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Study: Conflict gold from Africa may be in U.S. markets, passing through major companies

11/06/2018 By

An October 2018 study released by a watchdog group that focuses on Africa has highlighted concerns that conflict gold mined from the troubled Democratic Republic of Congo (DRC) is making its way into international markets and becoming integrated in the supply chains of major U.S. companies.

Documents reviewed and interviews carried out by The Sentry, a team of policy experts and financial auditors co-founded by George Clooney, raise concerns that the corporate network controlled by Belgian tycoon Alain Goetz, director at the Belgian gold refinery Tony Goetz N.V. and CEO of the African Gold Refinery (AGR) in Uganda, has refined illegally smuggled conflict gold from eastern DRC at the African Gold Refinery and subsequently exported it through a series of companies to the U.S. and Europe. The study lists companies like Amazon, General Electric and Sony as possibly being ones that conflict gold may have been sold to.

According to the United Nations, conflict gold provides the largest source of revenue to armed individuals in the conflict in the DRC, where officials said an estimated 3.3 million to 7.6 million people have died in years of fighting. The study also states that an estimated $300 million to $600 million worth of gold is smuggled out of the DRC each year.

Documents analyzed by The Sentry also showed that the African Gold Refinery exported about $377 million in gold in 2017 to what appears to be an affiliate of Tony Goetz N.V., which is based in Dubai. This year, U.S. Securities and Exchange Commission filings, in which companies detailed their 2017 sourcing of gold, show that 283 publicly traded companies in the U.S. listed the refinery as an entity that may be in their supply chains, despite the refinery’s failure to pass a major international conflict minerals audit in 2017, The Sentry reports.

The companies’ filings to the SEC also show that the African Gold Refinery, opened in Uganda in 2016 and owned by Goetz, may also be found within the supply chains of 103 publicly traded U.S. companies, including GE and Halliburton.

In the filings, Amazon, GE, Halliburton and Sony explain their procedures to verify where they get their materials, noting that not all sub-suppliers reply with information or will give incomplete details. Conflict minerals mined in eastern DRC are often called 3TG, which stands for tungsten, tin, tantalum and gold. In some reports, Tony Goetz and AGR’s compliance status are listed as “other,” which means they aren’t a compliant facility or one actively seeking compliance.

Amazon said: “We identified no suppliers that were sourcing minerals through a supply chain that benefitted armed groups in the DRC region. [But some of its suppliers are still getting information on the country of origin and the facilities used, Amazon said.] We continue evaluating the results of their efforts in 2018 in order to mitigate the risk that minerals procured by any of our suppliers benefit armed groups in the DRC region.”

GE said it is has “no knowledge that any of the necessary 3TG contained in our in-scope products directly or indirectly financed or benefitted armed groups … but make no assertion that any of our products are ‘DRC conflict free.’ ”

Halliburton gave detailed numbers on its suppliers. “A total of 1,552 suppliers were identified as in-scope for conflict mineral regulatory purposes and contacted as part of the … process conducted by our third-party service provider. The response rate among these suppliers was 69% (1,067). Of these responding suppliers, 64% (679) confirmed their supply to Halliburton did not contain 3TG. The remaining 36% (388) of suppliers used 321 different [smelters or refineries], of which, 60 indicated DRC sourcing. Out of the 60 … two were not certified.” Halliburton said it is monitoring those two suppliers. It’s not clear if AGR is one of those two.

Sony said its “due diligence did not reveal” that its purchase of commodities “benefited armed groups” in the DRC or neighboring countries. “Sony nevertheless concluded in good faith for 2017 that it lacks sufficient information to determine the location or mine of origin of all of the 3TG in our electronics products,” its filing said.

The Sentry interviewed several parties that identified the African Gold Refinery as sourcing conflict gold from the DRC. Additionally, 12 traders and government officials said the AGR has taken over a significant portion of the market for gold trafficked from the DRC to Uganda, officials said. The Sentry also analyzed Ugandan export records, which it said show the AGR accounted for more than 99 percent of gold officially exported from Uganda in 2017. Uganda is the main transit hub for gold smuggled out of the DRC, according to the U.N. Group of Experts.

