Experts believe that this Act could impact the world market by creating the perception that ‘Congo Gold Is Conflict Gold.’ Thus, responsible gold from Congo may not find a market, while smugglers sourcing from armed groups controlling illegal mining in Congo, may move into new markets. Worse, to play safe, businesses may out-law African gold.%% The Act comes loaded with teeth, ready to sink into the flesh of violators in America and anywhere in the world. This extra territoriality clause requires suppliers, including Indian jewellery manufacturers exporting gold jewellery to U.S., and their sub-contractors, to put into place elaborate documentation systems to manage sourcing norms for conflict minerals, endure compliance costs, and conduct regular audits, not only to show that the gold was not sourced from the conflict areas of Congo and neighbouring countries, but also produce a detailed paper trail from the bank to the refinery and traders through the sub-contractors, from whom it was sourced or who worked on the jewellery. Otherwise, face litigation in America. Even as the industry grapples with the consequences, for US lawyers, it could be a newly opened mine of possible litigation. A Report. By Aasha Gulrajani Swarup. %% |*Their dream is to make money. Young children, small in size, are used along with crude tools to mine gold in deep and dangerous shafts going 100 yards into the earth in the Democratic Republic of Congo. Nearly 40 per cent of the miners are estimated to be children, going down the tunnels of the gold mine, without a safety net. Accidents, mine collapse and death are common. Poverty, Hunger, Hope, Lure of the yellow metal or Fear of the local militant groups, plundering and destroying villages, killing and raping rampantly, have frightened and forced Congolese, from all over the country, teachers, farmers, students, teenagers and children, to dig for gold. Armed groups controlling the mining area, exchange the gold for guns, ammunition and medicines. The gold is then smuggled into a neighbouring country, like Uganda, Tanzania or Burundi and sold in the open market, absorbed into the legitimate supply chain as local gold. From here it gets exported to Dubai to be refined and enters world markets, bought by banks and manufacturers, smelted and transformed into beautiful ornaments to be sold in USA, India and China. Millions of Congolese have died in this war, going on for more than 15 years, fuelled from gold mined in this mineral rich country.*|

Congo is in the middle of the deadliest conflict since World War II. And gold is easily the most lucrative conflict mineral for armed groups in Congo because it is easy to smuggle small quantities for large profits,” states Sasha Lezhnev, Senior Policy Analyst with Enough Project, a US-based organisation, working to end genocide and crimes against humanity. %% {{Gold Smuggling }} %% Fighting in and around the gold mines continues, especially as armed groups attempt to take control of mines and trading routes and gold from Congo flows out into the world. The Enough Project estimates that more than $600 million in gold leaves Congo annually. For instance, from the 15 major mines across eastern Congo, only 23 kilograms of gold was officially exported in the first half of 2012 while nearly four tons of gold went out through illegal routes, according to a report published in October 2012 by Enough Project. Also, in the last three years, Uganda produced only $167 million worth of gold, but exported an estimated $212 million. Congo gold is thus smuggled out of the country into the hands of regional smugglers and then from the cash-forgold dealers and refiners to melting centres in Dubai and then to the jewellers in the Middle East and India. %% {{Call For Action }} %% Following the call for action, to clean up the trade in conflict gold and find a lasting solution to the on going war, jewellery companies, as the largest consumer of gold, were made to partner with their suppliers to source conflictfree gold from Congo. The US Congress adopted the controversial Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act in August 2012, to bring about transparency in the financial interests that supported armed groups in the DRC through trade of conflict mineral like the 3T minerals, tin, tantalum, tungsten, and gold. %% The Act requires companies, listed with the Securities and Exchange Commission, the US regulator of the stock market, and using conflict minerals, in their products, to disclose in an annual Conflict Mineral Report to be filed with the SEC, whether the source of such minerals, originated in the Democratic Republic of Congo or any of the nine neighbouring countries in the heart of central Africa. Even trace amounts of a conflict mineral used in its product, would make the business subject to this rule. The company filing its disclosure is also subject to liability for fraudulent or false reporting on its conflict minerals.%%

{{Impact Of A Draconian Act}} %% This legislation indirectly impacts any company beyond US borders, which has directly, or indirectly US listed customers, including upstream companies (mining companies, mineral exporters, international traders, mineral refiners and smelters) that are not listed but that deal with or have clients doing business with US listed companies.%% “This is the draconian part of the Act,” says Pankaj Parekh, vice chairman, Gold and Jewellery Export Promotion Council (GJEPC). “If anytime in the three years following the delivery, the supply line of the listed company was not as claimed or if it is proved that it was not responsible gold, then even the supplier or sub-contractor down the line is liable to be charged. The hearing will be held in US and if the supplier dies, the children will inherit the litigation. For supply made in June 2013, the edge of the sword is open up to 2016.”%% Given the reach of this legislation, the GJEPC has translated the Dodd Frank Act in Indian languages while Dubai has done a translation in Arabic. American statistics estimate that about 6000 listed companies will be directly impacted by section 1502, in addition to thousands of private companies in the supply chains of these companies, which will be impacted indirectly. Each player will need to fulfil the disclosure norms prescribed under the Act. Failure to prove the source of gold will mean it won’t be able to utilise and sell jewellery containing gold without proper proof of its country of origin. Proving source is possible, but challenging.%% {{Traceability}} %% Generally gold, an element is not too traceable. Says Michael Rae, CEO, Responsible Jewellery Council, “It is like cash out of a cash machine. But people, especially the young, are increasingly asking questions about where did this material come. The Dodd Frank Act is also doing the same. But it is a blunt instrument.”%% “It is difficult to prove the source, because gold is purchased from a variety of sources, refinery, banks, traders, and also majorly from recycled and scrap sources,” says Parekh.%% Most jewellery manufacturers have at least three different supply sources of gold. Traceability of these gold sources gets challenging with smuggled gold, conflict gold or even recycled gold, coming into the legitimate supply chain. “It is like mineral water being mixed by a few drops of gutter water,” describes Parekh.%% {{Recycled & Smuggled Gold}} %% Recycled gold accounts for more than one third of the global gold supply. World gold supply is about 4500 tonnes annually, of which 2500 tonnes comes from gold production in mines while recycled gold contributes about 1800 tonnes of annual supply.%% The situation gets more complicated with smuggled gold. “As long as import duty on gold is high, there is an incentive for smuggling. In India, the recent hike in the rate of import duty to 8 per cent, along with the cess and the surcharge, creates a big difference of two per cent between the domestic official price and the international official price, and makes the price difference between officially imported gold and smuggled gold nearly 10 per cent,” says Parekh.%% All the gold in India is imported and it is estimated that nearly 200 tonnes of gold was smuggled into the country in 2012, which is expected to increase. And smuggled gold is very much into the domestic supply chain.%% “For instance, a jeweller may purchase gold from a bank, but may give it out on job work to a goldsmith, where it could easily get mingled with gold which may not be from a responsible source. For example, in India the clasps and mountings are usually imported from Turkey, Italy or Bangkok. The challenge is to know the breed of the gold used for making the clasp,” Parekh clarifies.%%

