Minerals not to die for

©Reuters/Finbarr O'Reilly

The OECD is cooperating with governments and companies to combat the scourge of conflict minerals and has issued a guidance that several African countries have endorsed. There are encouraging signs of progress.

Rare metal ores scratched from the ground, often by children, in countries such as those in the Great Lakes region of the continent, are used to make a range of routine high-tech goods for sale in OECD countries and worldwide, such as laptops, mobile phones and light-bulbs. This is a lucrative industry, but it is also a fraught and dangerous one, with deep-seated interests, both in terms of sellers and buyers. Indeed, mineral sales have been known to contribute to finance armed violence in several African countries for years. In remote parts of the Democratic Republic of Congo (DRC) for instance, ravaged by civil war for much of the past 15 years, ores rich in tin, tantalum, tungsten and gold are still being mined and sold by militias and racketeers. Across the state borders, accomplices are said to aid and abet their illicit trade.

But who really drives this trade and who really profits? What role if any do governments, mining companies, importers, shippers or IT manufacturers play? How can the rewards be routed towards the countries that produce the minerals, and away from opaque, criminal interests?

Now, governments, international organisations and interested companies have joined forces to combat abuses in the precious mineral sector by bringing new transparency to the supply chain.

At the heart of their efforts lies a set of due diligence recommendations developed at the OECD and complemented by on-going certification efforts led by African countries themselves.

Backed by the United Nations, the OECD drive to freeze so-called “conflict minerals” has gained momentum as a result of legislation passed by the US Congress in 2010. The Dodd-Frank Wall Street Reform and Consumer Protection Act began as an effort to clean up American financial markets. In one of many sub-clauses, it imposed stiff reporting requirements on US-listed companies that use or trade in minerals from the DRC.

The result was a flurry of concern among international businesses. Many firms stopped buying in the region, prices plummeted and trading firms closed. Some complained that the effect, though unintended, was to cut even legitimate DRC minerals suppliers off from their markets.

The fallout from Dodd-Frank spurred the OECD and others in their efforts to find a way forward and their discussions gave birth to a set of recommendations enshrined in the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.

The Guidance, with the approval of African countries–Angola, Burundi, Central African Republic, Republic of Congo, Democratic Republic of Congo, Kenya, Rwanda, Sudan, Tanzania, Uganda and Zambia–calls on all participants in the supply chain, from mining companies to exporters, processors and end-users, to undertake due diligence to ensure that the minerals that they trade, process and include in final products are free of any association with conflict. In 60 pages, it sets out detailed recommendations for action at company level, including the appointment of officers directly responsible for undertaking due diligence and the public disclosure of actions taken to address or mitigate risks.

And in case anything is still unclear, it includes a series of red flags to alert companies to possible risks, such as, for example, the fact that minerals may have transited through a conflict area or that a supplier may have a stake in a company operating in such an area.

For multinationals like Boeing, Nokia, General Electric and Siemens, which use tin, tantalum, tungsten and gold in their products, following the OECD recommendations will not merely enable them to conform to the requirements of Dodd-Frank. It will also help them to avoid the risks to their reputation of being associated with human rights abuses and irresponsible practices.

That is why they and more than two dozen other major corporates, plus associations representing the electronics and auto-motive industries, are working with the OECD as part of the programme to implement effective due diligence systems for companies “downstream” in the minerals supply chain. But “downstream” companies need to be confident that parallel controls are operating “upstream” in the supply chain at the level of mining companies, traders, processors and smelters.

Drawing on the OECD Guidance, “upstream” participants have now joined forces in Africa to prevent illicit “conflict minerals” from entering the supply chain. One example is a system of bagging and tagging minerals now being implemented to trace the origin of minerals in the DRC province of Katanga and in Rwanda. Ore that is mined legitimately is required to be stored and transported in bags bearing official tags certifying each consignment’s origin, weight and composition. These tags then accompany shipments to the smelters who transform the ore into metal.

