Dongwu Gold Group Co., Ltd.

LBMA Supply Chain Due Diligence Management Measures

Prepared by: Wang Tao   Version: C

Reviewed by: Bao Xiaoling Document control: Controlled

Approved by: Wu Weilin  Issued on: March 26, 2020

Supply Chain Due Diligence Management Measures (Version C)

In accordance with the provisions of the Responsible Gold Guidance of London Bullion Market Association (LBMA), Dongwu Gold Group Co., Ltd. formulates the Supply Chain Due Diligence Management Measures for its gold in order to crack down on systematic or widespread infringements or violations of human rights, to avoid providing donations to armed conflicts, and to comply with high-level requirements regarding anti-money laundering and anti-terrorism financing.

1. Scope

The policy applies to all suppliers involved in the business of Dongwu Gold Group Co., Ltd. such as gold trading, entrusted gold refining, etc. The gold sources covered by this policy include mined gold, recovered gold and various forms of inventory gold produced after January 1, 2012.

2. Terms and definitions

The terms and definitions involved in this policy adopt the content established by the LBMA Responsible Gold Guidance.

3. Organizational structure and staff responsibilities

3.1 Organizational structure

The Company, for its gold supply chain due diligence, has established a special organization with a structure as follows:

3.2 Staff responsibilities

3.2.1 Executive management

1) Preside over and assume full responsibility for the due diligence on the Company's gold supply chain.

2) Be in charge of the approval of the gold supply chains.

3) Be responsible for providing resources and cooperating with the due diligence.

3.2.2 Responsibilities of Compliance Director

1) Assume full responsibility for the due diligence on the Company's gold supply chains.

2) Supervise and check the due diligence process of gold supply chains to evaluate whether such due diligence is fully implemented; additional documents or information shall be provided as required if the Director deems it necessary.

3) Take appropriate measures to reduce and then eliminate the risk in the gold supply chain or transactions where the risk has been identified.

4) Promptly report to Senior Management and take strict control measures once any gold supply chains or transactions of high risks are discovered. 

5) Regularly offer employees the training on the Responsible Gold Guidance and the Supply Chain Due Diligence Management Measures. 

6) Be responsible for drafting and revising policies, guidelines and systems regarding the Company's gold supply chains. 

7) Provide necessary and accurate information to facilitate the performance of due diligence responsibilities by the Company's Senior Management. 

8) Be responsible for conducting the supervision and review of the LBMA management system and preparing the Compliance Report.

3.2.3 Responsibilities of Compliance Supervisor from Refining Division

1) Be responsible for communication with LBMA and audit institutions.

2) Strictly implement supply chain due diligence measures and judgment criteria for high-risk gold supply chains.

3) Be responsible for collecting and keeping sufficient documentary evidences for gold supply chains.

4) Verify the qualifications of transportation companies and insurance companies, track and properly keep every consignment note.

5) Conduct regular on-site investigations of important gold suppliers if necessary.

6) Assist and encourage gold suppliers to make commitment and confirm in writing to comply with the provisions in Appendix II of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.

7) Be responsible for collecting and reporting the opinions and suggestions from the Company's internal employees on the due diligence on gold supply chains.

8) Report the abnormalities in the due diligence and gold transactions to Compliance Director without delay.

3.2.4 Responsibilities of Compliance Supervisor from Financial Services Department

1) Strictly implement supply chain due diligence measures and judgment criteria for high-risk gold supply chains.

2) Be responsible for collecting and keeping sufficient documentary evidences for gold supply chains.

3) Completely keep all transaction and financial vouchers of gold suppliers for at least 5 financial years. 

4) Evaluate the financial data of gold suppliers to clarify the purpose of their business relations and the relevant original intention information. 

5) Be responsible for collecting and reporting the opinions and suggestions from the Company's internal employees on the due diligence on gold supply chains. 

6) Report the abnormalities in the due diligence and gold transactions to Compliance Director without delay.

3.2.5 Responsibilities of Compliance Supervisor from Settlement Center (Finance)

1) Strictly implement supply chain due diligence measures and judgment criteria for high-risk gold supply chains.

2) Be responsible for collecting and keeping sufficient documentary evidences for gold supply chains.

3) Verify and record the weight and test results of each batch of gold products received, analyze and evaluate whether these data are consistent with the information obtained on the supply chain; if not, carry out a detailed investigation and issue a written investigation report.

