In recent years, we have seen a significant increase in the number of initiatives to promote more responsible supply chains. In some cases multiple programs that originate from different industries are targeting many of the same issues and suppliers. For example, several different industries (such as jewelry, electronics, aviation, and gold financial markets) have initiated efforts - all with the same goal to ban conflict minerals from their supply chains - that can target suppliers (e.g. smelters or refiners) that are common to all industries.
I would like to share a bit about four different organizations - World Gold Council (WGC), London Bullion Market Association (LBMA), Responsible Jewellery Council (RJC), and Electronic Industry Citizenship Coalition/Global e-Sustainability Initiative (EICC/GeSI) - that have worked together to align with and recognize each others' programs to reduce redundancy, lower costs and resource demands, and promote consistent expectations across the various supply chains. I believe their collaboration will better enable wider and more effective adoption that is both warranted and - in the case of U.S. companies subject to SEC's conflict minerals due diligence and disclosure requirements - required. I work with two of these efforts - EICC/GeSI and LBMA - and would like to provide a high-level overview of how these programs function together as well LBMA's approach in developing an audit program that enables its members to meet industry standards in an efficient and effective manner.
Let me start with a brief description of the focus and approach of each of the four programs.
- EICC/GeSI has developed audit protocol for gold refiners used in the electronics sector. The outcome is inclusion in EICC/GeSI's Compliant Gold Refiner List, based on an independent audit.
- LBMA has developed audit protocol (LBMA Third-Party Audit Guidance) and requires a third-party audit of refiners on the London Good Delivery List. The outcome is continued Good Delivery Accreditation.
- RJC has developed auditable chain-of-custody (CoC) requirements for responsibly-produced and conflict-free gold as well as conflict-sensitive sourcing practices. The outcome is a RJC CoC Certification based on an independent audit.
WGC is developing a conflict-free standard for gold mining companies operating in conflict-affected areas. The outcome will be a Management Statement of Conformance. WGC's program centers on mining companies performing their own due diligence in accordance with the WGC Standard. The other three operating programs (EICC/GeSI, RJC and LBMA) require an audit by a qualified, independent auditor. Each takes a different approach to qualifying and engaging with auditors. EICC/GeSI administers their audit program using three experienced and qualified firms (liz muller & partners is one such firm), that are contracted directly with EICC/GeSI. RJC accredits qualified auditors. LBMA qualifies auditors through an application process and lists auditors on their Recommended Supplier List, from which LBMA members can hire an auditor directly to conduct the audit (including liz muller & partners). The LBMA application poses questions on key qualification criteria, such as the firm's independence, quality management, complaint mechanisms, integrity and ethics, audit competency and training (EICC/GeSI has similar requirements). LBMA members may use other firms, but they must be pre-qualified by LBMA.
Core elements of each of the programs are consistent. For example, the evidence required to validate a country of origin is generally consistent from one program to the next. Each of the audit-based programs recognizes the other's outcomes as being compliant with their own. In other words, LBMA will accept an EICC/GeSI CFS (conflict-free smelter) audit finding, and vice versa. LBMA and EICC/GeSI will also accept RJC's CoC Certification as being compliant for their program, and vice versa. The mutual recognition helps promote common expectations (e.g. required documentation) and minimizes redundancy in certification or audits of suppliers. It is worth noting that LBMA has an additional element of money laundering that is not addressed by EICC/GeSI or RJC.
Even though most of my experience has been auditing under the EICC/GeSI program because LBMA's program has only been initiated this year, I would like to take a look at LBMA's approach to implementing their program. I believe it will prove to be an effective model that can allow for rapid and widespread implementation while concentrating LBMA's resources on maintaining credibility of their program and individual audits. In some ways this approach is similar to many arrangements with other certification schemes, whereby a third party - independent from the standard-setting body - performs the audits, but LBMA's approach does not require a full accreditation program nor the creation of a new certification or management body. I believe that this key difference reduces the cost of the audit (thereby making it more readily adopted by suppliers), streamlines the process to become audited and thus industry-wide implementation, and allows greater flexibility for companies to select an auditor that fits their needs. I also believe these features may provide a viable model for the many certification initiatives that are pursuing more financially self-reliant models aimed at large scale application.
LBMA's role in the overall program centers on developing LBMA's conflict-free standard, establishing a supporting audit protocol, approving all audit findings, and creating and providing resources (including compliant refiners and recommended auditors) to their members, who will implement the program independently. Even though auditors are not formally accredited, they must meet general auditing criteria, conduct an LBMA audit in accordance with the LBMA Third-Party Audit Guidance and report all findings to LBMA in a standard format. LBMA will then review the audit based on material used, origin of gold-bearing ore or material, the judgment used by the auditor in making their determination, and compliance with LBMA Third-Party Audit Guidance. LBMA provides trainings and other helpful information to the auditors to ensure they have up to date information and to optimize consistency across all auditors.
This approach allows LBMA to execute control at critical stages of the process (e.g. approving and training auditors to ensure qualifications and standards are met, final approval of compliant or non-compliant members) without being involved in every step along the way (and possibly hindering timely implementation). By retaining final approval of all findings, LBMA strengthens their ability to ensure the quality and consistency of audits and member implementation, and the overall credibility of their program.
I encourage the stakeholders in other certification efforts, many of whom are working on how to best harmonize standards and approaches as well as become more financially self-reliant, to keep an eye on how these conflict-free minerals programs and standards bodies progress - both individually and together - over time.
 Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act