September 18, 2014

Tracing 3TG to Their Source of Origin Proves Onerous Even for the DOC

Jon Bovit

The U.S. Commerce Department's list of smelters may help companies track 3TG, but perhaps not as much as expected.

The U.S. Department of Commerce recently published its much-awaited list of all know smelters and refiners known to process tantalum, tin, tungsten or gold, the so-called conflict minerals.

But, even the DOC, with it extended global reach and access to information from multiple organizations, admits in its report that it does “not have the ability to distinguish” which facilities are actually funding the conflict in the Democratic Republic of Congo and adjoining countries.

This is what the DOC said about its challenges in collecting this level of data:

“During Commerce’s research of global smelters, certain hurdles to creating a list of all known processing facilities became clear. Primarily, there are artisanal miners that process small amounts of materials and are known to be employed in eastern Congo. Because these producers of metals are ‘off the grid,’ it is very difficult to trace exactly where these small amounts of materials are smelted.

There is also evidence of guerilla smelting operations throughout Africa that create makeshift smelters which produce an intermediary product of tantalum, tungsten and tin, and then ship the product overseas to scrap yards and informal metal traders and exchanges. The materials are often transshipped to another country and then flaked or shaved prior to being sent to a smelter.

Finally, we note that gold purchased through the Shanghai Gold Exchange (SGE) accounts for 15-20 percent of all the gold used for commercial purposes. It is also recognized that the vast majority of the gold sold worldwide is comingled at the SGE. The SGE has not released, nor does it keep, records of where its gold is sourced. Therefore, any material that is purchased through the SGE is untraceable to a smelter, refiner or processor of origin.”

So, if the DOC is struggling to verify the source of origin of these minerals and cannot determine whether or not the sale of these raw materials is funding militia groups in and around the DRC, how are businesses going to successfully do their own due diligence on this complex issue for conflict minerals compliance? The primary reason why the SEC mandated publicly traded companies to track and trace these minerals was to curb the humanitarian crisis and limit how money was flowing back into a guerilla war happening in that African country.

As the DOC smelters list and report shows, compliance with Section 1502 of the Dodd-Frank Act is, in fact, proving to be a difficult task for many companies, something we see first hand and is emphasized in this recent FCPA blog.

Still, despite the challenges, companies publicly traded on U.S. stock markets will have to find a way to meet these regulations.

The DOC report, though inconclusive about how conflict minerals, smelters and militia groups are linked, provides companies with a starting point worth reviewing. The Commerce Department provides a comprehensive list of more than 400 refinery and smelter sites.

In addition to that, companies can improve their compliance initiatives by:

  • Focusing on their supply chain visibility and mapping capabilities
  • Engaging with, training and onboarding multiple tiers of suppliers
  • Integrating their conflict minerals program into their risk management strategies.

Companies that see these challenges as opportunities will earn more than compliance merits. They’ll create competitive advantages, increase their value and mitigate risk.

Download this white paper to find out how companies are preparing for this year’s conflict minerals reporting cycle and how they’re overcoming due diligence obstacles.

Topics: conflict minerals, 3TG, conflict minerals compliance