There are other opportunities for gold sources to get mixed up. Explains Ami Gokani, vice president, sales, Kama Schachter, “When jewellery manufacturing is outsourced, it is challenging to keep separate records of physical gold. A sub-contractor may be doing job work for five other customers. So, although there may be a separate entry in his books that one kilogram of gold was received, physically, it is not possible for it to be worked on separately.”%% “The co-mingling of gold from different sources makes it impossible to trace its origins,” says Terry Heymann, Director, Responsible Gold, World Gold Council. However, most of the smuggled and recycled gold in India is used in the domestic market. The Dodd Frank only allows the use of responsible gold. So if it is recycled gold, it needs to be backed by Know Your Customer (KYC) data, basic identity information and authorised by the reseller. Under the Dodd-Frank, disclosure is the key and transparency is the objective.%% {{ABC – Anywhere But Congo}} %% However, the demand for disclosure could have unintended consequences. While US companies are going to be careful about who they deal with, African countries are concerned that the Dodd Frank could lead to an overreaction from the industry with gold being sourced from anywhere but Africa.%% Explains Rae, “Considering that the legislation is specifically targeted at preventing conflict material from DRC from coming into the supply chain, the rules enforce businesses to clearly demonstrate that the gold in their jewellery is not coming from Congo. CEOs, desperate to ensure that they do not have to say that their goods may contain gold from Congo, are naturally keen to prove that their gold comes from nowhere near Congo.” “That is not what was intended. The hope was the legislation will encourage companies to engage with good people on the ground in DRC Congo and develop a project to bring gold to the market that will be innocent. Instead people are adopting an ABC policy -Anywhere But Congo -purchase policy,” Rae adds.%% {{Disclosures}} %% Faced with the legal requirement to verify the source of their gold as “conflict-free,” Signet, America’s largest jewellery retailer, mainly sourcing jewellery from India and South Asia, is prepared to face section 1502 of the Dodd-Frank.%% Informs David Bouffard, Vice President, Corporate Affairs at Signet Jewelers, “More than three years ago, we organised an action plan and undertook an extensive outreach program to identify the scale and complexity of our supply chain, from the mine into retail. We reached out for information to each of our suppliers, most of which are in India and South Asia, to identify their sources of gold and every link in their supply chain. On average, there are four sub-contractors per primary supplier. This implies at least 1400 distinct gold supply chains for Signet.”%% To ensure compliance with Dodd Frank, Signet has developed its own Signet Responsible Sourcing Protocol (SRSP) requirements for all its suppliers and subcontractors. “Each supplier and their supply chain is required to validate, certify and audit its supplies of gold from every source used. To subscribe to existing industry guidance and standards,” states Bouffard. This means that when clasps for gold bracelets need to procured, Signet directs its suppliers to source from a specific manufacturing company, with whom Signet has a relationship. Or even in the use of scrap or recycled gold, suppliers must be able to show that it is identifiable as its own production, or returned from its customers, or a result of faulty inventory or waste gold arising during manufacturing.%%

There are other opportunities for gold sources to get mixed up. Explains Ami Gokani, vice president, sales, Kama Schachter, “When jewellery manufacturing is outsourced, it is challenging to keep separate records of physical gold. A sub-contractor may be doing job work for five other customers. So, although there may be a separate entry in his books that one kilogram of gold was received, physically, it is not possible for it to be worked on separately.”%% “The co-mingling of gold from different sources makes it impossible to trace its origins,” says Terry Heymann, Director, Responsible Gold, World Gold Council. However, most of the smuggled and recycled gold in India is used in the domestic market. The Dodd Frank only allows the use of responsible gold. So if it is recycled gold, it needs to be backed by Know Your Customer (KYC) data, basic identity information and authorised by the reseller. Under the Dodd-Frank, disclosure is the key and transparency is the objective.%% {{ABC – Anywhere But Congo}} %% However, the demand for disclosure could have unintended consequences. While US companies are going to be careful about who they deal with, African countries are concerned that the Dodd Frank could lead to an overreaction from the industry with gold being sourced from anywhere but Africa.%% Explains Rae, “Considering that the legislation is specifically targeted at preventing conflict material from DRC from coming into the supply chain, the rules enforce businesses to clearly demonstrate that the gold in their jewellery is not coming from Congo. CEOs, desperate to ensure that they do not have to say that their goods may contain gold from Congo, are naturally keen to prove that their gold comes from nowhere near Congo.” “That is not what was intended. The hope was the legislation will encourage companies to engage with good people on the ground in DRC Congo and develop a project to bring gold to the market that will be innocent. Instead people are adopting an ABC policy -Anywhere But Congo -purchase policy,” Rae adds.%% {{Disclosures}} %% Faced with the legal requirement to verify the source of their gold as “conflict-free,” Signet, America’s largest jewellery retailer, mainly sourcing jewellery from India and South Asia, is prepared to face section 1502 of the Dodd-Frank.%% Informs David Bouffard, Vice President, Corporate Affairs at Signet Jewelers, “More than three years ago, we organised an action plan and undertook an extensive outreach program to identify the scale and complexity of our supply chain, from the mine into retail. We reached out for information to each of our suppliers, most of which are in India and South Asia, to identify their sources of gold and every link in their supply chain. On average, there are four sub-contractors per primary supplier. This implies at least 1400 distinct gold supply chains for Signet.”%% To ensure compliance with Dodd Frank, Signet has developed its own Signet Responsible Sourcing Protocol (SRSP) requirements for all its suppliers and subcontractors. “Each supplier and their supply chain is required to validate, certify and audit its supplies of gold from every source used. To subscribe to existing industry guidance and standards,” states Bouffard. This means that when clasps for gold bracelets need to procured, Signet directs its suppliers to source from a specific manufacturing company, with whom Signet has a relationship. Or even in the use of scrap or recycled gold, suppliers must be able to show that it is identifiable as its own production, or returned from its customers, or a result of faulty inventory or waste gold arising during manufacturing.%%

