Conflict minerals the DRC crisis and the role of Corporate Responsibility

(part 2 of a series)

Agni Mentaki Tripodi

14 September 2021

Conflict Minerals supply chain

In order to better understand the parameters of the crisis and the challenges faced in getting it resolved, it is worth gaining some more insights on the conflict minerals supply chain.

The process of bringing a raw mineral to the consumer market involves multiple actors and in general it includes the extraction, transport, handling, trading, processing, smelting, refining and alloying, manufacturing and sale of end product. The term supply chain refers to the “system of all the activities, organizations, actors, technology, information, resources and services involved in moving the mineral from the extraction site downstream to its incorporation in the final product for end consumers” (OECD Due diligence report 2009).

The complexity of conflict minerals supply chain becomes apparent when looking at the ICT industry as an example. A communications company would approximately need to shift through 35 manufacturers, 60 to 80 parts suppliers, more than 1,000 commodity parts suppliers, and an unknown number of distributors to get to all of its sources. Since very small quantities of conflict minerals are typically integrated into any given product, traceability is even more difficult. For example, a 2 kilogram (4.5 pound) laptop contains 10 grams of tin, 0.6 grams of tantalum, 0.3 grams of gold, and 0.0009 grams of tungsten (A.T Kearney analysis 2014)

There are many discussions, initiatives and proposed solutions developed for both upstream and downstream directions of the supply chain of the conflict minerals.

According to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals “upstream” means the mineral supply chain from the mine to smelters/refiners. “Upstream companies” include miners (artisanal and small-scale or large-scale producers) local traders or exporters from the country of mineral origin, international concentrate traders, mineral re-processors and smelters/refiners. “Downstream” means the minerals supply chain from smelters/refiners to retailers. “Downstream companies” include metal traders and exchanges, component manufacturers, product manufacturers, original equipment manufacturers (OEMs) and retailers.

In order to understand the complexity and implications involved in the upstream supply chain, this section will describe the known stages of the conflict minerals supply chain as depicted in figure below:

Source: FlatIcon (2019)

The “Mining” stage – There are approximately 200 mines in total in the Eastern Congo region. Twelve of the thirteen major ones are controlled by armed groups. It is estimated that armed groups and military control over 50% of the 200 of the total mines (A.T Kearney analysis 2014).

Luwowo mine near Rubaya, North Kivu, DRC  Photo: © MONUSCO/Sylvain Liechti

The “Trading” stage – Minerals are transported to trading towns and then onto the two major cities in the region- Bukavu and Goma. The 3T’s are brought by individuals on their backs, by large trucks, and/or planes. The minerals are then sorted at trading houses (A.T Kearney analysis 2014).

The “Exporters” stage – Afterwards, export companies buy minerals from the trading houses and transporters, process the minerals using machinery and then sell them to foreign buyers. There are 17 exporters based in Bukavu and 24 based in Goma.

The “Transit Countries” stage – This stage in the supply chain of conflict minerals refers to the group of DRC neighboring countries of Rwanda, Uganda, and Burundi, where exporters send the minerals before they are further processed, smelted or refined.

The “Smelting-Refining” stage – Smelters quite often referred to as refiners, are metal processing companies based mainly in East Asia that take the Congolese minerals and smelt or chemically process them together with metals from other countries in large furnaces. Smelters have been identified as the crucial traceability point (A.T Kearney analysis 2014).

The “Manufacturing” stage – The smelters sell Congo’s minerals to companies. In one way or another, a wide range of industries use conflict minerals – from automotive and aerospace to jewelry and leisure. Although found in very small quantities, conflict minerals can be used in products as diverse as cell phones, laptops, canned food, automobiles, golf clubs, and wedding rings.

The “end-consumers” stage – This stage refers to the consumers who buy and use all final products that contain conflict minerals and are the final destination in the supply chain journey (A.T Kearney analysis 2014).

Companies involved in the mining and trade of minerals in conflict-affected and high-risk areas, have the opportunity to generate income, growth and prosperity as well as foster local social and economic development. On the other hand, they may also be at risk of contributing to or being associated with significant adverse impacts, including serious human rights abuses and conflict. Therefore, a number of laws and pieces of guidance have been developed to help companies respect human rights and avoid contributing to conflict through their sourcing strategy and their suppliers’ choice.