Two major gold smugglers in the DRC acknowledged when speaking to The Sentry that they had illegally trafficked gold from eastern the DRC to the African Gold Refinery, the study said.

The Sentry study said the AGR also denies having received gold from well-known gold traffickers Buganda Bagalwa and Mange Namuhanda, who have been named in several U.N. Group of Experts reports on the DRC as purchasers of conflict gold, though four regional traders told The Sentry that Bagalwa and Namuhanda supplied gold to the AGR in 2017.

The AGR denies that it has otherwise received significant amounts of undocumented gold from other sources.

In email correspondence with The Sentry in August 2018, African Gold Refinery stated, “AGR does not handle or source undocumented gold.” However, in October 2018, AGR told The Sentry that it “is still accepting what we called the undocumented gold or small scale gold dealers, particularly from Kampala market, that includes: old jewelry, damaged or old chains, used necklace, bracelets, dental scrap and other scrap jewelries.”

AGR also told the Sentry that it “is committed to refraining from any action which contributes to the financing of conflict.”

Tony Goetz NV responded to questions from The Sentry by saying it has “procedures to allow it to identify its clients and the origin of the precious metals, in order to avoid sourcing of so-called conflict minerals. In this respect, please note that Tony Goetz NV is not active in the Democratic Republic of Congo.”

Alain Goetz, AGR’s chief executive officer, stated on AGR’s website that the Sentry study contains “false information from business rivals, the gold smugglers whom [investigators and policymakers] are trying to stop and former business associates who were removed from AGR due to misconduct.” The website said he added that “when I first started reading this report I thought it must be Mr. George Clooney’s latest movie script. It is a work of fiction … [a] deeply erroneous report.”

The Sentry notes that it is illegal in the DRC to export gold from artisanal mines that are not certified as conflict-free in the DRC. Despite the law, an estimated 96 percent of artisanal gold mines in the DRC are not currently certified, the report says.

An estimated 71 percent of gold miners work at conflict mines, according to the latest independent survey, officials said. In 2017, the U.N. Group of Experts said it had confirmed that nearly all artisanally-sourced gold in the DRC was exported illegally. The Sentry’s findings state that nearly all of the gold mined in the DRC and moving to Uganda is likely not derived from certified mines.

In an academic study published in July 2016, researchers at the University of Michigan also found troubling results when considering the level of conflict minerals that may have been present in the U.S. They evaluated all of the due diligence reports available that the U.S. Securities and Exchange Commission had received in 2014 and 2015, which totaled about 1,300 such reports per year.

That study, “Challenges for Global Supply Chain Sustainability: Evidence from Conflict Minerals Reports,” was published in the Academy of Management Journal in July 2016. The researchers involved found that nearly 80 percent of firms evaluated were unable to determine the sources of the minerals in their products, and only 1 percent of the firms questioned were able to confirm “with great certainty” that their products were free of conflict minerals.

Researchers considered companies’ organizational complexity, the leverage they had over their suppliers, the complexity of the supply chain and a company’s public profile. The authors of the study also said they searched for patterns that would identify firms that can or cannot validate that their supply chain is free of conflict minerals.

Most firms surveyed claimed that the “complexity and size of [their] supply chain” was a primary reason they could not identify the source of their minerals. Many said they were unable to do so because their own suppliers were not required to provide such a certification.

In response to The Sentry’s October 2018 findings, the watchdog group also released recommendations that officials may refer to in an effort to halt the flow of conflict minerals.Targeted network sanctions are suggested among the recommendations.

“The United States, U.N. Security Council and the European Union should investigate and, if appropriate, sanction gold refining and trading companies and their beneficial owners discussed in this report,” the study said. “This should be done based on findings of support to persons, including armed groups, involved in activities that threaten the peace, security or stability of the [DRC] through the illicit trade in natural resources.”

The Sentry also listed the use of anti-money laundering measures, possible prosecutions of those found to be in violation of the law, due diligence reviews and the delisting/withdrawal of membership for entities such as Tony Goetz N.V., if any alleged wrongdoing is found credible.The organization also suggests a need for the International Civil Aviation Organization and the World Customs Organization to establish rules for commercial airlines to prevent the smuggling of gold by hand.