Unpicking the connections between Resources and armed conflict
This article describes the range of initiatives being taken to combat the misuse of natural resources to fund unlawful armed conflict, including attempts by the formal gold mining sector to establish a new ‘conflict-free gold’ standard.
Linkages between natural resources and armed conflict
Over the last fifteen years there has been a growing awareness of the role which natural resources, when controlled by malign forces, can play in triggering, funding or prolonging armed conflict. There are a number of such conflicts in which resources have played a role including timber in Cambodia, oil in the Aceh Province of Indonesia, oil and diamonds in Angola and diamonds in Sierra Leone, Liberia and the Democratic Republic of Congo (DRC).
The genesis and rationale for these conflicts is complex and they are typically associated with multiple inter-related factors, including religious or ethnic tensions and differences in ideology. The desire of one political faction or armed group to control land – and the resources that go with it – is, however, often a factor, albeit rarely the dominant one. It is clear, as the painful reconstruction of many of these countries reminds us, that armed conflict is damaging for development.
In this context, much work has been undertaken over recent years to attempt to cut links between natural resources and unlawful armed conflict, while recognising that, responsibly produced and traded, these natural resources have the potential to promote social and economic development, and to contribute to prosperity and peace.
It is important to note, however, that it is bad people who trigger conflict and abuse human rights, not bad minerals. Terms such as “conflict minerals” or “blood diamonds” are not helpful, if they create the impression that it is the inanimate materials themselves that are somehow “bad”. This risks stigmatising entire commodities – and the people who work with or use them - on the basis of what is usually, in the global context, a relatively small number of “bad actors”. In developing public policy and industry-led approaches, we need to be very mindful of this, and not unduly risk the livelihoods of large numbers of legitimate actors and consumers in the supply chains of gold, diamonds and other minerals.
The terrible conflict in the DRC has seen the death of over five million people. Periodic reports by the UN Group of Experts have evidenced the role that minerals have played in partially financing this conflict. This has sparked a number of initiatives to improve governance and increase the traceability of some key minerals so as to reduce the likelihood of them being used to fund wars, albeit it is recognised that additional approaches are needed to address the underlying causes of the conflict.
These initiatives fall into three main categories: regulatory, normative and industry-led.
1. Regulatory Initiatives
Section 1502 of the Wall Street Reform (Dodd-Frank) Act requires US-listed manufacturers who use tin, tantalum, tungsten (the three ‘T’s) and gold in their products to ascertain whether they come from the DRC or the nine surrounding countries. If they do use these so-called “conflict minerals”, or if they are unable to determine their origin, the company needs to conduct ‘due diligence’ to find out whether their supplies may have been implicated in funding the conflict.
There is widespread support for the humanitarian objectives that underpin the Dodd-Frank Act. However, gold is extremely fungible, inherently recyclable and of high value, acting as much as a currency as a commodity, altogether implying that gold supply chains are not linear. Instead, the refinery becomes a central “collection point” for gold from many sources and when gold passes through a refinery, it loses its connection with its point of origin. This makes it impossible for downstream participants in the gold supply chain, including jewellery, electronics and aerospace manufacturers to trace the point of extraction for the gold that they are using.
In the case of the three Ts (the effect is currently less visible in the case of gold) the legislation has played a key role in reducing demand for minerals from the DRC, even if they have been mined outside the areas impacted by conflict. Reports from the Organisation for Economic Co-operation and Development (OECD) talk of a 90% decline in sales, as companies look for alternative suppliers, wary of the additional costs of compliance of sourcing from the DRC. This has significantly reduced trade and employment, making the day-to-day challenges of putting food on the table harder, and arguably increasing instability in the region.
2. Normative Initiatives
The OECD attempts to put due-diligence processes in place to look at the activities undertaken by actors in the supply-chain. Drawing upon work done by the UN Group of Experts and the International Conference on the Great Lakes Region, the OECD has produced guidance on responsible supply chains of minerals from conflict-affected and high-risk areas. This is supported by separate supplements on the ‘3Ts’ and gold. Although strongly influenced by concerns about the DRC, the Guidance has global application.
The Gold Supplement is required because of the unique nature of the gold supply chain. A little over half of annual supply comes from newly-mined gold produced by formal mining operations and in recent years, up to 40% has come from recycled sources with the balance emanating from artisanal and small-scale producers.
As a point of comparison, less than 1% of the supply of newly-mined gold comes from the DRC.