{{Due Diligence}} %% The Dodd Frank recognises the due diligence framework prescribed in the OECD Due Diligence Guidance for Responsible Supply Chains, developed by the Organization for Economic Cooperation and Development (OECD), which existed at the time.%% The due diligence process prescribed under this Guidance seeks to establish the source and chain of custody of the minerals sourced by businesses, which involves identifying the smelters and refiners within a supply chain, and information on mine of mineral origin. If the information triggers ‘supplier red flags’, or a ‘red flag location of mineral origin or transit’, then the Guidance recommends an audit of the due diligence management systems of red flag refiners / smelters within a supply chain. The audit report is required to be published.%% {{Industry Standards}} %% Following the OECD Guidance, other voluntary industry initiatives were subsequently, developed for ease of transition into the Dodd Frank zone, by the Responsible Jewellery Council, the London Bullion Market Association and the World Gold Council. Informs Rae, “We don’t want the jewellery industry to fund conflict. So, RJC developed a chain of custody certification process for our members who want to utilise the system. We provide the means through which our members can credibly demonstrate through an independent third party audit, the source of their material. It’s a voluntary program for RJC members. As a member, a jewellery manufacturer, within two years of joining RJC, is required to get his accounts certified against our code of practices, which includes environmental, social and business ethics set by the RJC.”%% If a supplier follows the procedures as prescribed under the Chain of Custody Standards developed by the Responsible Jewellery Council, it is sufficient to comply with the requirements of the OECD Guidance and the Dodd-Frank.%% Even the London Bullion Market Association has developed the Responsible Gold Guidance, based on OECD Guidance. The main focus of this guidance is to identify the refinery/ smelter source of gold and avoid sourcing gold from conflict areas. Says Heymann, “If the refiner can know with certainty that all the gold entering the refinery can be shown to be ‘conflict-free’, it is assured that all gold leaving the refinery is ‘conflictfree’. This approach is taken by other industry-led initiatives that cover gold refiners.” It is mandatory for all the Good Delivery gold refiners to maintain their LBMA accreditation, which is recognised by the banks and the industry, as a source of ‘clean gold.’ Even the World Gold Council has developed its ‘Conflict-Free Gold Standard’. “The difference is while the recognised OECD Guidance is focused entirely upon the Democratic Republic of Congo and adjoining countries, the Conflict Free Gold Standard is an open standard available for use by any party involved in the extraction of gold. It has a global application to conflict-affected or high-risk’ areas and aims to show to refiners that newly mined gold in conflict-affected areas has been extracted responsibly,” says Heymann.%%

{{Compliance Cost}} %% With trade associations urging jewellery manufacturers to bring about change in management practices and audits, compliance is going to cost. Suppliers would need to get their operations audited. %% According to Rae, the audit cost will directly depend on the size and complexity of the company and the resultant size and complexity of the auditing task. %% Explains Rae, “A supplier, for example, that sources all its gold from a single, well documented source and which can evidence a strict management system which verifies that no other gold is sourced in its processing, will have a comparatively cheaper audit than for a supplier that obtains gold from many different sources and has no evidence of a management system that tracks the individual gold purchases and enables segregation of the gold used.” %% Others are more specific. Says David Bouffard, “Audits can be outsourced at the cost of the suppliers, which is expected to cost about US $1500 per supplier.” %% The US Securities and Exchange Commission expects the cost of compliance to be substantial. Compliance costs were previously estimated to be as high as US $16 billion. %% “In August 2012, the SEC estimated that the costs associated with initial compliance of the Act could be between US $3 billion and US $4 billion while the annual cost of on going compliance could be between US $207 million and US $609 million,” says Heymann. %% Others question the compliance bill, expected to run into billions of dollars, just to create transparency around the gold trade in Congo, which accounts for only 0.8 per cent of the world gold supply, a majority of which is produced by the small scale miners unconnected with the unlawful armed conflict and dependent on gold mining for their livelihood. %% {{Indian Suppliers}} %% Indian suppliers are however not too worried because gold is largely controlled and procured from the refineries and banks.%% Explains Gokani, “In India, RBI has strict norms in place and about 99 per cent of the gold comes from legitimate sources. Most jewellery exporters mainly buy from banks. As the source is authentic, the refinery certificate backs it and keeping a track is possible. As the systems are already in place, increased vigilance within the larger organisations is not going to make compliance expensive. Besides audit expenses, we may need to appoint just two extra heads in the organisation.”%% Larger players in India, exporting to the US, have in addition adopted the guidelines of the Best Practice Principles as well as other industry standards based on the OECD Guidance. They are prepared. In fact, Signet suppliers are expected to implement the compliance norms during calendar year 2013 and be fully compliant by end of this year. Signet is also ready to file its first Conflict Mineral Report in May 2014. It is the smaller jewellery exporters, who need to start regularising gold sourcing. %% Thus the marginal manufacturers, supplying mainly to the domestic market, are out of the Dodd Frank, while private sector industry initiatives, with its regular audit and reporting requirements, is bringing together jewellery suppliers, manufacturers and retailers to mitigate risks and deliver responsible products. This requires discipline, right etiquette, and corporate governance. Yet, the call has to come from consumers, who do not seem to care - neither about Congo nor conflict. %%

{{Consumer Awareness}} %% “Awareness among Indian consumers is limited. As someone speaking to Diamond World commented, “Indian consumers go for the yellow metal and do not particularly care about the fluff that western consumers do,” %% Until consumers take charge and demand responsible gold, the necessity of enforcement will be questioned, even its efficacy in being able to force armed groups out of the equation and return profits to the Congolese people. The situation around the necessity of section 1502 is akin to a dog chasing its own tail, whereby the Congolese can benefit from the profits of gold trade, only when militancy comes to an end, which is again closely linked to the control of the gold mining areas. Something stronger than disclosures could be the answer to the gold mafias.

Experts believe that this Act could impact the world market by creating the perception that ‘Congo Gold Is Conflict Gold.’ Thus, responsible gold from Congo may not find a market, while smugglers sourcing from armed groups controlling illegal mining in Congo, may move into new markets. Worse, to play safe, businesses may out-law African gold.%% The Act comes loaded with teeth, ready to sink into the flesh of violators in America and anywhere in the world. This extra territoriality clause requires suppliers, including Indian jewellery manufacturers exporting gold jewellery to U.S., and their sub-contractors, to put into place elaborate documentation systems to manage sourcing norms for conflict minerals, endure compliance costs, and conduct regular audits, not only to show that the gold was not sourced from the conflict areas of Congo and neighbouring countries, but also produce a detailed paper trail from the bank to the refinery and traders through the sub-contractors, from whom it was sourced or who worked on the jewellery. Otherwise, face litigation in America. Even as the industry grapples with the consequences, for US lawyers, it could be a newly opened mine of possible litigation. A Report. By Aasha Gulrajani Swarup. %% |*Their dream is to make money. Young children, small in size, are used along with crude tools to mine gold in deep and dangerous shafts going 100 yards into the earth in the Democratic Republic of Congo. Nearly 40 per cent of the miners are estimated to be children, going down the tunnels of the gold mine, without a safety net. Accidents, mine collapse and death are common. Poverty, Hunger, Hope, Lure of the yellow metal or Fear of the local militant groups, plundering and destroying villages, killing and raping rampantly, have frightened and forced Congolese, from all over the country, teachers, farmers, students, teenagers and children, to dig for gold. Armed groups controlling the mining area, exchange the gold for guns, ammunition and medicines. The gold is then smuggled into a neighbouring country, like Uganda, Tanzania or Burundi and sold in the open market, absorbed into the legitimate supply chain as local gold. From here it gets exported to Dubai to be refined and enters world markets, bought by banks and manufacturers, smelted and transformed into beautiful ornaments to be sold in USA, India and China. Millions of Congolese have died in this war, going on for more than 15 years, fuelled from gold mined in this mineral rich country.*|

