Conflict Minerals legislation: A box ticking fallacy

January 17, 2016 OpenSystems Media

Is conflict minerals legislation really enforceable, or a box ticking fallacy? And is it unconstitutional?

Electronics manufacturers across the globe breathe sighs of despair as they open that email, one requesting guarantees of conformity of their product to the latest Conflict Minerals legislation. Those sighs are not reflective of any disagreement of the morality behind the legislation; one of course would find it incredibly difficult to argue for consciously funding civil wars and terrorism in war-torn developing countries, or the exploitation of vulnerable people. This is a useful point to address early on. A relevant analogy I like to use is environmental policies, where again no sane person, unless being purposefully controversial, would argue against the protection of our planet – but that doesn’t directly dictate the validity of every single environmental policy on its own.

The Conflict Minerals legislation, also known as “Obama’s Law” was drafted in reaction to worldwide revelations that our booming electronics industry is effectively directly funding terrorism, particularly in the Democratic Republic of Congo (D.R.C) – no Western country can politically afford to be seen to be party to such funding, particularly in this day and age. The key elements covered by the legislation are gold, tungsten, tantalum, and tin, though many less-well-known compounds also fall under its remit.

Similar to anti-poaching ivory legislation designed to protect elephants and rhinoceroses by cutting off demand in the West, the Conflict Minerals legislation aims, by ensuring as many sources as possible are using “legitimately” mined materials and can prove it, that demand from conflict areas is suffocated. Though, in my opinion, the legislation is fundamentally flawed as it is unenforceable. Ivory supply is somewhat easier to control than metals; there is no such thing as legitimately sourced ivory – it’s all come from a dead and often endangered animal. As a raw material, and one that happens to be malleable, disguising those metals to hide their origin is actually relatively simple – even if it wasn’t, there’s a big budget available with gold reaching a $2,000 per ounce high last year.

I quote from a recent article from Reuters:

“People like Lobho who find it hard to feed their families ask few questions about the origins of the metal on offer. Lobho buys around 50 grams of metal a week, which he sends on to an exporter in the district capital Bunia about 85 km (55 miles) away. He says he doesn’t need to provide any documentation and says trading gold from areas where conflict continues, such as the Kivu provinces, is easy. ‘If someone comes from North Kivu, they can sell here, of course,’ he told Reuters. ‘No problem’.”

Therefore, despite the best moral intentions of this legislation, if the opportunity exists for corruption near the source (usually a mine), which the West have zero control over, surely the whole legislation is rendered futile? You’d think so, but similar to the (good) social politics that have reduced DUI, littering, and dog fouling, a climate exists where questioning such legislation is tantamount to apparently siding with the D.R.C. warlords!

So this quickly becomes a global buck passing and box ticking exercise, where responsibility of guaranteeing conformity is passed up the supply chain all the way to Lobho above who cares far more for feeding his starving family than foreign laws which have no jurisdiction where he lives anyway – of course Lobho will sign whatever he’s asked to and that guarantee is passed all the way back to you. Great, we all feel a little bit better about ourselves, but what have we really achieved?

Interestingly, on August 18, 2015 the U.S. appeals court ruled conflict minerals demands violate companies’ free speech, thus is unconstitutional – a devastating verdict indeed given how ingrained conformity to the constitution is, even to the general public. So unconstitutional and unenforceable – the latter particularly true of our favourite precious metal, gold.

“Gold is just less tractable as a mineral in terms of being responsive to this kind of regulation, because it’s so easily smuggled,” Fred Robarts, coordinator of the Group of Experts’ report states. The D.R.C has a single official large-scale gold producer, Banro; aside from their output official figures state 112 kg of gold was exported last year, though unofficial estimates put that at less than 10 percent of the actual output, thus nearly a ton of gold leaves the DRC each year unofficially – worth more than $50 million in refined form.

Aside from output from Canadian miner Banro, Congo’s only large-scale producer at present, the country officially exported around 112 kg of gold last year. But one mining official in Kinshasa estimated that figure is probably less than 10 percent of the actual amount. That means more than 1,000 kg per year may be leaving Congo unofficially, worth more than $50 million in refined form. Attempting to control unofficial suppliers is notoriously challenging, with smuggling in its pure form and its capability of being mixed with other metals for export and the pure gold retrieved later by melting.

The gold supply chain centralises in Dubai, where the majority is bound for India, the world’s biggest consumer of gold, and elsewhere in the Middle East where concerns about its origin are far less so than in the Western world. The precious metals not only facilitate their booming electronics industry but also their jewellery trade. Adherence to Conflict Minerals legislation in the jewellery business, particularly in finished pieces, still lags well behind that we’re familiar with in electronics.

Detailed guidelines for Conflict Mineral legislation are actually still pending. Even when the act is fully enforceable, companies will not be punished directly for buying from Congo and its neighbours. However, if their reporting later turns out to be inaccurate, they could fall foul of disclosure regulations, leaving them open to civil and criminal penalties. Company Directors could be held individually liable, in theory.

The real concern for those signing off Conflict Minerals guarantees of supply is the reality that they can never truly know if what they’re guaranteeing is true. The reality is Western countries do not and cannot control where these minerals are sourced from, unless they intend to control the mines themselves and strictly only use minerals retrieved from within them, with full traceability.

As with our anti-ivory example, upper end legislation aimed at suffocating demand has some value, but the real action must take place at the source, tightly controlled national parks guarded by anti-poaching wardens. To make a real impact, more direct action within Congo is needed to target the warlords who profit from gold trading.

Convincing traders in Congo that this is practical will be an uphill task. A Reuter’s source beautifully demonstrates its simplicity:

“How can we differentiate gold?” said Silva Ucima. “It’s all yellow. How can you know where it comes from?”

Rory Dear, European Editor/Technical Contributor
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