder forum should focus efforts on mitigating risks at root level • Difficult to establish if artisanal and small scale mining sites are conflict free; extent of cash transactions; relevant supporting documentation; � National level and/or Government to Government programs on assuring conflict free ASM sites need to be robust and credible • Intermediaries and brokers resist providing full documentation due to confidentiality reasons rd party reviews for wider market participants to provide assurance on implementing � Independent 3 responsible sourcing best practices • Smaller gold producers, jewelers, etc, may not possess the relevant resources to adequately implement responsible sourcing best practices � Auditors are available, but need to increase global pool of trainers on implementing responsible sourcing best practices at reasonable costs
Future direction and implications with regards to responsible sourcing • Increase in Regulation is imminent (i.e. EU and Canada are in process of developing regulations, other regions/nations could soon follow) � Directly or indirectly this would also become applicable to importers and exporters in any location that are conducting business with regulated regions/nations • Financial institutions will prefer to keep client relationships where assurances on responsible sourcing can be provided � Businesses relying on securing financing and related facilities will be forced into complying with responsible sourcing best practises • Supply chains that have fewer counter-parties and are fully transparent are likely to emerge as preferred opportunities � Role of intermediaries and brokers will be reduced, unless they too are able to demonstrate compliance with responsible sourcing best practises Responsible sourcing will eventually become a mandatory requirement for ALL market participants
Recommendation For Indian market participants to comply with the OECD’s guidance • Users of DGD gold are assured of quality and compliance with responsible sourcing best practices • Sourcing bullion from DGD accredited refineries automatically ensures compliance with OECD guidelines and Dodd-Frank regulatory requirements • Wider adoption of DGD in India will benefit market participants such as � Users of gold bars (i.e. banks, traders, importing agencies, jewellers, etc) � Gold refineries can become DGD accredited members
Conclusion • Complying with responsible sourcing best practices is directly or indirectly a requirement for the global gold industry • DMCC is committed to implementing the OECD guidance and assisting market participants for the same • DGD standard incorporates the implementation of the OECD guidance as a mandatory requirement for member refineries • DGD is relevant for jewellery producing hubs due to certification based on 1kg gold bars of minimum 995 purity • India sources significant amounts of gold from Dubai and it would benefit market participants to adopt the DGD standard for complying with the OECD guidance
Thank You Please collect a complimentary ‘credit card size USB’ containing the DM CC’s Practical Guidance in various languages from the DM CC stand Sponsored by Arabic: Siroya Jewelers Hindi: Emirates Gold Malayalam: Malabar Gold Download from http://www.dmcc.ae/jltauthority/gold/responsible-sourcing-of-precious-metals/ Email us at responsiblesupplychain@dmcc.ae
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