Congo is in the middle of the deadliest conflict since World War II. And gold is easily the most lucrative conflict mineral for armed groups in Congo because it is easy to smuggle small quantities for large profits,” states Sasha Lezhnev, Senior Policy Analyst with Enough Project, a US-based organisation, working to end genocide and crimes against humanity. %% {{Gold Smuggling }} %% Fighting in and around the gold mines continues, especially as armed groups attempt to take control of mines and trading routes and gold from Congo flows out into the world. The Enough Project estimates that more than $600 million in gold leaves Congo annually. For instance, from the 15 major mines across eastern Congo, only 23 kilograms of gold was officially exported in the first half of 2012 while nearly four tons of gold went out through illegal routes, according to a report published in October 2012 by Enough Project. Also, in the last three years, Uganda produced only $167 million worth of gold, but exported an estimated $212 million. Congo gold is thus smuggled out of the country into the hands of regional smugglers and then from the cash-forgold dealers and refiners to melting centres in Dubai and then to the jewellers in the Middle East and India. %% {{Call For Action }} %% Following the call for action, to clean up the trade in conflict gold and find a lasting solution to the on going war, jewellery companies, as the largest consumer of gold, were made to partner with their suppliers to source conflictfree gold from Congo. The US Congress adopted the controversial Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act in August 2012, to bring about transparency in the financial interests that supported armed groups in the DRC through trade of conflict mineral like the 3T minerals, tin, tantalum, tungsten, and gold. %% The Act requires companies, listed with the Securities and Exchange Commission, the US regulator of the stock market, and using conflict minerals, in their products, to disclose in an annual Conflict Mineral Report to be filed with the SEC, whether the source of such minerals, originated in the Democratic Republic of Congo or any of the nine neighbouring countries in the heart of central Africa. Even trace amounts of a conflict mineral used in its product, would make the business subject to this rule. The company filing its disclosure is also subject to liability for fraudulent or false reporting on its conflict minerals.%%

{{Impact Of A Draconian Act}} %% This legislation indirectly impacts any company beyond US borders, which has directly, or indirectly US listed customers, including upstream companies (mining companies, mineral exporters, international traders, mineral refiners and smelters) that are not listed but that deal with or have clients doing business with US listed companies.%% “This is the draconian part of the Act,” says Pankaj Parekh, vice chairman, Gold and Jewellery Export Promotion Council (GJEPC). “If anytime in the three years following the delivery, the supply line of the listed company was not as claimed or if it is proved that it was not responsible gold, then even the supplier or sub-contractor down the line is liable to be charged. The hearing will be held in US and if the supplier dies, the children will inherit the litigation. For supply made in June 2013, the edge of the sword is open up to 2016.”%% Given the reach of this legislation, the GJEPC has translated the Dodd Frank Act in Indian languages while Dubai has done a translation in Arabic. American statistics estimate that about 6000 listed companies will be directly impacted by section 1502, in addition to thousands of private companies in the supply chains of these companies, which will be impacted indirectly. Each player will need to fulfil the disclosure norms prescribed under the Act. Failure to prove the source of gold will mean it won’t be able to utilise and sell jewellery containing gold without proper proof of its country of origin. Proving source is possible, but challenging.%% {{Traceability}} %% Generally gold, an element is not too traceable. Says Michael Rae, CEO, Responsible Jewellery Council, “It is like cash out of a cash machine. But people, especially the young, are increasingly asking questions about where did this material come. The Dodd Frank Act is also doing the same. But it is a blunt instrument.”%% “It is difficult to prove the source, because gold is purchased from a variety of sources, refinery, banks, traders, and also majorly from recycled and scrap sources,” says Parekh.%% Most jewellery manufacturers have at least three different supply sources of gold. Traceability of these gold sources gets challenging with smuggled gold, conflict gold or even recycled gold, coming into the legitimate supply chain. “It is like mineral water being mixed by a few drops of gutter water,” describes Parekh.%% {{Recycled & Smuggled Gold}} %% Recycled gold accounts for more than one third of the global gold supply. World gold supply is about 4500 tonnes annually, of which 2500 tonnes comes from gold production in mines while recycled gold contributes about 1800 tonnes of annual supply.%% The situation gets more complicated with smuggled gold. “As long as import duty on gold is high, there is an incentive for smuggling. In India, the recent hike in the rate of import duty to 8 per cent, along with the cess and the surcharge, creates a big difference of two per cent between the domestic official price and the international official price, and makes the price difference between officially imported gold and smuggled gold nearly 10 per cent,” says Parekh.%% All the gold in India is imported and it is estimated that nearly 200 tonnes of gold was smuggled into the country in 2012, which is expected to increase. And smuggled gold is very much into the domestic supply chain.%% “For instance, a jeweller may purchase gold from a bank, but may give it out on job work to a goldsmith, where it could easily get mingled with gold which may not be from a responsible source. For example, in India the clasps and mountings are usually imported from Turkey, Italy or Bangkok. The challenge is to know the breed of the gold used for making the clasp,” Parekh clarifies.%%

There are other opportunities for gold sources to get mixed up. Explains Ami Gokani, vice president, sales, Kama Schachter, “When jewellery manufacturing is outsourced, it is challenging to keep separate records of physical gold. A sub-contractor may be doing job work for five other customers. So, although there may be a separate entry in his books that one kilogram of gold was received, physically, it is not possible for it to be worked on separately.”%% “The co-mingling of gold from different sources makes it impossible to trace its origins,” says Terry Heymann, Director, Responsible Gold, World Gold Council. However, most of the smuggled and recycled gold in India is used in the domestic market. The Dodd Frank only allows the use of responsible gold. So if it is recycled gold, it needs to be backed by Know Your Customer (KYC) data, basic identity information and authorised by the reseller. Under the Dodd-Frank, disclosure is the key and transparency is the objective.%% {{ABC – Anywhere But Congo}} %% However, the demand for disclosure could have unintended consequences. While US companies are going to be careful about who they deal with, African countries are concerned that the Dodd Frank could lead to an overreaction from the industry with gold being sourced from anywhere but Africa.%% Explains Rae, “Considering that the legislation is specifically targeted at preventing conflict material from DRC from coming into the supply chain, the rules enforce businesses to clearly demonstrate that the gold in their jewellery is not coming from Congo. CEOs, desperate to ensure that they do not have to say that their goods may contain gold from Congo, are naturally keen to prove that their gold comes from nowhere near Congo.” “That is not what was intended. The hope was the legislation will encourage companies to engage with good people on the ground in DRC Congo and develop a project to bring gold to the market that will be innocent. Instead people are adopting an ABC policy -Anywhere But Congo -purchase policy,” Rae adds.%% {{Disclosures}} %% Faced with the legal requirement to verify the source of their gold as “conflict-free,” Signet, America’s largest jewellery retailer, mainly sourcing jewellery from India and South Asia, is prepared to face section 1502 of the Dodd-Frank.%% Informs David Bouffard, Vice President, Corporate Affairs at Signet Jewelers, “More than three years ago, we organised an action plan and undertook an extensive outreach program to identify the scale and complexity of our supply chain, from the mine into retail. We reached out for information to each of our suppliers, most of which are in India and South Asia, to identify their sources of gold and every link in their supply chain. On average, there are four sub-contractors per primary supplier. This implies at least 1400 distinct gold supply chains for Signet.”%% To ensure compliance with Dodd Frank, Signet has developed its own Signet Responsible Sourcing Protocol (SRSP) requirements for all its suppliers and subcontractors. “Each supplier and their supply chain is required to validate, certify and audit its supplies of gold from every source used. To subscribe to existing industry guidance and standards,” states Bouffard. This means that when clasps for gold bracelets need to procured, Signet directs its suppliers to source from a specific manufacturing company, with whom Signet has a relationship. Or even in the use of scrap or recycled gold, suppliers must be able to show that it is identifiable as its own production, or returned from its customers, or a result of faulty inventory or waste gold arising during manufacturing.%%

