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Tag Archives: Responsible Supply Chains

Here is what you need to know about China’s new Conflict Minerals Guidelines

In July, RCS Global met with the China Chamber of Commerce of Metals, Minerals & Chemicals Importers and Exporters (CCCMC) in Beijing to discuss efforts to ensure conflict free sourcing. CCCMC has over 6’200 members across the entire mineral supply chain, including the majority of Chinese smelters and refineries supplying international value chains.

Earlier this year, CCCMC published Guidelines for Social Responsibility in Outbound Mining Investments (the Guidelines). The Guidelines include a requirement for companies to conduct risk-based supply chain due diligence to avoid funding or fuelling conflict.

To operationalize the due diligence requirement CCCMC has developed the Chinese Due Diligence Guidelines for Responsible Mineral Supply Chains (the CM Guidelines). RCS Global has received an early copy of this draft and we have summarized the five key areas here:

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OECD Conference: Responsible Supply Chains Update – May 2015

The annual OECD Conference on Due Diligence and Responsible Sourcing was held last week in Paris, France. Here are the key takeaways from this crucial conference in the calendar year.

  • New due diligence actions from China and the EU to appear in 2015
  • OECD Due Diligence is becoming mainstream worldwide for companies and countries
  • SEC issuers are concerned with data quality which is creating pressures and increasing scrutiny upstream on gold and development issues

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What’s behind your supplier’s declaration of conflict free supply chains?

RCS Global conducts the world’s first independent conflict minerals audits of Asia-based suppliers. By Michèle Brülhart

RCS Global recently completed a second round of conflict minerals audits of Asia based suppliers to review their determination of scope for the country of origin inquiry and validate the declarations made in the Conflict Minerals Reporting Template (CMRT) of the CFSI. Perhaps not surprisingly, we found that referring to the smelter and refinery list as the only criteria to determine risk associated with a supplier is not an effective way to capture risks in the conflict minerals supply chain. Here are some of the observations RCS Global made that directly impact SEC issuer’s ability to report “DRC conflict free”:

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El Dorado: The Search for Responsible Gold Continues

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When will gold buyers and investors begin to fully support efforts in Due Diligence and Responsible Supply Chains?

In mid-October, the Responsible Gold Conference hosted by the London Bullion Market Association (LBMA) and the Responsible Jewellery Council (RJC) was held in Lima, Peru, as part of the LBMA’s annual gold conference. The conference centred around due diligence and the development of responsible gold supply chains, which while progressing are far off being mainstream activities within the artisanal and small scale gold supply chains. RCS Global was invited to speak on due diligence on responsible gold supply chains and presented as part of a panel of experts on the topic which included Rand Refinery and Metalor.

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RCS Global advises Trafigura on transparency journey

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Trafigura Beheer B.V., one of the world’s leading commodity trading firms, yesterday announced its commitment to a new policy designed to encourage the disclosure of payments to governments by commodities traders under the auspices of the Extractive Industries Transparency Initiative (EITI), the global standard for improving transparency of revenues from natural resources. Trafigura has been and continues to be advised on this journey by RCS Global (www.rcsglobal.com). Andrew Gowers, Trafigura’s Global Head of Corporate Affairs says, “RCS Global have done very thorough and highly professional work for us over the past 12 months in the context of our commitment to revenue transparency. We are very happy with their subject matter knowledge, their understanding of the intricacies of the trading industry and their ability to provide relevant and pragmatic advisory. We continue to rely on their services along this important journey of demonstrating our commitment to responsible business.”

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RCS Global Director Harrison Mitchell presents on due diligence at British Parliament in London

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On 20th October, RCS Global director Harrison Mitchell presented to a packed session of the All Party Parliamentary Committee on Extractives on conducting human rights due diligence in raw materials supply chains.

The presentation, which can be found here, provides a background for why human rights due diligence is increasingly important for all companies in the supply chain, from miners, to traders, manufacturers and investors. Human rights issues will continue to be of significant importance to the APPC, as well as the extractive sector generally, particularly in light of new legislation currently under discussion by the European Union on conflict minerals.

Latin America Notes: Solutions to ASM mining conflicts, a need for stakeholder participation

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According to the Observatorio de Conflictos Mineros en América Latina (Latin American Observatory on Mining Conflicts) there are more than 150 significant conflicts in the region, with many more smaller conflicts occurring. Mining conflicts generate high levels of strife and impacting negatively all stakeholders; hence it is important for decision makers, at the institutional and corporate levels, to understand how they affect the livelihoods of all actors. When referring to mining conflicts the image that generally springs to peoples’ minds is one of local communities pitted against a gigantic transnational company. However, often things are more nuanced. Conflict can, and does, happen between all actors whose livelihoods depend or are impacted by mining activities including between different segments of local communities. Any extractive activity will impact the rights of the local populations, and unless processes are set up for the local communities to express their opinion and influence decisions about impacts on their life, conflict is inevitable.