4) Be responsible for collecting and reporting the opinions and suggestions from the Company's internal employees on the due diligence on gold supply chains.

5) Report the abnormalities in the due diligence and gold transactions to Compliance Director without delay.

4. Judgment criteria for high-risk gold supply chain

For mined gold or recycled gold, the Company identifies risks strictly implementing the requirements in Appendix II of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. More focus shall be put by the Company on the following risks at the source of the gold supply chain (if any):

1) Systematic and widespread infringements or violations of human rights regarding gold mining, transportation and trading.

2) Directly or indirectly support non-governmental armed groups, public or private security forces.

3) Gold obtained through bribery or that with the true source hushed up.

4) Money laundering and terrorist financing.

5) Provide donations for armed conflicts.

6) Domestic small-scale mines with incomplete formalities and implementing illegal mining, and the mined gold is obtained from the artisanal mining;

7) Mined gold is obtained using mercury;

8) Fail to comply with legal requirements concerning environment and sustainable development, and mined gold is from World Heritage Sites or domestic natural ecological reserves;

9) Other high-risk areas specified by LBMA.

According to the relevant regulations of LBMA and OECD, and in view of the actual situation of the Company, the high-risk gold supply chain judgment criteria are determined as follows:

1) The source, transit or stopover site of mined gold or recovered gold is a high-risk area that is affected by conflicts or involves the violations of human rights.

2) It is claimed that the mined gold is from a country with limited given reserves, limited resources, or limited predicted gold production.

3) The recovered gold is from given areas with high risks of conflict influence and violations of human rights, or there is a reasonable doubt that the recovered gold has been transited through such areas.

4) Enterprises in the gold supply chain or the given upstream enterprises are located in a country with high risks of money laundering, crime and corruption.

5) Enterprises in the gold supply chain or beneficial owners of the given upstream enterprises are politically sensitive.

6) Enterprises in the gold supply chain or the given upstream enterprises actively participate in high-risk business activities such as weapons, gambling, antiques and artwork, religion and religious leaders.

7) Mined gold is from domestic small-scale mines with incomplete formalities and implementing illegal mining, and mined gold is obtained from the artisanal mining;

8) Mineral gold or recycled gold is obtained using mercury;

9) Fail to comply with legal requirements concerning environment and sustainable development, and mined gold or recycled gold is from World Heritage Sites or domestic natural ecological reserves;

10) Other high-risk situations recognized by the Chinese government.

Where any one of the above situations objectively exists, the gold supply chain is determined as a high-risk supply chain. Department Compliance Supervisor shall immediately prepare the information and report it to the Compliance Director, and the latter will forward it to the Company’s Senior Management for approval of the high-risk supply chain.

5. Supply chain due diligence

5.1 Principle

Before establishing a business relationship with any gold supplier, performing supply chain due diligence adopting risk-based approaches is crucial to effectively grasp the supply chain and assess the risks. The risk assessment of the supply chain begins with an investigation on the origin of the gold.

The Company will continue to conduct due diligence on the gold supply chain to ensure effective compliance with the LBMA rules.

5.2 Procedure

5.2.1 Collection and evaluation of supplier information

1) Establish files for supply chain customers, including: Enterprise name, legal representative, address, contact information, relevant qualifications, operation methods, production methods, transaction contracts, etc.

2) Information of existing supply chain customers shall be reviewed on a regular basis. In case of new customers or changes in information of the old customers, check and update the relevant file data without delay to keep the file database up to date.

3) Identify customers, enterprises and their beneficial owners using reliable documents, data or information of independent sources.

4) Make sure that customers, and enterprises and their beneficial owners in the supply chain are not wanted by any governments for money laundering, fraud or terrorism.

5) Regularly get details of supply chain customers regarding their business and finance, purpose of gold trading, and business operations.

5.2.2 Additional investigation requirements for gold obtained from mined gold

1) Obtain information concerning the origin of gold.

2) Obtain information concerning the supplier's mining license.

3) Obtain information concerning the supplier's import & export license.

4) Collect and evaluate information concerning the mining activities.

5) Obtain data concerning the mining capacity.