There are other opportunities for gold sources to get mixed up. Explains Ami Gokani, vice president, sales, Kama Schachter, “When jewellery manufacturing is outsourced, it is challenging to keep separate records of physical gold. A sub-contractor may be doing job work for five other customers. So, although there may be a separate entry in his books that one kilogram of gold was received, physically, it is not possible for it to be worked on separately.”%% “The co-mingling of gold from different sources makes it impossible to trace its origins,” says Terry Heymann, Director, Responsible Gold, World Gold Council. However, most of the smuggled and recycled gold in India is used in the domestic market. The Dodd Frank only allows the use of responsible gold. So if it is recycled gold, it needs to be backed by Know Your Customer (KYC) data, basic identity information and authorised by the reseller. Under the Dodd-Frank, disclosure is the key and transparency is the objective.%% {{ABC – Anywhere But Congo}} %% However, the demand for disclosure could have unintended consequences. While US companies are going to be careful about who they deal with, African countries are concerned that the Dodd Frank could lead to an overreaction from the industry with gold being sourced from anywhere but Africa.%% Explains Rae, “Considering that the legislation is specifically targeted at preventing conflict material from DRC from coming into the supply chain, the rules enforce businesses to clearly demonstrate that the gold in their jewellery is not coming from Congo. CEOs, desperate to ensure that they do not have to say that their goods may contain gold from Congo, are naturally keen to prove that their gold comes from nowhere near Congo.” “That is not what was intended. The hope was the legislation will encourage companies to engage with good people on the ground in DRC Congo and develop a project to bring gold to the market that will be innocent. Instead people are adopting an ABC policy -Anywhere But Congo -purchase policy,” Rae adds.%% {{Disclosures}} %% Faced with the legal requirement to verify the source of their gold as “conflict-free,” Signet, America’s largest jewellery retailer, mainly sourcing jewellery from India and South Asia, is prepared to face section 1502 of the Dodd-Frank.%% Informs David Bouffard, Vice President, Corporate Affairs at Signet Jewelers, “More than three years ago, we organised an action plan and undertook an extensive outreach program to identify the scale and complexity of our supply chain, from the mine into retail. We reached out for information to each of our suppliers, most of which are in India and South Asia, to identify their sources of gold and every link in their supply chain. On average, there are four sub-contractors per primary supplier. This implies at least 1400 distinct gold supply chains for Signet.”%% To ensure compliance with Dodd Frank, Signet has developed its own Signet Responsible Sourcing Protocol (SRSP) requirements for all its suppliers and subcontractors. “Each supplier and their supply chain is required to validate, certify and audit its supplies of gold from every source used. To subscribe to existing industry guidance and standards,” states Bouffard. This means that when clasps for gold bracelets need to procured, Signet directs its suppliers to source from a specific manufacturing company, with whom Signet has a relationship. Or even in the use of scrap or recycled gold, suppliers must be able to show that it is identifiable as its own production, or returned from its customers, or a result of faulty inventory or waste gold arising during manufacturing.%%

{{Due Diligence}} %% The Dodd Frank recognises the due diligence framework prescribed in the OECD Due Diligence Guidance for Responsible Supply Chains, developed by the Organization for Economic Cooperation and Development (OECD), which existed at the time.%% The due diligence process prescribed under this Guidance seeks to establish the source and chain of custody of the minerals sourced by businesses, which involves identifying the smelters and refiners within a supply chain, and information on mine of mineral origin. If the information triggers ‘supplier red flags’, or a ‘red flag location of mineral origin or transit’, then the Guidance recommends an audit of the due diligence management systems of red flag refiners / smelters within a supply chain. The audit report is required to be published.%% {{Industry Standards}} %% Following the OECD Guidance, other voluntary industry initiatives were subsequently, developed for ease of transition into the Dodd Frank zone, by the Responsible Jewellery Council, the London Bullion Market Association and the World Gold Council. Informs Rae, “We don’t want the jewellery industry to fund conflict. So, RJC developed a chain of custody certification process for our members who want to utilise the system. We provide the means through which our members can credibly demonstrate through an independent third party audit, the source of their material. It’s a voluntary program for RJC members. As a member, a jewellery manufacturer, within two years of joining RJC, is required to get his accounts certified against our code of practices, which includes environmental, social and business ethics set by the RJC.”%% If a supplier follows the procedures as prescribed under the Chain of Custody Standards developed by the Responsible Jewellery Council, it is sufficient to comply with the requirements of the OECD Guidance and the Dodd-Frank.%% Even the London Bullion Market Association has developed the Responsible Gold Guidance, based on OECD Guidance. The main focus of this guidance is to identify the refinery/ smelter source of gold and avoid sourcing gold from conflict areas. Says Heymann, “If the refiner can know with certainty that all the gold entering the refinery can be shown to be ‘conflict-free’, it is assured that all gold leaving the refinery is ‘conflictfree’. This approach is taken by other industry-led initiatives that cover gold refiners.” It is mandatory for all the Good Delivery gold refiners to maintain their LBMA accreditation, which is recognised by the banks and the industry, as a source of ‘clean gold.’ Even the World Gold Council has developed its ‘Conflict-Free Gold Standard’. “The difference is while the recognised OECD Guidance is focused entirely upon the Democratic Republic of Congo and adjoining countries, the Conflict Free Gold Standard is an open standard available for use by any party involved in the extraction of gold. It has a global application to conflict-affected or high-risk’ areas and aims to show to refiners that newly mined gold in conflict-affected areas has been extracted responsibly,” says Heymann.%%