The Artisanal and Small Scale Mining (ASM) sector is a very large provider of employment. Due to its informality, and in some cases seasonality, of activities, it is hard to get exact figures, but estimates suggest that between 10 and 20 million people globally may be directly involved. Unfortunately, in addition to its frequent association with child labour, the uncontrolled use of mercury and poor safety and environmental practices, much of ASM operates either illegally or in a legal grey area. This informality, together with their lack of scale, makes artisanal miners vulnerable to exploitation by opportunistic middle-men who ensure that, even at times of high gold prices, most artisanal miners don’t enjoy a significant return on their labours. This risk is multiplied in weak governance areas, where they may suffer extortion by armed groups and be a key source of finance for criminal networks and militias. Moreover, in relation to securing continued access to markets, now that an increasing number of industrial users want assurance about the origins of the gold they use, artisanal miners rarely have the capacity to meet their would-be customers’ due diligence requirements.
This conundrum of ASM being associated with the greatest conflict risks but being least able to provide assurance to downstream users, has posed a significant challenge for the OECD process. No stakeholders want to deny legitimate artisanal miners access to markets or to drive them into the clutches of criminal groups, and the OECD Gold Supplement recognises this. In particular, Appendix 1 of the OECD Gold Supplement calls on a broad range of actors to work together to ensure that responsible ASM enterprises can continue to have access to international markets.
3. Industry-Led Initiatives
Pre-dating the Dodd-Frank Act and the OECD Due-Diligence Guidance, leading gold mining companies, working through the World Gold Council, had begun working to develop a standard through which responsible companies, operating in conflict-affected or high-risk zones can demonstrate that their gold has been extracted in a manner that does not cause, support or benefit unlawful armed conflict.
The work was initiated for three reasons: first, because of the desire to cut any link between gold and armed conflict; secondly, to protect the reputation of gold in the minds of end-users and consumers; and thirdly to create a framework that would help mines operating in difficult environments show that they can do so without fuelling armed conflict and so contribute to sustainable development and poverty reduction. It is increasingly recognised that the closure of a responsibly managed source of employment and, often, of infrastructure support, in a potential conflict zone tends to make matters worse.
The Conflict-Free Gold Standard was published in October 2012 after over two years of work and an exhaustive process of stakeholder engagement involving two rounds of external consultation to ensure its credibility and field-testing to ensure its practicability. Over 100 organisations participated through bilateral meetings, written submissions or eight roundtable events across five continents. They included 16 governments, leading NGOs, investors, academics, international organisations and supply chain participants.
The Standard is an open-source framework that can be used by any gold mining company. Conformance will be subject to independent, external assurance and public reporting. The Standard is based upon a set of demanding benchmarks and draws upon internationally recognised standards including the OECD Guidance on responsible mineral supply chains, the UN Guiding Principles on Business and Human Rights and the Voluntary Principles on Security and Human Rights. When operating in areas assessed to be ‘conflict-affected or high-risk’, it requires companies to have a policy on human rights and to show how this is implemented including through areas such as the management of security provision, disclosure of payments to governments, tracking of benefits in kind, including the use of company assets, regular engagement with affected communities and provision for whistle-blowing and for resolving grievances. It also requires monitoring of gold bearing material during the mining process, to guard against ‘leakage’ from the mine site that could benefit militias. Due diligence requirements are also set out, where a mine acquires gold-bearing material from external parties. The Standard applies in a conflict or high risk situation, irrespective of whether or not mineral production has been implicated in funding or causing the conflict. The mere presence of armed conflict makes additional controls and extra due diligence appropriate.
A key challenge has been to define which gold producing areas are ‘conflict-affected or high risk’. This is tough even for seasoned international relations specialists, let alone asking individual mines to pass consistent and sensitive judgements on the countries where they work when their license to operate is dependent upon the goodwill of a potentially sensitive host government. Thus we have sought to draw as much as possible upon widely-accepted external sources such as United Nations Security Council resolutions and the Conflict Barometer published by the Heidelberg Institute for Conflict Research. This use of external benchmarks does not obviate the need for a mine to undertake their own due diligence.
Complementary industry-led initiatives have been developed, including the London Bullion Market Association’s Responsible Gold Guidance (focused on refiners), the Responsible Jewellery Council’s Chain-of-Custody Standard (focused on the requirements of the jewellery supply-chain) and the Electronic Industry Citizenship Coalition and the Global e-Sustainability Initiative’s Conflict-Free Smelter Programme. The first two mirror the OECD global approach, the latter one focuses on the DRC and surrounding countries.
Summary
Unpicking the links between minerals and conflict is a significant and complex challenge and industry, government and civil society need to work together to ensure that gold is not misused to fund armed conflict. Challenges remain, notably the need for improved governance and formalisation of the ASM sector which will require leadership from host governments and donors as well as other stakeholders. We must also continue to guard against unintended consequences and managing in balance, the need for increased levels of compliance and oversight without negatively impacting those responsible operators least able to conform. However, collectively, these are significant events which will help to shape the development dialogue and the role that governments, civil society and industry all play in advancing society’s needs.
Terry Heymann is Director, Responsible Gold, at the World Gold Council.
This article was published in Great Insights Volume 2, Issue 2 (February-March 2013)
