Minerals Are Still Financing Conflict

This blog was written by Anrike Visser, Senior Advisor EU, Illicit Finance Policy at The Sentry.

 

No case better illustrates the risk of minerals financing violence than Russia. With affiliated mines across the Central African Republic, Sudan, Angola and elsewhere and a history of looting minerals from poor African nations, it is likely that Russia is financing its war effort in Ukraine with gold, diamonds, and other minerals—at least in part. Since the invasion of Crimea in 2014, Russia’s gold stockpile has tripled, and CNN reported in July 2022 that “Russia is plundering gold in Sudan to boost Putin’s war effort in Ukraine.” Similarly, Cristina Villegas, director of the Mines to Markets program at Pact, a development NGO, told The Guardian that Russian diamonds “are objectively conflict diamonds: they’re funding an armed conflict against a peaceful neighbor, by a state actor.”

At the same time, despite the European Union’s Conflict Minerals Regulation (CMR) coming into force two years ago, conflict minerals including gold continue to find their way into the EU due to legal loopholes and the ability of illicit actors to evade detection by disguising the origin of minerals.

One of the main problems of the CMR is that it only applies to tin, tantalum, tungsten, and gold, excluding other minerals known to finance violence and conflict. Some of these minerals are becoming increasingly important in the green energy transition, most notably for electric vehicle production. Additionally, the CMR does not pertain to violence and oppression conducted by state actors or to other human rights abuses like child labor or violent crackdowns on indigenous communities.

But even minerals and activities that are covered by the CMR still manage to find their way to the EU, with devastating consequences. Annually, over $4 billion in dirty gold reaches international markets, including the United States and the EU. Gold originating from the Democratic Republic of Congo (DRC), the Central African Republic (CAR), Sudan, and South Sudan is often hidden by being illicitly smuggled to neighboring countries before ending up in the United Arab Emirates (UAE). This despite a myriad of laws and guidance aimed at preventing that from happening.

Recommendations

> The CMR should be expanded to include other minerals in line with guidance from the Organization for Economic Co-operation and Development (OECD). While the OECD Due Diligence Guidance for Responsible Minerals from Conflict-Affected and High-Risk Areas applies to “tin, tantalum, tungsten and gold, as well as all other mineral resources,” the CMR, which came into force on January 1, 2021, applies only to tin, tantalum, tungsten, and gold and does not include “all other mineral resources.”

> The CMR should be expanded to include products made with conflict minerals, not just raw materials. Conflict minerals often end up in electronics, batteries, cars, and jewelry before being exported to the EU, thus indirectly still financing conflict on the ground. This becomes even more important considering the EU Critical Raw Minerals Act proposed by the European Parliament and the Council on March 16, 2023. The increased future demand for cobalt by the EU should not excuse human rights abuses in mines in the DRC.

> The CMR should apply to conflict minerals regardless of their origin to counter illicit smuggling. As the CMR only covers gold, tin, tantalum, and tungsten from certain countries—the so-called list of Conflict-Affected and High-Risk Areas—minerals are often smuggled across the border to Uganda, Rwanda, Cameroon, Kenya, Chad, and Burundi in order to hide their real origin and circumvent the CMR.

> The EU should strongly consider speeding up the process of adding countries to its list of high-risk third countries in the future. Despite the UAE being a known conflict gold transit hub and being added to international watchlists, the EU has experienced significant delays in adopting similar measures. The UAE was added to the Financial Action Task Force’s grey list calling for increased monitoring for money laundering and terrorism financing risks in March 2022, and the DRC was added in October 2022. On March 16, 2023, the UAE and the DRC were both added to the EU’s own list of high-risk third countries with strategic deficiencies in their anti-money laundering and countering the financing of terrorism (AML/CFT) regimes. The delay in adopting international standards exposes to significant risk the EU’s financial system and democratic values, which are an essential part of its Common Foreign and Security Policy.

> The CMR should align with the Corporate Sustainability Reporting Directive. The EU Corporate Sustainability Reporting Directive was adopted by the European Parliament on November 10, 2022, and will be mandatory for large companies as of January 1, 2025. The law requires large companies to conduct due diligence, identify, publicly report, and counteract actual and potential adverse human rights impacts along the entire supply chain. The CMR should be expanded to remove any doubt that the same requirements also apply to the entire minerals supply chain.

> The EU should publish a business advisory highlighting the reputational and ethical risks of minerals from Africa to compliment the CMR. A business advisory by the EU on the risks of companies engaging with minerals in Africa, as well as on Russia-linked mining activity in Africa, would emphasize the need for companies, regardless of size, to conduct proper due diligence and assess possible adverse human rights impacts before the Corporate Sustainability Reporting Directive comes into force. As an example, the US government released a business advisory highlighting the reputational risk of businesses purchasing Sudanese gold.

> The EU should significantly increase capacity and control. Despite reports exposing the ongoing financing of conflict through mineral extraction and evasion tactics, there have been few reports of law enforcement or border controls identifying and stopping conflict minerals from entering the EU. This indicates a severe lack of capacity, resources, and knowledge to prevent blatant violations of the CMR by competent national authorities.

> The EU should add sizable punitive measures for perpetrators to the CMR. Currently, the CMR only allows fines for corrective measures, which are limited in size. There is a strong case to be made that the financial benefits of illegally importing conflict minerals outweigh the risk and limited size of corrective measures. Thus, to ensure deterrence, the CMR should impose a minimum fine for breaches that increases depending on the size of the company.

> EU member states should increase transparency and access to data. Member states should publish a list of companies that meet the annual import value thresholds and fall under the CMR. In addition, member states should collect and share corporate due diligence reports on the government website, as well as a list of companies found to be in violation.