{{Compliance Cost}} %% With trade associations urging jewellery manufacturers to bring about change in management practices and audits, compliance is going to cost. Suppliers would need to get their operations audited. %% According to Rae, the audit cost will directly depend on the size and complexity of the company and the resultant size and complexity of the auditing task. %% Explains Rae, “A supplier, for example, that sources all its gold from a single, well documented source and which can evidence a strict management system which verifies that no other gold is sourced in its processing, will have a comparatively cheaper audit than for a supplier that obtains gold from many different sources and has no evidence of a management system that tracks the individual gold purchases and enables segregation of the gold used.” %% Others are more specific. Says David Bouffard, “Audits can be outsourced at the cost of the suppliers, which is expected to cost about US $1500 per supplier.” %% The US Securities and Exchange Commission expects the cost of compliance to be substantial. Compliance costs were previously estimated to be as high as US $16 billion. %% “In August 2012, the SEC estimated that the costs associated with initial compliance of the Act could be between US $3 billion and US $4 billion while the annual cost of on going compliance could be between US $207 million and US $609 million,” says Heymann. %% Others question the compliance bill, expected to run into billions of dollars, just to create transparency around the gold trade in Congo, which accounts for only 0.8 per cent of the world gold supply, a majority of which is produced by the small scale miners unconnected with the unlawful armed conflict and dependent on gold mining for their livelihood. %% {{Indian Suppliers}} %% Indian suppliers are however not too worried because gold is largely controlled and procured from the refineries and banks.%% Explains Gokani, “In India, RBI has strict norms in place and about 99 per cent of the gold comes from legitimate sources. Most jewellery exporters mainly buy from banks. As the source is authentic, the refinery certificate backs it and keeping a track is possible. As the systems are already in place, increased vigilance within the larger organisations is not going to make compliance expensive. Besides audit expenses, we may need to appoint just two extra heads in the organisation.”%% Larger players in India, exporting to the US, have in addition adopted the guidelines of the Best Practice Principles as well as other industry standards based on the OECD Guidance. They are prepared. In fact, Signet suppliers are expected to implement the compliance norms during calendar year 2013 and be fully compliant by end of this year. Signet is also ready to file its first Conflict Mineral Report in May 2014. It is the smaller jewellery exporters, who need to start regularising gold sourcing. %% Thus the marginal manufacturers, supplying mainly to the domestic market, are out of the Dodd Frank, while private sector industry initiatives, with its regular audit and reporting requirements, is bringing together jewellery suppliers, manufacturers and retailers to mitigate risks and deliver responsible products. This requires discipline, right etiquette, and corporate governance. Yet, the call has to come from consumers, who do not seem to care - neither about Congo nor conflict. %%

{{Consumer Awareness}} %% “Awareness among Indian consumers is limited. As someone speaking to Diamond World commented, “Indian consumers go for the yellow metal and do not particularly care about the fluff that western consumers do,” %% Until consumers take charge and demand responsible gold, the necessity of enforcement will be questioned, even its efficacy in being able to force armed groups out of the equation and return profits to the Congolese people. The situation around the necessity of section 1502 is akin to a dog chasing its own tail, whereby the Congolese can benefit from the profits of gold trade, only when militancy comes to an end, which is again closely linked to the control of the gold mining areas. Something stronger than disclosures could be the answer to the gold mafias.

Experts believe that this Act could impact the world market by creating the perception that ‘Congo Gold Is Conflict Gold.’ Thus, responsible gold from Congo may not find a market, while smugglers sourcing from armed groups controlling illegal mining in Congo, may move into new markets. Worse, to play safe, businesses may out-law African gold.%% The Act comes loaded with teeth, ready to sink into the flesh of violators in America and anywhere in the world. This extra territoriality clause requires suppliers, including Indian jewellery manufacturers exporting gold jewellery to U.S., and their sub-contractors, to put into place elaborate documentation systems to manage sourcing norms for conflict minerals, endure compliance costs, and conduct regular audits, not only to show that the gold was not sourced from the conflict areas of Congo and neighbouring countries, but also produce a detailed paper trail from the bank to the refinery and traders through the sub-contractors, from whom it was sourced or who worked on the jewellery. Otherwise, face litigation in America. Even as the industry grapples with the consequences, for US lawyers, it could be a newly opened mine of possible litigation. A Report. By Aasha Gulrajani Swarup. %% |*Their dream is to make money. Young children, small in size, are used along with crude tools to mine gold in deep and dangerous shafts going 100 yards into the earth in the Democratic Republic of Congo. Nearly 40 per cent of the miners are estimated to be children, going down the tunnels of the gold mine, without a safety net. Accidents, mine collapse and death are common. Poverty, Hunger, Hope, Lure of the yellow metal or Fear of the local militant groups, plundering and destroying villages, killing and raping rampantly, have frightened and forced Congolese, from all over the country, teachers, farmers, students, teenagers and children, to dig for gold. Armed groups controlling the mining area, exchange the gold for guns, ammunition and medicines. The gold is then smuggled into a neighbouring country, like Uganda, Tanzania or Burundi and sold in the open market, absorbed into the legitimate supply chain as local gold. From here it gets exported to Dubai to be refined and enters world markets, bought by banks and manufacturers, smelted and transformed into beautiful ornaments to be sold in USA, India and China. Millions of Congolese have died in this war, going on for more than 15 years, fuelled from gold mined in this mineral rich country.*|

Congo is in the middle of the deadliest conflict since World War II. And gold is easily the most lucrative conflict mineral for armed groups in Congo because it is easy to smuggle small quantities for large profits,” states Sasha Lezhnev, Senior Policy Analyst with Enough Project, a US-based organisation, working to end genocide and crimes against humanity. %% {{Gold Smuggling }} %% Fighting in and around the gold mines continues, especially as armed groups attempt to take control of mines and trading routes and gold from Congo flows out into the world. The Enough Project estimates that more than $600 million in gold leaves Congo annually. For instance, from the 15 major mines across eastern Congo, only 23 kilograms of gold was officially exported in the first half of 2012 while nearly four tons of gold went out through illegal routes, according to a report published in October 2012 by Enough Project. Also, in the last three years, Uganda produced only $167 million worth of gold, but exported an estimated $212 million. Congo gold is thus smuggled out of the country into the hands of regional smugglers and then from the cash-forgold dealers and refiners to melting centres in Dubai and then to the jewellers in the Middle East and India. %% {{Call For Action }} %% Following the call for action, to clean up the trade in conflict gold and find a lasting solution to the on going war, jewellery companies, as the largest consumer of gold, were made to partner with their suppliers to source conflictfree gold from Congo. The US Congress adopted the controversial Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act in August 2012, to bring about transparency in the financial interests that supported armed groups in the DRC through trade of conflict mineral like the 3T minerals, tin, tantalum, tungsten, and gold. %% The Act requires companies, listed with the Securities and Exchange Commission, the US regulator of the stock market, and using conflict minerals, in their products, to disclose in an annual Conflict Mineral Report to be filed with the SEC, whether the source of such minerals, originated in the Democratic Republic of Congo or any of the nine neighbouring countries in the heart of central Africa. Even trace amounts of a conflict mineral used in its product, would make the business subject to this rule. The company filing its disclosure is also subject to liability for fraudulent or false reporting on its conflict minerals.%%