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Conflict Minerals Upstream Audits – An Auditor’s View

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RCS Global was recently asked to present to the OECD Audit Working Group on the practical challenges of conducting supply chain audits in the Democratic Republic of Congo (DRC).

In the absence of formal auditor training in the upstream mineral supply chain, exchange between the audit schemes developing a conceptual idea or standard and the auditors tasked with verifying its implementation is limited to informal platforms such as the OECD Working Group. Continue reading…

Conflict Minerals Audits

The term “conflict minerals audit” is often used to describe a wide variety of assessments that have emerged to review sourcing practices along the minerals and metals supply chain. There are audits of mining operations, mineral exporters, mineral processors, component or product manufacturers as well as of course the future audits of SEC issuers under Section 1502 of the Dodd-Frank Act. This blog provides a typology of audits to shed some light on the developments in the auditing space of conflict minerals.

Audits in the conflict minerals space can be broadly separated into three categories: legally required audits, membership audits and voluntary audits. In each category, the audit approach and objective can differ and consequently, the auditors carrying out the work can change.

Part A: legally required audits:

Ironically, the first legally required audit in the conflict minerals space is one of the latest to be carried out in practice. The Conflict Minerals Report Audit mandated by Section 1502 of the Dodd-Frank Act is a legal requirement for companies issuing reports to the U.S. Security and Exchange Commission (SEC). It follows an assurance approach that has similarities to a financial audit, albeit auditors are not required to be certified public accountants (CPAs). The Conflict Minerals Report Audit has two main objectives: 1) the verification that an issuer’s due diligence framework is designed in conformity with the criteria set forth in a nationally or internationally recognized due diligence framework (which to date is ONLY the OECD Due Diligence Guidance) and 2) whether the issuer actually performed the due diligence measures as they were described [1]. As such, the audit is relatively “light” in that it does not verify whether the due diligence measures taken actually conform to the internationally recognized due diligence framework – it simply checks the design of the due diligence system on paper and verifies if the issuer has done what they said they would do.

The second, legally required, audits are the mine inspections and verification of exporters under the framework of the International Conference on the Great Lakes Region (ICGLR). These audits in principle apply to supply chain actors in the Member States of the ICGLR[2], subject to the condition that the country has implemented the ICGLR’s Regional Certification Mechanism (RCM). Currently only Rwanda and the DRC are moving towards a full implementation of the RCM. Audits under the ICGLR claim to be aligned with the OECD Due Diligence Guidance for Responsible Mineral Supply Chains from Conflict-Affected or High-Risk Areas (“OECD DDG”), thereby following the ISO certification approach. Audits are intended to provide evidence that mine sites are free of conflict and serious human rights abuse and that minerals exported from the country can be traced back to the mine of origin. Mine inspections are carried out by the respective Government agencies and the ICGLR’s Audit Committee is expected to provide guidelines on the accreditation of auditors for the assessment of exporters this year. However considering the slow progress of the RCM it might be another 2-4 years before these auditors get into the field.



Thirdly, audits under the OECD DDG can be considered legally required. The OECD DDG is currently the only internationally recognized due diligence framework referred to by the SEC, thereby making it somehow mandatory for companies to implement the guidance in order to comply with Section 1502. There are two types of audits included in the OECD DDG. The first audit is described in Step 4 of the Guidance and should be applied at “identified points in the supply chain[3]”. Its objective is to verify that sourcing practices at these points are in conformance with the OECD DDG. The points identified are the smelter and refinery (for gold) and audits are to be carried out in accordance with ISO19011. However, the OECD itself does not propose an audit mechanism, nor does it accredit auditors. Rather, the Guidance refers to the need for institutionalized mechanisms to establish such audit schemes that conform to the guidelines set forth in Step 4. Such audit schemes include those described in Part B below, namely the CFSI, LBMA and DMCC. However, in particular for the CFSI, the program design may not yet be fully in compliance with the requirements of Step 4 of the OECD DDG. A compatibility analysis done in 2011[4] highlighted gaps which appear still relevant today in regards to the public disclosure of information as well as risk mitigation.

The second type of audit under the OECD DDG are the Upstream Risk Assessments which are described in more detail in the Appendix to the 3Ts Supplement of the Guidance. While strictly speaking these are risk assessments, the expectation here is to independently verify upstream actors’ conformance with the OECD DDG. As these assessments are not conducted under the framework of an institutionalized mechanism, there is more flexibility (or some may say inconsistency) in the approach followed as well as the procedure to select qualified auditors. In addition to the challenge related to auditor qualification, there is a shortage of auditors willing and able to carry out these assessments. In particular international auditors are reluctant to travel to remote areas in Central Africa on a regular basis. RCS is working on a detailed methodology and checklist for these upstream risk assessments, however input is required at the international level to ensure the results of the assessments are considered credible and can be relied upon further downstream.