Organised by ITRI, an industry organisation grouping the world’s major tin mining and smelting companies, and the Tantalum-Niobium International Study Center, or T.I.C., which groups companies involved with tantalum and niobium used to make turbine blades, the system, known as iTSCi (ITRI Tin Supply Chain Initiative) also ensures weight checks and other controls on bagged material are used to avoid the clandestine infiltration of illicit minerals into the supply chain.

Implementing all this is easier said than done, of course, and ending the trade in “conflict minerals” won’t happen overnight. Much of the region’s mining activity is informal, carried out by artisanal miners that dig out and sell their production to buying houses known as comptoirs, which then sell it on to exporters and processors. Large tracts of minerals-rich territory in the eastern DRC are outside the control of the central government, with poor communications and no roads. Despite a sharp drop in demand for minerals from these areas in the wake of Dodd-Frank, armed rebels and criminal groups continue to exploit deposits under their control. Though prices for ore from these areas have plunged, late in 2011 the UN reported that a few comptoirs were still purchasing untagged minerals for sale to refiners, smelters and traders in China.

Other major weaknesses include the lack of border controls between the DRC and Rwanda, where a number of mining companies have reported unexplained increases in production, prompting suspicions that they are siphoning minerals (though not necessarily conflict ones) from the DRC into the supply chain. Even in areas where the “bag and tag” system is up and running–in fact, in Rwanda, the transportation of minerals without tags has been made illegal–there is still room for improvement in the processes for issuing tags and recording the data of shipments. Log books get incorrectly filled in, lost, or damaged by bad weather. Some companies conspire with tagging officials to circumvent the process.

Despite such shortcomings, officials involved in monitoring the process are optimistic. Rwanda’s Geology and Mines Department has hired more than 100 agents to administer tagging, and some 25,000 workers at more than 400 Rwandan mining sites are now covered by the traceability scheme. In the DRC, things are less advanced, but more than 12,000 miners on 123 sites in seven target areas of Katanga are now involved.

“It was really a huge step forward to implement the iTSCi processes in both the DRC and Rwanda,” says Cecile Collin of Brussels-based consultancy Channel Research, which has been auditing the bagging and tagging programme. “Hundreds of people are mobilised.”

Efforts are being made to comply with the OECD Guidance both by the corporate sector of the mineral supply chain and by the institutions and state services of the DRC and Rwanda, she notes. In March 2012 the Rwandan Geology and Mines Department (GMD) blacklisted four Rwandan companies for illegally tagging minerals, and in May the DRC suspended the operations of two exporting companies for failing to check on the sources of mineral ores they were trading. These developments follow Rwanda’s announcement in October 2011 that it was returning to the DRC 70 tonnes of untagged minerals that had been smuggled across its borders, and the arrest of four senior military officers on charges of illicit cross-border dealings in January 2012. “There is a need to make some adjustments in terms of procedures,” Ms. Collin acknowledges, but “these are being monitored.”

At ITRI’s headquarters in the UK, officials share this positive view.

Although the main objective of the system is the control of “conflict minerals”, there have also been some useful side-effects. DRC officials say they now find it easier to monitor minerals production and flows and collect legal taxes, while local traders and transporters say they are less subject to fraud, extortion and theft.

Long-term, cleaner minerals trading will provide benefits for everyone–with the exception of warlords, racketeers and rapists. “Companies who perform due diligence, both through their own company actions and through iTSCi, are hoping to reduce the risk of exposure to reputational damage,” says Kay Nimmo, ITRI’s manager of regulatory affairs.

But even more important for many, she suggests, is being “part of a system that will allow clean trade to grow and develop, increasing opportunity for local and international companies alike.”

*Nicholas Bray is a journalist and former media chief at the OECD

For more on the OECD Guidance, visit www.oecd.org/daf/investment/mining

www.itri.co.uk

©OECD Observer No 292, Q3 2012




Economic data

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