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Switzerland bottom of the class for gold due diligence

Switzerland bottom of the class for gold due diligence

Sunday, 28 June 2020
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Christophe Roulet
Editor-in-chief, HH Journal

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5 min read

In a report published on June 23, the Swiss Federal Audit Office calls attention to the inadequate control of imports of gold into the country. The current system is not equipped to prevent illegal gold from entering Switzerland, where the majority of the world’s gold is refined.

For once, the whistleblower isn’t an NGO but the Swiss administration through its Federal Audit Office. And the message is loud and clear: the current system to prevent the importation and refining in Switzerland of illegal gold has been found lacking. The country’s financial watchdog reports that Customs data is not sufficiently transparent to differentiate between mined gold, bank gold and recycled gold, all of which are imported under the same code (HS 710812). This absence of identification means bars of dubious origin can easily slip through the net. The report also pinpoints inadequate legislation, compounded by underwhelming penalties: at worst, a CHF 2,000 fine. On the one hand, the country’s anti-money laundering law does not cover the supply chain upstream, from the mine to the refinery. On the other, Precious Metals Control, a specialised unit of the Federal Customs Administration, does not require its central office to determine whether or not gold was produced in violation of human rights. Put simply, there are no guarantees as to the traceability and legality of gold entering Switzerland, particularly as it often transits through a third country, thus obscuring its true origin.

A call for stricter rules

International good practice standards exist, such as those drawn up at industry level by the London Bullion Market Association (LBMA) or the Responsible Jewellery Council (RJC). Because these are based on voluntary compliance, the control and traceability of gold in Switzerland depends entirely on self-regulation by the various entities, foremost among them Argor Heraeus, Cendres + Métaux, Metalor, Pamp and Valcambi, the five Swiss refiners that dominate the global market. Switzerland’s foreign trade figures for 2019 show that gold is the country’s main import at a total CHF 68.5 billion. Of this, CHF 67.8 billion’s worth was re-exported. The remainder, worth around CHF 700 million, would be used by industry in Switzerland. At this scale – two-thirds of the world’s gold transits via Switzerland – one would have to be unusually trusting to believe that self-regulation is a sufficient safeguard.

If Switzerland won't face up to its responsibilities, who will?
Marc Ummel

Swissaid is a foundation for development cooperation. Its director for natural resources, Marc Ummel, believes the country’s position as a global hub demands a much stronger response from its supervisory authorities – particularly as issues surrounding pollution, child labour, human rights violations and the financing of conflicts are far from resolved. Speaking on Swiss television, he declared that “If Switzerland isn’t prepared to face up to its responsibilities, who is? Hundreds of thousands of people are affected by issues relating to gold mining. It’s time we started questioning the immunity of Swiss refiners. We need more restrictive rules and more stringent controls. Switzerland is clearly lagging behind in the matter. The United States enacted legislation on conflict minerals in 2010. A similar law will come into force in the European Union in 2021. On both this issue and the transparency of Customs data, Switzerland has a lot of catching-up to do.”

Slow, slow, Swiss, Swiss, slow

Ummel isn’t the first to sound the alarm. Mark Pieth, a professor of criminal law at the University of Basel, an eminent anti-corruption expert and author of Gold Laundering – The dirty secrets of the gold trade, has repeatedly spoken out on the subject. “In a highly critical report, the OECD identifies blatant inadequacies in refineries’ practices,” he says. “For example, they only trace the origin of gold back to their immediate supplier and turn a blind eye to whatever went on prior to that point. Audits that are meant to safeguard the due diligence system are unadapted as, according to the OECD, auditing companies lack the necessary expertise and critical distance. The European Union has taken due note and made OECD guidance binding in its Conflict Minerals Regulation which goes into effect in 2021.”

At end 2016 Swissaid launched the Responsible Business Initiative.

What about Switzerland? The Federal Council proved so slow in finding a solution to the problem that Swissaid, as part of a coalition of organisations from civil society, launched the Responsible Business Initiative at end 2016. Its aim is for multinationals headquartered in Switzerland to be legally obliged to conduct regular reviews of their overseas activity with regard to human rights and environmental protection. Firms that do not carry out this due diligence would be held accountable for any damage caused, including by companies under their control, and victims would be able to seek redress in Switzerland. It took three years for parliament to put forward a counter-proposal, which was finally adopted earlier this month. Unsurprisingly it makes considerably more lenient demands on multinationals, prompting angry reactions from the coalition behind the original project who criticise the lack of effect the new proposal would have in the field. The Responsible Business Initiative will be put to a public vote in November. The latest poll, dated May 26, forecasts a 78% vote in favour.

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