Part B: Membership audits

Membership audits are those assessments which are mandatory for any participant in a given initiative or organization. These are not legally required, although companies face increasing pressure from downstream customers to join a specific organization. Membership audits include:

1) The Conflict-Free Smelter Initiative (CFSI): a program focused exclusively on tin, tantalum, tungsten and gold (3TG) processors and based on the ISO19011 Standard. Auditors are approved by the CFSI and the objective of the audit is to demonstrate that all incoming 3TG material is conflict free.

2) The London Bullion Market Association (LBMA): an association of gold refiners that used to be based on quality criteria only. Accreditation as “good delivery refiner” since 2012 includes the requirement to undergo regular audits of gold sourcing practices. The objective is to demonstrate compliance with the OECD DDG as well as conflict-free sourcing of gold. The LBMA allows for audits based on ISAE 3000 and ISO19011 Standards and is currently the only scheme offering both an assurance and certification approach for its members. Auditors are approved by the LBMA. The Dubai Multi Commodity Centre follows a similar approach for their refiners. However the DMCC audit guidance, while not excluding ISO based audits, is much more targeted towards assurance providers.

3) International Tin Research Institute (ITRI): ITRI established the in-region sourcing mechanism iTSCi, working with upstream companies to ensure the 3Ts are traceable to the mine of origin and are proven to be free of conflict and serious human rights abuses. ITSCI members are regularly audited (for mineral processors the audit may be carried out as part of the CFSI) and auditors are selected by ITRI.

Part C: Voluntary audits

Broadly speaking, voluntary audits are divided into two types: 1) Audits commissioned directly by the company wishing to demonstrate responsible 3TG sourcing practices. Depending on their operations, companies may use the World Gold Council’s Conflict-Free Gold Standard, the RJC’s Chain of Custody Standard or directly the OECD DDG. 2) Audits required by the company’s customer, comparable to Code of Conduct audits for social and environmental issues. This includes for example Signet’s Responsible Sourcing Protocol that is currently being applied to all Signet suppliers as well as other, company-specific, verifications of supplier’s sourcing practices. Another example, still in the jewellery sector, is the Jewelers Vigilance Committee’s (JVC) recent guide to conflict minerals, which recommends for companies to conduct supplier audits.

Voluntary audits differ in their approach and objectives depending on the individual company.

As this extensive list shows, the auditing business around conflict minerals compliance has grown tremendously in the past three years. While there are more and more qualified and experienced auditors available, auditor capacity remains a challenge in assuring these audits are carried out consistently and results can be relied upon with confidence. In addition, a lot of progress has been made in cross-recognizing audit results among different institutional mechanism, however there is certainly a need to further harmonize efforts and avoid the duplication of efforts. A first step towards this goal would be to raise awareness on the commonalities and differences among the audit mechanisms so as to create a better understanding of where there are overlaps.

Going forward, independent verification of practices along the mineral and metal supply chain will remain crucial to maintain the credibility of certification and approval mechanisms. This is particularly true for upstream and midstream operations where actors have the ability to exercise more direct influence over conditions at the mine site of origin. In the downstream part of the supply chains, verification is likely to be less concerned with mineral sourcing conditions and more focused on ensuring supplier claims are accurate and truthful. Consequently, there is significant potential to incorporate conflict minerals audits at component or product manufacturers into existing social, environmental or quality inspections and thus reduce the burden on auditees.


[1] AICPA Conflict Minerals Reports Q&A, January 2014

[2] ICLGR Member States are the DRC, its 9 adjoining countries, Sudan and Kenya.

[3] OECD Due Diligence Guidance for Responsible Mineral Supply Chains from Conflict-Affected or High-Risk Areas, Step 4, p.19

Conflict-free sourcing: The case of gold (Part I)

When the US Congress passed Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Section 1502) on “conflict minerals”, it soon became clear that companies would have to differentiate in their due diligence approach between the so-called “3Ts” (tin, tantalum and tungsten) and gold. In this blog series, RCS examines the response of the gold industry to the requirements of Dodd-Frank Section 1502. The first part looks at challenges the gold industry faces in the exercise of due diligence and provides an overview on initiatives taken along the supply chain to promote the responsible sourcing of gold. In subsequent parts of this series, RCS will focus more specifically on due diligence mechanisms implemented at the mining as well as refining level.

