Why Congo’s Conflict Gold is Hard to Regulate

In the Democratic Republic of the Congo five million people have died in conflicts fueled largely by the gold trade. It’s worrying then that shady gold-mining practices seem to be largely untouched by new conflict minerals regulation.

The conflict minerals regulation, which was attached to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, requires publicly traded companies in the United States to disclose whether or not their products contain tin, tungsten, tantalum and gold—or 3TG for short—from conflict zones within the DRC.

The regulation is an attempt to curb the violence and human rights abuses in the DRC and adjoining countries. Such violence is perpetrated by warlords who control the trade of the three T’s and gold commonly found in cellphones, electronics and other products.

But while many companies struggle to comply with the conflict minerals rule, a new study by the International Peace Information Service (IPIS), a Belgian organization, has found that hard-to-trace gold may be falling through the cracks.

According to the IPIS, nearly 500 out of the 800 mines it surveyed in the DRC are run by armed groups or the corrupt Congolese army. Many of these are gold mines, and because the market value of gold has skyrocketed in recent years, the mines have become very profitable for armed factions.

Gold like diamonds is easy to smuggle because it has a higher value-to-weight ratio, and documenting and certifying the origin of gold is extremely difficult. While it may be possible to accurately trace the origin of tin, tungsten, tantalum and other minerals though lab testing, gold is trickier. It’s easily melted, and once it is, tracing it by its physical properties becomes almost impossible.

Even if the origins of such minerals could be traced through lab testing, it seems highly unlikely that many companies would invest the time and money required to test every part and component in its supply chain in order to ascertain a geological background.

The new conflict mineral law (which officially goes into effect May 2014) requires U.S. manufacturers to demonstrate a conscientious effort to establish a conflict-free supply chain, and some U.S. companies have already spearheaded responsible trade initiatives in the DRC region.

Motorola’s Solutions for Hope Project has created a closed-pipe supply line with all suppliers—mines, exporters, processors, component manufacturers and end users—identified in advance. As well, the Conflict Free Tin Initiative has brought together companies like Tata Steel and BlackBerry in an effort to build a responsible supply chain. Still many other companies have chosen simply to boycott the DRC entirely.

See more articles on Congo and the new conflict minerals rule.

While the electronics industry scrambles to meet the May deadline for conflict minerals disclosure, others for now, get a free pass. The retail industry, for the most part, is not required to report conflict-mineral connections, meaning that big-box stores like Wal-Mart— the largest gold retailer in the U.S.—and Target escape scrutiny.

Experts on Congo say that there are strong links between gold buyers in bordering Uganda and Rwanda and armed groups in the DRC. In this case, it may be that the gold trade can be better controlled by focusing on gold buyers at the local level.

Rwanda has already disciplined several traders, and the Congolese government penalized some gold buyers last year, when it suspended the export licenses of two Chinese companies amid allegations they dealt in conflict minerals.

Visit the Conflict Minerals Compliance Resource Center to learn more about the conflict minerals regulation, compliance solutions, and emerging best practices from leading organizations.

Photo Credit: LIONEL HEALING/AFP/Getty Images

This entry was posted in Industry News, Supply Chain & Compliance and tagged , , , . Bookmark the permalink.

2 thoughts on “Why Congo’s Conflict Gold is Hard to Regulate”

  1. Fred Smith says:

    I am finding many companies are addressing the industrial metals (tin, tanatalum, and tungsten) more aggressively than gold. I suspect it is because gold poses a much more difficult problem. In addition to the numbers of source mines and value-to-weight differences, it seems that anyone with a bunson burner may be considered a refiner. Gold does not require the significant capital investments to smelt in quantity that the other metals do. For this and other reasons there is no natural bottleneck such as smelters on which to hang the law. Even the recognized OECD framework treats gold separately from the others. I will be interested in the GAO’s and other assessments as they come out. I worry that post 2016, NGOs may fail to praise note-worthy efforts on 3T, and blast the same organizations for more modest results with respect to gold. I imagine there will be calls to tweak the regulation just as it is coming over a hump.

    What are your perspectives, or differences in approach? What strategies are most successful for gold?

  2. Steve Wall says:

    Interesting article, Nancy. This helps to understand the complexity of the issue…

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s