A barren landscape shows the aftermath of gold mining

Around the world, illegal mining fuels violence, environmental degradation, displacement, and human trafficking for both labor and sexual exploitation. Each year, illegal mining generates between US$12 billion and $48 billion globally, making it the fifth most profitable form of transnational organized crime, according to a report by Global Financial Integrity. After being laundered, illegally mined gold often arrives at refineries based in the United States and Europe, which supply central banks and major jewelry and electronics companies around the world. In recent years, Verité has carried out research documenting how illegal gold mining has affected local populations in Peru and Colombia, which has been covered by major news outlets, including The Guardian and Bloomberg. In these two countries, which are the world’s largest cocaine exporters, illegally mined gold has now surpassed cocaine to become the largest illicit export.

It is extremely difficult to know whether the gold in a given item, such as a smartphone, laptop, or wedding ring, contains metal mined illegally or is connected to severe human rights abuses. The Dodd-Frank Act’s Conflict Minerals Rule was an important step towards combating this problem by requiring companies to exercise due diligence on their supply chains for conflict minerals and increasing transparency around companies’ purchases of conflict minerals, including gold. While this law narrowly applies to minerals produced in the Democratic Republic of the Congo and adjoining countries, it has been an important tool for ensuring increased transparency and due diligence on the part of major U.S. companies that source gold. However, recent developments suggest that 2017 will likely see a weakening of the conflict minerals requirements and their enforcement. Congressional hearings, as well as a leaked executive order, indicate that U.S. conflict minerals legislation may be scaled back or outright suspended. On April 7th, the Acting SEC Chairman also announced the SEC would suspend enforcement of certain requirements under the Conflict Minerals Rule.

Meanwhile, at the beginning of April of this year, the European Council gave final approval to the EU Conflict Minerals Regulation, set to take effect in 2021. While this law has a much broader scope, applying to all areas affected by conflict or with a high risk of human rights violations, it applies to refineries rather than the end users of gold, and does not include legal requirements for compliance or sanctions.

Some leading companies, such as Apple, Intel, and Tiffany & Co. have stated that they do not want to see Dodd-Frank rolled back. Apple has even stated that it will continue to comply with Dodd-Frank even if no longer legally required, because it is the right thing to do. Companies can benefit from continued compliance because the systems that they have put in place to ensure compliance with Dodd-Frank also improve compliance with other laws and their own internal standards.

Companies sourcing illegally produced gold may experience reputational damage and face liability under a number of statutes covering company complicity in trafficking in persons, forced and child labor, organized crime, corruption, and conflict minerals, some of which stipulate steep fines for companies and even long jail sentences for their executives, including:

  • Trade Facilitation and Trade Enforcement Act (Amendment to the Tariff Act of 1930);
  • Executive Order on Strengthening Protections Against Trafficking;
  • California Transparency in Supply Chains Act;
  • UK Modern Slavery Act;
  • Foreign Narcotics Kingpin Designation Act;
  • Specially Designated Nationals (SDN) List; and
  • Foreign Corrupt Practices Act (FCPA).

Verité recommends that brands not only continue to comply with Dodd-Frank, but take measures to ensure that they are not sourcing gold linked with conflict, criminality, or human trafficking in any of the countries from which they source. Companies should:

  • ensure that their codes of conduct explicitly prohibit the sourcing of illegally mined gold and other minerals, as well as human trafficking and forced labor;
  • purchase traceable, conflict-free gold whenever possible;
  • improve supply chain visibility;
  • collaborate with other companies and stakeholders; and
  • create systems for anonymous reporting of concerns by workers and whistleblowers.

Despite a weakening of conflict minerals due diligence requirements in the United States, legislation continues to advance in other countries. Leading brands are committed to working towards eliminating minerals and metals linked to conflict, criminality, environmental degradation, human trafficking, and other labor abuses from their supply chains.

For more information please contact Quinn Kepes.


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