Raising the bar

I’ve always enjoyed the boardgame Monopoly. Not only does it teach you a thing or two about how to manage money and invest strategically, it also gives a good foundation of what competitive behaviour looks like and the lengths to which some people will go to win. Having now worked for over twenty years, I’ve seen my fair share of businesses and industries go through their highs and lows and how stakeholders and marketplaces have reacted to protect their position.

Indisputably, there has been a significant shake up of the global markets in the past few decades, with previously emerging economies such as Dubai becoming major centres in an ever-increasing variety of commodities including gold, diamonds, coffee, tea and aluminium; something it’s been able to achieve by playing by the rules of fair competition. As a strategically located destination between east and west with a robust, multimodal, logistical infrastructure, Dubai enhanced its business environment by not only making trade more cost-effective, but faster by continuously updating its processes to leverage the latest technology and enhance its competitiveness. At DMCC, our ongoing success throughout the pandemic, which included 805 new companies registering in H1 2020 was solely possible thanks to our foresight to integrate a fully encrypted, secure portal that allows people to set up and manage their businesses remotely. We also offered support packages specifically designed to help businesses feeling the negative effects across our community through penalty waivers and discounts on licence renewals.

Where bullion is concerned, Dubai has also been able to leverage several advantages over its international competitors. Firstly, in terms of standardisation. Where LBMA’s GDL Gold Bar Specifications are 12.5 kilos, Dubai Good Delivery offers the option to purchase in single kilo bars, meaning greater accessibility to the rapidly growing consumer market rather than just catering to the requirements of major financial institutions. Secondly, while the lockdown has meant varying degrees of disruption, the UAE’s rapid response and civil adherence to lockdown measures has meant that business was able to continue as usual with cargo flights, customs and refineries continuing to operate uninterrupted. In the same way London was historically important to the evolution of bullion trading due to trade financing, Dubai’s location and industry verticals, which include financing and logistics, has positioned it to be a far more convenient trading centre, positioned between Africa’s extensive resources and heavy consumer nations such as India and while Dubai primarily caters to artisanal mining, its transition towards becoming a viable centre for large scale business will be accomplished in two key steps. Firstly, by working with the UAE government to ensure that DGD (Dubai Good Delivery) becomes a federal standard and secondly, by working with the international community to achieve a higher standard of practical and transparent regulation. 

Of course, just like in Monopoly, one person’s growing success ultimately comes at the cost of another person’s market share, leading the weakened party to employ a variety of tactics to retain their majority share and control of the game by any means necessary. Fortunately in Dubai, we’ve developed a thick skin to this sort of behaviour, so when LBMA (London Bullion Market Association), the de facto gold industry regulator issued a letter to the major gold centres of China, Hong Kong, India, Japan, Russia, Singapore, South Africa, Switzerland, Turkey, UAE, U.K and the U.S, stipulating its requirement to meet its latest standards, it came as no surprise that while the letter didn’t “target any centre in particular”, four people involved in drafting it told Reuters [1] that Dubai’s gold industry was the main focus. I will leave you, the reader to speculate as to whether UAE’s bullish growth is related to this focus, or simply a coincidence - I will, however, say that LBMA’s authoritarian approach to maintain its majority control through conjecture and double standards has worn out its welcome with the rest of the world which increasingly believes it is time for a fully transparent regulator, composed of an international coalition that is equipped to authorise or blacklist stakeholders based on meritocracy and not self-serving interests.

Should LBMA make good on its proposed strategy, it will be the first time a market or state authority has raised the possibility of cutting off the bullion industry in a major financial centre, a ploy akin to changing the rules of Monopoly on a discretionary basis in order to keep other players off the board. 

Firstly, I wonder if anyone at LBMA is concerned about being sued by the World Trade Organisation or UK Courts for attempting to maintain its cartel-like control over an industry by imposing its own discretionary brand of blacklisting, without being a democratically elected trade body? It would seem there are several ethical problems with this, particularly when it directly affects the trade flow of foreign sovereign nations. Secondly, will LBMA apply the same ethical standards to its existing members and stakeholders including JPMorgan Chase, which admitted manipulating precious metals futures, resulting in a record-breaking spoofing settlement of $920m [2], or is the precedent to allow convicted criminal activity a free pass in return for cash? Thirdly, will LBMA take a closer look at any blatent conflicts of interest, such as its own board members including senior board members of major precious metal refiners and fabricators such as MKS PAMP Group?

Arguably, the most obvious sign of LBMA’s ulterior motive is its blacklisting isn’t intended to target independent industry stakeholders on a case-by-case basis, but entire nations. When two of LBMA’s previously certified Good Delivery List members, Republic Metals Corporation and NTR Metals declared for bankruptcy after being unable to account for large amounts of precious metal or be charged by federal prosecutors in Miami for buying $3.6bn in illegal gold from criminal groups in Latin America [3] respectively, did it consider stopping bullion imports from the United States?

It seems that while LBMA’s concern about ethical sourcing is an admirable pursuit, perhaps it isn’t the body from whom the rest of us should be taking our moral standards. Similarly, to the NGOs that peddle the same narrative with zero accountability, there is an increasing awareness that LBMA’s purpose has become one of industrial hegemony with an agenda to disrupt any centres that threaten its market share. In a sense, LBMA’s approach is understandable, given its origins in a bygone era where control was seized, not negotiated and while the British Empire may have had the power to enforce its position a hundred years ago, it is certainly less compelling in today’s increasingly transparent marketplace. While the rest of the world has learned to improve standards through collaboration, cooperation and untied regulatory systems, perhaps it is time for the sun to set on LBMA and its delusional leadership in order for it to make way for an effective, untied, democratically elected regulator that functions under a policy of inclusion, not subjugation. 

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APPENDIX

[1] https://www.reuters.com/article/gold-lbma-exclusive-idUSKBN27S0NK

[2] https://www.ft.com/content/f2c918c2-2659-4513-8851-cc40379d4840

[3] https://www.miamiherald.com/news/local/community/miami-dade/article194187699.html