(Bloomberg) — The industry body that sets the rules for the world’s biggest gold market faces an existential legal battle in a London courtroom next week, in a case that could have far-reaching implications for how the industry polices its supply chain.
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The London Bullion Market Association is being sued by the families of two men who died at a Tanzanian gold mine in 2019. The start of the trial on Wednesday will cast a spotlight on the outsized role that the relatively small organization plays in overseeing the $1-trillion-a-week gold market in London.
The LBMA says the claim has no merit, and is confident it will successfully defend it. But if the court orders it to pay out significant sums to the claimants, there’s a risk it could leave the industry body insolvent, according to people familiar with its thinking, who asked not to be identified discussing legal proceedings.
As a contingency for an adverse ruling, there have been internal discussions within the LBMA about setting up a successor body to maintain some core operations critical to the functioning of the bullion market, the people said, although no steps have been taken yet.
“LBMA disputes that it bears legal responsibility for these tragic deaths, and their profound human impact,” the organization said in a statement. “The claim misconstrues LBMA’s role in the supply chain, and we deny that LBMA owed the duty of care alleged in these proceedings.”
That threat hanging over the LBMA is a cause for unease among traders and executives in the broader gold industry, who will be descending on the idyllic Italian resort town of Sorrento this weekend for the organization’s annual conference.
Several insiders including traders, refiners and experts in responsible sourcing have told Bloomberg privately they expect the LBMA to prevail, but they’re also not ruling out the possibility that the case could have seismic consequences for the underlying gold market in London and beyond.
London’s role as the standard-setter for the global gold market has evolved over centuries, starting in 1750 with the Bank of England’s creation of the Good Delivery List, which ensured bullion was of a consistent purity as it began pouring in from all corners of the globe.