6) Where the mined gold is obtained from the artisanal or small-scale mining (ASM), evaluation shall be first conducted to check the compliance with laws; if yes, ask the other party to provide relevant qualification certificates; if no, abort the transaction, refusing to purchase from it or to accept its consigned processing.

7) Investigate whether the miners wear labor protection products, and accept health and safety training and physical examinations for occupational diseases;

8) Check the compliance with legal requirements concerning environment and sustainable development, and formulation of environment-related policies and control procedures, and approval from relevant departments for the environmental assessment certification;

9) Investigate whether there is any impact on local residents.

5.2.3 Additional investigation requirements for gold made from recovered gold

Collect and evaluate the policy action data of the recovered gold suppliers regarding anti-money laundering and anti-terrorism financing.

5.2.4 Additional requirements for strengthening due diligence under high-risk circumstances

Taking into account the supplier’s business type, business relationship, transaction type, geographic location or transportation area, adopt risk-based approaches to determine the extent to which the due diligence measures are implemented. In case of higher risks, the Company will make more efforts to conduct the due diligence and take additional processing steps as below:

1) On-site inspections or visits to high-risk supply chains to verify the authenticity of file records for the supply chain due diligence results.

2) Gold from large-scale mining: Use credible documents, data and information of independent sources to verify the actual situation, and information of the beneficial owners of enterprises in the supply chain (including producers, intermediaries, traders, exporters and carriers), involving mines and refineries, and the government’s monitoring list shall be all verified.

3) ASM gold from artisanal or small-scale mining: Use credible documents, data and information of independent sources to verify the actual situation, and information of the beneficial owners of enterprises in the supply chain (including international gold traders and carriers), involving gold exporters and refineries, and the government’s monitoring list shall be all verified.

4) Recovered gold: Use credible documents, data and information of independent sources to verify the actual situation, and information of the beneficial owners of enterprises in the supply chain (including carriers), involving gold suppliers and refineries, and the government’s monitoring list shall be all verified.

6. Transaction supervision

Implement review and supervision throughout the gold trading to ensure that the transaction is consistent with the Company's knowledge of the supply chain and the risk prediction. The Company adopts risk-based approaches for the supervision of transactions.

Get and record the following information for each batch of gold received:

1) Mined gold: Estimated weight and test results (provided by the supplier); shipping documents (if possible, shipping invoice, waybill, proforma invoice, etc.); import and export forms for high-risk transactions.

2) Recovered gold: Estimated weight (provided by the supplier); shipping documents (if possible, shipping invoice, waybill, proforma invoice, etc.); import and export forms for high-risk transactions.

Check if the above documents will be in mutual corroboration with each other and be consistent with the knowledge of the supply chain. In case of discrepancies in the transaction background, an investigation shall be conducted and a written investigation result shall be prepared.

7. Risk assessment report

At the beginning of each year, Compliance Director shall submit to the Company's Senior Management the risk assessment report for the gold supply chain due diligence of the previous year.

Senior Management shall retain ultimate control and maximum liability for the gold supply chain. Senior Management shall carefully appoint and supervise Compliance Director and offer him/her necessary authority to fulfill his/her duties.

Senior Management shall review and approve the gold supply chain and decide whether to establish or maintain a business relationship.

8. Retention of records

Collect and keep sufficient supply chain certification documents and records, and determine the risk requirements in line with the standards of the supply chain due diligence system so as to prove that the Company has fully and continuously implemented the due diligence on the gold supply chain.

Supply chain certification documents and records shall be kept for at least 5 fiscal years.

9. Training

Every year, all employees involved in the gold supply chain shall be provided training on due diligence policies and management measures.

10. Supervision and review of management system

Conduct an internal review of the LBMA management system at least once a year to check the suitability and effectiveness of the system's operation, and prepare compliance reports based on the results. Hire an eligible third-party certification company for the supervision and review of our Company's LBMA management system.

11. Information communication mechanism

Set up a confidential complaint mailbox: pub@dongwugold.com, and a specially-assigned person is responsible to regularly check the mails to collect the opinions and suggestions from the Company's internal employees and the society on the due diligence on gold supply chains, and report them to the Company.

In daily gold trading and supply chain management, employees who notice violations or abnormalities shall immediately report to Compliance Supervisor of their department; Compliance Supervisor shall, after verification, forward it to Compliance Director without delay, and to Senior Management in writing if necessary.