Legislation on Conflict Minerals

The “OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas” provides companies with due diligence recommendations for responsible global supply chains of minerals. It is intended to serve as a tool to cultivate transparent mineral supply chains and sustainable corporate engagement in the minerals sector, while enabling countries to benefit from their natural mineral resources (OECD Due diligence report 2009). The guidance provides detailed recommendations to help companies respect human rights and avoid contributing to conflict through their mineral purchasing decisions and practices.

This Guidance is for use by any company potentially sourcing minerals or metals from conflict-affected and high-risk areas. The OECD Guidance is global in scope, and applies to all mineral supply chains.

The 3rd Edition of the OECD Due Diligence Guidance was published in April 2016. The updated version clarifies that the Guidance provides a framework for detailed due diligence as a basis for responsible supply chain management of minerals, including tin, tantalum, tungsten and gold, as well as all other mineral resources.

In addition to the 35 OECD Members, 8 non-Members, namely Argentina, Brazil, Colombia, Costa Rica, Lithuania, Morocco, Peru and Romania, adhered to the Council Recommendation.

On 21 July 2010, the United States Congress similarly enacted the Dodd-Frank Act, which requires certain public companies to provide disclosures about the use of specified conflict minerals emanating from the DRC and nine adjoining countries (Covered Countries). More specifically, section 1502 of the Act intends to reveal the financial interests that support armed groups in the DRC area. By requiring companies to disclose the source of such minerals, this legislation aims to dissuade companies from continuing to engage in trade that supports regional conflicts.

The United Nations Security Council resolution 1952 (2010) supports taking forward the due diligence recommendations contained in the UN Group of Experts on the Democratic Republic of the Congo final report, which endorses and relies on the OECD Guidance.

The Lusaka Declaration signed by 11 Heads of State of the International Conference on the Great Lakes Region (ICGLR) in December 2010 states the processes and standards of the OECD Due Diligence Guidance will be integrated into the six tools of the Regional Initiative against the Illegal Exploitation of Natural Resources. The governments of Burundi, the Democratic Republic of Congo, and Rwanda have integrated it into their legal frameworks.

In 2012, the US Securities and Exchange Commission recognised the OECD Guidance as an international framework for due diligence measures undertaken by companies that are required to file a conflict minerals report under the final rule implementing section 1502 of the Dodd-Frank legislation. The US Department of State endorses the Guidance and encourages companies to draw upon it as they establish their due diligence practices.

The Chinese Due Diligence Guidelines for Responsible Mineral Supply Chains, based on the OECD Guidance, were adopted in December 2015 in Beijing. The Guidelines are designed to align Chinese company due diligence with international standards and allow for mutual recognition with existing international initiatives and legislations.

In May 2017, the European Union adopted Regulation (EU) 2017/821. The Regulation lays down supply chain due diligence obligations for Union importers of tin, tantalum and tungsten, their ores, and gold originating from conflict-affected and high-risk areas in accordance with the 5 steps of the OECD Guidance. The new EU rules will force importers of tin, gold, tungsten and tantalum (the material that makes mobile phones vibrate) to ensure that their raw materials do not come from conflict zones and are not used to finance armed conflicts. The new rules demand greater supply chain transparency from the EU’s mineral importers. The EU Regulation entered into force in January 2021.

On December 17, 2020, the European Commission published the Indicative, non-exhaustive list of Conflict-Affected and High-Risk Areas under Regulation (EU) 2017/821. It greatly expands the list of regions companies should prioritize for due diligence, due to known existing human rights issues. The list includes 208 regions from 27 countries. This ensures that companies view responsible minerals as a global issue, not only as an EU market access requirement. It also requires them to perform expanded due diligence for minerals produced from high-risk suppliers, including gold, tin, tungsten, and tantalum (3TGs).

In recent years several Industry initiatives as well as initiatives from CSO’s and individual companies are proposed to help resolve the issue of conflict minerals in the DRC. These will be presented in the 3rd part of our article.

(to be continued)

Read part 1 of conflict minerals story here: https://peopleandprofits.org/conflict-minerals-the-drc-crisis-and-the-role-of-csr/#conflictminerals-1 and part 3 here: https://peopleandprofits.org/conflict-minerals-the-drc-crisis-and-the-role-of-corporate-responsibility-part-3/#conflictminerals-3

Acknowledgments

Special thanks to my fellow researchers for conducting this research together: Cristina Manole, Mihaela Prisacaru and in memory of †Luciana Quinto.