{{Impact Of A Draconian Act}} %% This legislation indirectly impacts any company beyond US borders, which has directly, or indirectly US listed customers, including upstream companies (mining companies, mineral exporters, international traders, mineral refiners and smelters) that are not listed but that deal with or have clients doing business with US listed companies.%% “This is the draconian part of the Act,” says Pankaj Parekh, vice chairman, Gold and Jewellery Export Promotion Council (GJEPC). “If anytime in the three years following the delivery, the supply line of the listed company was not as claimed or if it is proved that it was not responsible gold, then even the supplier or sub-contractor down the line is liable to be charged. The hearing will be held in US and if the supplier dies, the children will inherit the litigation. For supply made in June 2013, the edge of the sword is open up to 2016.”%% Given the reach of this legislation, the GJEPC has translated the Dodd Frank Act in Indian languages while Dubai has done a translation in Arabic. American statistics estimate that about 6000 listed companies will be directly impacted by section 1502, in addition to thousands of private companies in the supply chains of these companies, which will be impacted indirectly. Each player will need to fulfil the disclosure norms prescribed under the Act. Failure to prove the source of gold will mean it won’t be able to utilise and sell jewellery containing gold without proper proof of its country of origin. Proving source is possible, but challenging.%% {{Traceability}} %% Generally gold, an element is not too traceable. Says Michael Rae, CEO, Responsible Jewellery Council, “It is like cash out of a cash machine. But people, especially the young, are increasingly asking questions about where did this material come. The Dodd Frank Act is also doing the same. But it is a blunt instrument.”%% “It is difficult to prove the source, because gold is purchased from a variety of sources, refinery, banks, traders, and also majorly from recycled and scrap sources,” says Parekh.%% Most jewellery manufacturers have at least three different supply sources of gold. Traceability of these gold sources gets challenging with smuggled gold, conflict gold or even recycled gold, coming into the legitimate supply chain. “It is like mineral water being mixed by a few drops of gutter water,” describes Parekh.%% {{Recycled & Smuggled Gold}} %% Recycled gold accounts for more than one third of the global gold supply. World gold supply is about 4500 tonnes annually, of which 2500 tonnes comes from gold production in mines while recycled gold contributes about 1800 tonnes of annual supply.%% The situation gets more complicated with smuggled gold. “As long as import duty on gold is high, there is an incentive for smuggling. In India, the recent hike in the rate of import duty to 8 per cent, along with the cess and the surcharge, creates a big difference of two per cent between the domestic official price and the international official price, and makes the price difference between officially imported gold and smuggled gold nearly 10 per cent,” says Parekh.%% All the gold in India is imported and it is estimated that nearly 200 tonnes of gold was smuggled into the country in 2012, which is expected to increase. And smuggled gold is very much into the domestic supply chain.%% “For instance, a jeweller may purchase gold from a bank, but may give it out on job work to a goldsmith, where it could easily get mingled with gold which may not be from a responsible source. For example, in India the clasps and mountings are usually imported from Turkey, Italy or Bangkok. The challenge is to know the breed of the gold used for making the clasp,” Parekh clarifies.%%

There are other opportunities for gold sources to get mixed up. Explains Ami Gokani, vice president, sales, Kama Schachter, “When jewellery manufacturing is outsourced, it is challenging to keep separate records of physical gold. A sub-contractor may be doing job work for five other customers. So, although there may be a separate entry in his books that one kilogram of gold was received, physically, it is not possible for it to be worked on separately.”%% “The co-mingling of gold from different sources makes it impossible to trace its origins,” says Terry Heymann, Director, Responsible Gold, World Gold Council. However, most of the smuggled and recycled gold in India is used in the domestic market. The Dodd Frank only allows the use of responsible gold. So if it is recycled gold, it needs to be backed by Know Your Customer (KYC) data, basic identity information and authorised by the reseller. Under the Dodd-Frank, disclosure is the key and transparency is the objective.%% {{ABC – Anywhere But Congo}} %% However, the demand for disclosure could have unintended consequences. While US companies are going to be careful about who they deal with, African countries are concerned that the Dodd Frank could lead to an overreaction from the industry with gold being sourced from anywhere but Africa.%% Explains Rae, “Considering that the legislation is specifically targeted at preventing conflict material from DRC from coming into the supply chain, the rules enforce businesses to clearly demonstrate that the gold in their jewellery is not coming from Congo. CEOs, desperate to ensure that they do not have to say that their goods may contain gold from Congo, are naturally keen to prove that their gold comes from nowhere near Congo.” “That is not what was intended. The hope was the legislation will encourage companies to engage with good people on the ground in DRC Congo and develop a project to bring gold to the market that will be innocent. Instead people are adopting an ABC policy -Anywhere But Congo -purchase policy,” Rae adds.%% {{Disclosures}} %% Faced with the legal requirement to verify the source of their gold as “conflict-free,” Signet, America’s largest jewellery retailer, mainly sourcing jewellery from India and South Asia, is prepared to face section 1502 of the Dodd-Frank.%% Informs David Bouffard, Vice President, Corporate Affairs at Signet Jewelers, “More than three years ago, we organised an action plan and undertook an extensive outreach program to identify the scale and complexity of our supply chain, from the mine into retail. We reached out for information to each of our suppliers, most of which are in India and South Asia, to identify their sources of gold and every link in their supply chain. On average, there are four sub-contractors per primary supplier. This implies at least 1400 distinct gold supply chains for Signet.”%% To ensure compliance with Dodd Frank, Signet has developed its own Signet Responsible Sourcing Protocol (SRSP) requirements for all its suppliers and subcontractors. “Each supplier and their supply chain is required to validate, certify and audit its supplies of gold from every source used. To subscribe to existing industry guidance and standards,” states Bouffard. This means that when clasps for gold bracelets need to procured, Signet directs its suppliers to source from a specific manufacturing company, with whom Signet has a relationship. Or even in the use of scrap or recycled gold, suppliers must be able to show that it is identifiable as its own production, or returned from its customers, or a result of faulty inventory or waste gold arising during manufacturing.%%

There are other opportunities for gold sources to get mixed up. Explains Ami Gokani, vice president, sales, Kama Schachter, “When jewellery manufacturing is outsourced, it is challenging to keep separate records of physical gold. A sub-contractor may be doing job work for five other customers. So, although there may be a separate entry in his books that one kilogram of gold was received, physically, it is not possible for it to be worked on separately.”%% “The co-mingling of gold from different sources makes it impossible to trace its origins,” says Terry Heymann, Director, Responsible Gold, World Gold Council. However, most of the smuggled and recycled gold in India is used in the domestic market. The Dodd Frank only allows the use of responsible gold. So if it is recycled gold, it needs to be backed by Know Your Customer (KYC) data, basic identity information and authorised by the reseller. Under the Dodd-Frank, disclosure is the key and transparency is the objective.%% {{ABC – Anywhere But Congo}} %% However, the demand for disclosure could have unintended consequences. While US companies are going to be careful about who they deal with, African countries are concerned that the Dodd Frank could lead to an overreaction from the industry with gold being sourced from anywhere but Africa.%% Explains Rae, “Considering that the legislation is specifically targeted at preventing conflict material from DRC from coming into the supply chain, the rules enforce businesses to clearly demonstrate that the gold in their jewellery is not coming from Congo. CEOs, desperate to ensure that they do not have to say that their goods may contain gold from Congo, are naturally keen to prove that their gold comes from nowhere near Congo.” “That is not what was intended. The hope was the legislation will encourage companies to engage with good people on the ground in DRC Congo and develop a project to bring gold to the market that will be innocent. Instead people are adopting an ABC policy -Anywhere But Congo -purchase policy,” Rae adds.%% {{Disclosures}} %% Faced with the legal requirement to verify the source of their gold as “conflict-free,” Signet, America’s largest jewellery retailer, mainly sourcing jewellery from India and South Asia, is prepared to face section 1502 of the Dodd-Frank.%% Informs David Bouffard, Vice President, Corporate Affairs at Signet Jewelers, “More than three years ago, we organised an action plan and undertook an extensive outreach program to identify the scale and complexity of our supply chain, from the mine into retail. We reached out for information to each of our suppliers, most of which are in India and South Asia, to identify their sources of gold and every link in their supply chain. On average, there are four sub-contractors per primary supplier. This implies at least 1400 distinct gold supply chains for Signet.”%% To ensure compliance with Dodd Frank, Signet has developed its own Signet Responsible Sourcing Protocol (SRSP) requirements for all its suppliers and subcontractors. “Each supplier and their supply chain is required to validate, certify and audit its supplies of gold from every source used. To subscribe to existing industry guidance and standards,” states Bouffard. This means that when clasps for gold bracelets need to procured, Signet directs its suppliers to source from a specific manufacturing company, with whom Signet has a relationship. Or even in the use of scrap or recycled gold, suppliers must be able to show that it is identifiable as its own production, or returned from its customers, or a result of faulty inventory or waste gold arising during manufacturing.%%