The reasonable country of origin enquiry that companies are required to carry out under the US legislation presents a number of challenges that are unique to the gold supply chain. Among those is the value of gold, making it commercially interesting to trade the commodity in small quantities and to recycle gold products. According to the World Gold Council, approximately one third of gold on the market at any point in time is recycled and thus cannot be traced back to the mine of origin anymore. Secondly, gold is not only used to manufacture jewelry or other consumer goods but also serves as an investment product. Thirdly, mined gold does not necessarily require heavy equipment or specialized knowledge to undergo basic refining.

As a result of these attributes, gold can – somewhat paradoxically – be both easy and difficult at the same time to track through the supply chain. Where actors attempt to conceal the origin of gold, the small quantities of gold and complexity of the supply chain renders any attempt to identify the mine of origin nearly impossible. However, owing to the high value of the commodity, legitimate trade in gold is very often accompanied by an extensive paper trail and subject to intensive scrutiny to prevent and eliminate practices of money laundering and bribery. Both arguments were initially advanced by the gold industry to justify what could be considered a slow response to Dodd-Frank Section 1502 when compared to efforts for the conflict-free sourcing of 3Ts. Whereas tantalum smelters underwent third-party audits under the EICC-GeSI Conflict-Free Smelter (CFS) Program as early as 2010, requirements for the responsible sourcing of gold for refineries were only published starting 2012.

Despite the reservations during early attempts to respond to the requirements of Dodd-Frank Section 1502, the gold industry has since caught up with efforts in the 3Ts sector. Industry associations such as the Responsible Jewellery Council (RJC), the London Bullion Market Association (LBMA), the World Gold Council (WGC) and the Dubai Multi Commodities Center (DMCC) have published their approach for the responsible sourcing of gold.

Whereas the EICC-GeSI Conflict-Free Smelter (CFS) Program, the primary mechanism for compliance with Dodd-Frank Section 1502 for tantalum and tin, focuses on the independent third-party verification of smelters’ documentary evidence on the source and chain of custody of minerals, the gold industry has chosen an approach emphasizing the establishment and implementation of appropriate management systems. In as much as possible, the WGC, LBMA or RJC encourage their members to expand existing mechanisms such as the sustainability reporting for large-scale mining operations or anti-money laundering systems for gold refineries to include information on the conflict-free sourcing of gold. Management systems, including the company’s own assessment of the conflict-free nature of their operation, have to be tested and verified by independent third-party auditors.

As positive as these efforts are in encouraging and incentivizing responsible sourcing practices for gold, they have so far not had any impact on the key issue US Congress attempted to address through Section 1502 of Dodd-Frank. In fact, gold mined in the DRC is highly unlikely to appear in the supply chain of a LBMA accredited Refiner, a RJC or WGC Member. Mining activities in the DRC are almost exclusively linked to illegal and illegitimate trade in gold, thus escaping the scrutiny of these formal organizations.

Furthermore, initiatives taken by industry associations have highlighted the challenge of associating artisanal mining operations in formalized supply chains. In particular, the requirement to establish strong management systems for compliance with an industry standard de facto excludes artisanal miners from participating, as their operations in most cases are not sufficiently formalized.

Recognizing these challenges, initiatives are emerging that aim to provide access to the international market for artisanal gold miners. Among those is the Fairtrade gold certification put in place by Fairtrade International; the Better Gold Initiative, a public-private-partnership supported by the Swiss Government; as well as the Certified Trading Chains (CTC), a project funded by the German Federal Institute for Geosciences and Natural Resources (BGR).

Under the Fairtrade gold certification, artisanal miners are required to comply with a set of minimum conditions, such as for example the elimination of child labor, to obtain certification. Certified operations gain market access as well as obtain a premium for the gold produced. However, the organization has started implementation of the mechanism in Latin America and although gradually expanding the project to include artisanal mine sites in Africa, does not include the DRC.

The Better Gold Initiative and the Certified Trading Chains, on the other side, work with artisanal mine sites in the DRC and (for CTC) Rwanda. However, focusing on pilot sites and relying on donor financing, these two initiatives present significant challenges for the scalability and business sustainability beyond an individual project.

Nevertheless, Dodd-Frank Section 1502 has resulted in positive change by encouraging the gold industry to set clear standards for actors in regards to responsible gold sourcing practices and to communicate more openly on the industry’s efforts to exercise due diligence on gold supply chains. The legislation, although unwittingly, also highlighted the existence of the market for gold that is not mined or traded within legal framework and which is situated largely outside of the influence of formal institutions. Looking forward, the gold industry should look to develop market-led approaches, particularly with small-scale miners, that seek to pull the informal trade into the formal sector, as well as seek closer ties between large scale and small-scale legal mining.

In the next part of this blog series, RCS will more closely examine the conflict-free gold standard established by the World Gold Council and its impact on large-scale gold mining operations.