If legislation designed to stop the trafficking of “conflict gold” among other metals from the Democratic Republic of Congo is implemented in its current form, it is going to be “Pretty problematic” for the gold industry at large, says World Gold Council CEO, Aram Shishmanian.

The legislation, a section, of the greater Dodd-Frank Wall Street reform legislation, is aimed at preventing gold or other minerals from DRC being misused to fund armed groups as well as the removal of such minerals from the supply chain. But, while the WGC fully supports the intention of the legislation, it believes in its current form it will have “perverse and risky unintended consequences.”

According to Shishmanian, the legislation runs the risk of stigmatising gold because the way it is drafted assumes guilt until innocence is proven, “All gold is conflict gold until proven not to be under this law yet the DRC accounts for only 0.6% of total mined production.”

In a supplement to its main submission on the subject to the SEC called  Responsibly-Produced African Gold: The Value at Risk, the Council points out that the current legislation looks at not only the DRC but also those countries with which it shares a border such as Tanzania in an effort to track how the metal is transported.

This conflation of countries with legitimate mining industries , could result in significant damage to the gold market within countries not only which share a border such as Tanzania but also other African gold producers.

As THE WGC explains, “the DRC is a long way from Ghana and yet the complexity of the gold supply chain, uncertainty regarding the compliance costs of the Proposed Rules, and the naming of all gold as a “conflict mineral” risks stigmatizing gold from this country in the eyes of consumers as it may from all other gold producing countries in Africa.”

The concern is that manufacturers of gold and, indeed, primary producers in search of new projects, could decide that the greater costs associated with reporting and auditing to ensure that they are “conflict free” could lead to an unintended boycott of African mining.

Over and above that, Shishmanian adds, the added costs and admnistrative burden could see manufacturers and researchers begin to look for gold substitutes which could also damage the market.

“One needs to have a robust, enduring solution because it is critical that we do eradicate this scourge but, to put regulations in place in haste will backfire.

“At the earliest we think the legislation should come into effect in January 2012 because at the moment there are no clear audit standards, there are no clear methodologies, there is no map of conflict regions…we first need to define a set of principles and processes throughout the value chain from mining, to dore, to refining to bullion banks and distribution, manufacturers  and end consumers and it is a complicated value chain.”

He adds, the current set of rules “are not sustainable and do not serve the intended purpose of the legislation, it was to stop the DRC and instead it is stigmatising whole swathes of African gold and frankly it could even stigmatise gold as a critical mineral for society.”