{{Due Diligence}} %% The Dodd Frank recognises the due diligence framework prescribed in the OECD Due Diligence Guidance for Responsible Supply Chains, developed by the Organization for Economic Cooperation and Development (OECD), which existed at the time.%% The due diligence process prescribed under this Guidance seeks to establish the source and chain of custody of the minerals sourced by businesses, which involves identifying the smelters and refiners within a supply chain, and information on mine of mineral origin. If the information triggers ‘supplier red flags’, or a ‘red flag location of mineral origin or transit’, then the Guidance recommends an audit of the due diligence management systems of red flag refiners / smelters within a supply chain. The audit report is required to be published.%% {{Industry Standards}} %% Following the OECD Guidance, other voluntary industry initiatives were subsequently, developed for ease of transition into the Dodd Frank zone, by the Responsible Jewellery Council, the London Bullion Market Association and the World Gold Council. Informs Rae, “We don’t want the jewellery industry to fund conflict. So, RJC developed a chain of custody certification process for our members who want to utilise the system. We provide the means through which our members can credibly demonstrate through an independent third party audit, the source of their material. It’s a voluntary program for RJC members. As a member, a jewellery manufacturer, within two years of joining RJC, is required to get his accounts certified against our code of practices, which includes environmental, social and business ethics set by the RJC.”%% If a supplier follows the procedures as prescribed under the Chain of Custody Standards developed by the Responsible Jewellery Council, it is sufficient to comply with the requirements of the OECD Guidance and the Dodd-Frank.%% Even the London Bullion Market Association has developed the Responsible Gold Guidance, based on OECD Guidance. The main focus of this guidance is to identify the refinery/ smelter source of gold and avoid sourcing gold from conflict areas. Says Heymann, “If the refiner can know with certainty that all the gold entering the refinery can be shown to be ‘conflict-free’, it is assured that all gold leaving the refinery is ‘conflictfree’. This approach is taken by other industry-led initiatives that cover gold refiners.” It is mandatory for all the Good Delivery gold refiners to maintain their LBMA accreditation, which is recognised by the banks and the industry, as a source of ‘clean gold.’ Even the World Gold Council has developed its ‘Conflict-Free Gold Standard’. “The difference is while the recognised OECD Guidance is focused entirely upon the Democratic Republic of Congo and adjoining countries, the Conflict Free Gold Standard is an open standard available for use by any party involved in the extraction of gold. It has a global application to conflict-affected or high-risk’ areas and aims to show to refiners that newly mined gold in conflict-affected areas has been extracted responsibly,” says Heymann.%%

{{Compliance Cost}} %% With trade associations urging jewellery manufacturers to bring about change in management practices and audits, compliance is going to cost. Suppliers would need to get their operations audited. %% According to Rae, the audit cost will directly depend on the size and complexity of the company and the resultant size and complexity of the auditing task. %% Explains Rae, “A supplier, for example, that sources all its gold from a single, well documented source and which can evidence a strict management system which verifies that no other gold is sourced in its processing, will have a comparatively cheaper audit than for a supplier that obtains gold from many different sources and has no evidence of a management system that tracks the individual gold purchases and enables segregation of the gold used.” %% Others are more specific. Says David Bouffard, “Audits can be outsourced at the cost of the suppliers, which is expected to cost about US $1500 per supplier.” %% The US Securities and Exchange Commission expects the cost of compliance to be substantial. Compliance costs were previously estimated to be as high as US $16 billion. %% “In August 2012, the SEC estimated that the costs associated with initial compliance of the Act could be between US $3 billion and US $4 billion while the annual cost of on going compliance could be between US $207 million and US $609 million,” says Heymann. %% Others question the compliance bill, expected to run into billions of dollars, just to create transparency around the gold trade in Congo, which accounts for only 0.8 per cent of the world gold supply, a majority of which is produced by the small scale miners unconnected with the unlawful armed conflict and dependent on gold mining for their livelihood. %% {{Indian Suppliers}} %% Indian suppliers are however not too worried because gold is largely controlled and procured from the refineries and banks.%% Explains Gokani, “In India, RBI has strict norms in place and about 99 per cent of the gold comes from legitimate sources. Most jewellery exporters mainly buy from banks. As the source is authentic, the refinery certificate backs it and keeping a track is possible. As the systems are already in place, increased vigilance within the larger organisations is not going to make compliance expensive. Besides audit expenses, we may need to appoint just two extra heads in the organisation.”%% Larger players in India, exporting to the US, have in addition adopted the guidelines of the Best Practice Principles as well as other industry standards based on the OECD Guidance. They are prepared. In fact, Signet suppliers are expected to implement the compliance norms during calendar year 2013 and be fully compliant by end of this year. Signet is also ready to file its first Conflict Mineral Report in May 2014. It is the smaller jewellery exporters, who need to start regularising gold sourcing. %% Thus the marginal manufacturers, supplying mainly to the domestic market, are out of the Dodd Frank, while private sector industry initiatives, with its regular audit and reporting requirements, is bringing together jewellery suppliers, manufacturers and retailers to mitigate risks and deliver responsible products. This requires discipline, right etiquette, and corporate governance. Yet, the call has to come from consumers, who do not seem to care - neither about Congo nor conflict. %%

{{Consumer Awareness}} %% “Awareness among Indian consumers is limited. As someone speaking to Diamond World commented, “Indian consumers go for the yellow metal and do not particularly care about the fluff that western consumers do,” %% Until consumers take charge and demand responsible gold, the necessity of enforcement will be questioned, even its efficacy in being able to force armed groups out of the equation and return profits to the Congolese people. The situation around the necessity of section 1502 is akin to a dog chasing its own tail, whereby the Congolese can benefit from the profits of gold trade, only when militancy comes to an end, which is again closely linked to the control of the gold mining areas. Something stronger than disclosures could be the answer to the gold mafias.