The gold market’s most important standard-setter has been accused of an unduly close relationship with one of its top refiners, as part of a high-stakes trial over the deaths of two men at a Tanzanian mine in 2019.

Lawyers for the families of the men allege the London Bullion Market Association treated MMTC-PAMP India Pvt Ltd. — part of Swiss precious metals giant MKS PAMP Group — more favorably than other refiners when concerns emerged about violence at the mine.

The claims form part of a lawsuit that could have far-reaching implications for how the gold industry polices its global supply chain, and carries with it potential costs that could imperil the LBMA’s finances.

The LBMA sets the rules for many of the world’s gold refiners, determining which can supply gold bars to the biggest trading hubs and futures exchanges across the world. The claimants argue that the association’s power in the bullion market means it could have prevented the deaths at the North Mara mine and that it is partly responsible for what happened.

“The allegations are a construct by lawyers,” the LBMA said in filings. The case is “an attempt to fix the LBMA with liability” for deaths it had no hand in and rests on a “chain of inherently speculative and fanciful counterfactual propositions,” it said.

The LBMA says it’s independent and rejects the claims of favoritism, stating that it had followed its established process in the case of North Mara and that MMTC-PAMP had remained compliant with its responsible-sourcing rules.

Lawyers for the claimants argued in court filings that MKS PAMP Group, one of the largest precious metals traders and refiners, had “an exalted status within the LBMA” and thus the association took a light-touch approach to investigating the sourcing of gold from North Mara by MMTC-PAMP.

The claimants said the LBMA had pursued other refiners, such as the Australian company Perth Mint, more forcefully when investigating supply-chain risks, and that the LBMA was conflicted by having the then-MKS PAMP Group vice chairman on its board, who had a say in setting the pay of the association’s chief executive officer.

“The LBMA’s approach to MMTC-PAMP and North Mara is explained by its lack of independence,” lawyers for the claimants said in court filings, adding that there was an “extraordinary symbiosis between the LBMA and the MKS PAMP Group.”Executives from the refinery were not involved in deciding whether MMTC-PAMP should retain its accreditation as those decisions were assigned to staff-only committees, the LBMA stated. Pay for all of the association’s leadership, including the CEO, is set through a standard independent benchmarking and remuneration committee process, it said.

The claimants pointed to emails they said showed other refiners complaining that MMTC-PAMP had been subject to favorable treatment. In a 2021 email shown in court, the CEO of Perth Mint at the time, Richard Hayes, said that when MMTC-PAMP was first accredited the normal process had been “waived,” which had caused “significant disquiet in the refiner community.”The LBMA disputed that MMTC-PAMP had received a unique concession. It said applicants to its Good Delivery List that were already linked to an existing accredited refinery could legitimately skip certain parts of the application process, and that similar waivers had been granted in other cases.

The LBMA is a relatively small organization, but wields substantial influence through the Good Delivery List, which determines which refiners can supply bullion bars into the London market, the world’s biggest gold-trading hub.

The Good Delivery List is also relied on by market participants and futures exchanges like those run by the US-based CME Group Inc., making accreditation commercially important for many of the biggest refiners. To remain on the list refiners have to show to the LBMA that they have followed responsible sourcing rules, among other requirements.

The danger of falling afoul of responsible sourcing rules and suffering reputational damage is a constant, almost existential risk for refiners. Some executives have in the past said, only half in jest, that conducting due diligence on their supply chains had become their primary function, with the refining itself a sideline.

That risk was underlined by correspondence from Perth Mint to the LBMA shown in court. The Australian refiner complained that the public announcement of a 2020 review into its sourcing had caused “significant reputational damage” and “significant commercial loss,” and had led bullion bank HSBC Holdings Plc to pause its dealings with the refiner.

Internal discussions within the LBMA also showed how wary refiners are of taking on responsible sourcing risks. In one document, staff agreed that if the sourcing relationship with Barrick Mining Corp. — owner of the North Mara mine — was severed it could make the miner “unpalatable” to most accredited refiners, potentially leaving it little choice but to send its gold to a non-Good Delivery hub.

The LBMA said such a scenario could increase the risk of human rights violations at the mine, if its output was redirected to a refiner that made fewer checks on its provenance. The association accredits refiners, not mines, and it said in pretrial documents that imposing a duty of care to individuals further up the supply chain would leave it unable to “withstand the resulting legal and financial exposures”.