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Conflict material regulations

Did the regulation of conflict minerals actually make a difference to the world?

Did the regulation of conflict minerals actually make a difference to the world?

Did the regulation of conflict minerals actually make a difference to the world?

Regulation surrounding conflict minerals is indeed helping the world, and we are starting to slowly see a positive impact in conflict areas such as DRC. From a corporate perspective, the compliance costs involved are justified because the companies that are spending the extra money to conduct due diligence are not only making sure that they comply with conflict minerals regulations, but are also helping themselves to better understand their supply chain, as well as their clients and customers. Other issues may come up during that process that help identify other areas of concern, potentially saving companies millions of dollars for taking a preventive approach, and not a reactive one.

What are conflict minerals?

In a constantly-changing global industry, players in every field must stay up-to-date and comply with regulations to continue doing business – this is no different in the metals industry. However, this industry has one major challenge: conflict minerals. In politically unstable locations, the minerals trade can often be used to finance armed groups, such as rebels or insurgents. There are four primary minerals which are considered here: gold, tin, tungsten and tantalum. These four minerals are targeted because they are most often linked to crime and armed conflicts. In some areas or countries, the trade of these minerals can be used to finance arms trafficking, rebels, or criminals. Sometimes, there are issues involving forced labour, slavery, or other human rights abuses. These can further lead to support corruption, bribery, money laundering and other unlawful activities, and have a serious impact in the lives of many innocent people.

Why are these minerals so important and widely-used?

There are many uses for gold, tin, tungsten and tantalum, perhaps the most obvious being gold used in jewelry. However, these are used in everyday items such as mobile phones, laptops, tablets, cars, treadmills, and many more. These products have a very wide reach across multiple consumers worldwide. Unknowingly, we may be indirectly financing terrorist organisations by purchasing, selling or using any of these items.

What has been done so far?

In 2010, the United States passed the Dodd Frank Act Section 1502 legislation. This requires US-listed companies to conduct due diligence on minerals sourced from the Democratic Republic of the Congo (DRC), and neighbouring countries. DRC has suffered from civil war for decades, in part fueled by struggles for control of the country’s resources. US regulators have indicated that regulation is necessary to alert investors to the risk of minerals associated with violence that find their way into products. It is worth noting that there are several African countries, including the DRC, that have passed laws requiring companies to check their supply chains. This means that these countries are aware, and at the very least are willing to contribute to put a stop to the crimes related to conflict minerals.

In 2011, members of the United Nations endorsed Guiding Principles for Business and Human Rights, which basically indicate that companies should adequately conduct due diligence to make sure that their activities, or those of their third parties, do not contribute to human rights abuses.

Since 2011, the Organisation of Economic Co-operation and Development (OECD) which is formed by 35 developed countries, issued the Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. The latest guidance, which aims to provide recommendations to companies for sourcing conflict-free minerals, was published in April 2016.

In May 2015, the China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters (CCCMC) began a project to develop “Chinese Due Diligence Guidelines for Responsible Mineral Supply Chains”. This was done to support the “CCCMC Guidelines for Social Responsibility Outbound Mining Investment” which was launched in October 2014. These guidelines contain requirements to “conduct risk-based supply chain due diligence to prevent engagement with materials that may have funded or fueled conflict”.

In May 2017, the European Union (EU) passed a new regulation to stop conflict minerals from being exported to the EU, to stop mine workers from being abused, and to stop global and EU smelters and refiners from using any conflict minerals. Additionally, the EU is currently implementing a new regulation that will take effect on 1 January 2021. Companies that are considering importing tin, tungsten, tantalum and gold minerals into the EU currently have less than three years to prepare for these new regulations and to conduct proper due diligence on their third parties.

The main idea is that corporations and end-users which are under US or EU regulations follow these rules, thereby helping to thwart criminals and prevent them from obtaining business, making it more difficult for them to operate and, in the process, to tackle human rights abuses. Similarly, clients and third parties of these large corporations likely want to know if the companies they are buying from are conducting business in an ethical manner and not helping to fund unlawful criminal groups.

Why should companies care about these regulations?

Aside from complying with the law, the premise behind conflict minerals regulations is for companies and end-users to promote the responsible sourcing of these minerals. In the metals supply chain there are too many intermediaries involved in refining, extraction or transportation of minerals. Somewhere along the chain, and without some sort of control, it is easy for money deriving from sales to be rerouted to finance armed groups or criminals. It is highly likely that companies do not want to be associated with any of these issues, unless they want their reputation to be tainted, possibly even affecting their sales and overall business operations. Similarly, most people would agree that they do not want any part in financing overseas criminals by purchasing products that use tainted materials to create them. Along those lines, companies that are more transparent and act on these regulations will likely have a positive impact on their client-base and partners, as well as to set the right example in the industry.

What challenges have arisen from conflict minerals regulations?

In the United States, there has been some resistance from certain political groups who claim that the regulation of conflict minerals has only helped to increase compliance costs for listed companies that must submit an annual report to the Securities and Exchange Commission (SEC) to disclose the results of country-of-origin checks to determine if the minerals that they use originated in central Africa. These groups further allege that none of this has reduced the power of warlords in the DRC. In the past, the conflict minerals rule has also faced legal challenges from industry groups. In February 2017, a few media sources reported that the Trump administration was considering suspending Section 1502 of the Dodd-Frank Act for the next two years on national security grounds.

Aside from the political and legal perspective, companies in the US have faced large costs by setting up auditing and tracing systems. Not only to comply with local regulations, but with international regulators that are also requiring more strict standards.

Additional stats involving conflict minerals regulations

In 2017, it was reported that since Section 1502 of the Dodd-Frank Act was passed, “seventy-nine percent of tin, tantalum and tungsten miners in eastern Congo now work in conflict-free mines”. Additionally, a ranking was released to examine 20 of the largest companies, in two of the industries that consume the most in tin, tungsten, tantalum and gold: consumer electronics and jewelry retail. Among the best companies making progress in sourcing conflict-free minerals from Congo are: Apple, Alphabet (Google), HP, Microsoft and Intel. However, most jewelry companies except for Tiffany & Co are lagging far behind, so there is still a long way to go. The ranks were based on four criteria: conducting conflict minerals sourcing due diligence and reporting; developing a conflict-free minerals trade and sourcing conflict-free minerals from Congo; supporting and improving livelihoods for artisanal mining communities in eastern Congo; and conflict-free minerals advocacy.