Global Witness: Conflict mineral import loopholes would pay for 6,000 AK-47s

Europe’s efforts to promote more transparent and responsible mineral supply chains now risk being undermined by a series of loopholes carefully branded as “import thresholds”, writes Michael Gibb.

Michael Gibb is Head of Conflict Resources at the NGO Global Wit‎ness.

Our lawmakers often talk about closing loopholes – less attention is given to the work that creates them.

These import thresholds could allow minerals worth millions of euros to enter the EU free of even basic checks to ensure they have not funded conflict or human rights abuses, jeopardising the stated aims of a new regulation.

In June, the European Union reached a political understanding on a regulation intended to help break the links between the trade in minerals and conflict and human rights abuses. The regulation will require EU companies that import the covered minerals to do some basic checks on their supply chains. With the political understanding in place, all that remains is the details of the final text.

In political negotiations the word “technical” serves as a kind of hazard warning, encouraging glazed looks and the uninitiated to leave it to the experts. So when we’re told the final text is being developed in closed “technical negotiations,” civil society knows it is important to pay close attention.

In the name of some of their very smallest importers – dentists using gold for fillings are a popular example – some member states have called for a series of import thresholds to be added to the law. Companies whose annual imports fall below these thresholds would not be required to demonstrate that they have sourced their minerals responsibly. Until now, however, no detail was included about how high these thresholds would be. Recent Council documents now reveal that these “thresholds” are being recast by some as crude loopholes that could significantly undermine the effectiveness of the regulation.

A threshold for refined gold has, for example, been proposed at 100kg. If you’re a dentist, that’s around 25,000 pure gold fillings. More importantly, it could be worth upwards of €3 million, depending on its purity and the market. At the global average price, that’s enough to buy as many as 6,000 AK-47s in a conflict zone. Simply put, this proposal would allow gold worth millions of euro to be brought into the EU—even directly from a conflict zone or notorious smuggling hub—without any checks being done to make sure it was not funding conflict or human rights abuses.

Gold, in particular, remains an important source of financing for armed groups across the world. Earlier this year the Global Initiative against Transnational Organized Crime published a report in which they claimed that the value of illegal gold exports in Peru and Colombia now exceeds the value of their cocaine exports. Two weeks ago, the International Peace Information Service (IPIS), estimated that 64% of gold miners, in parts of eastern DR Congo visited by their teams between 2013 and 2015, had worked under some degree of influence from armed groups. Laws in large markets, like the EU, should not discourage sourcing from fragile and conflict-affected states. They should, however, make sure companies are acting responsibly by taking steps to ensure profits are making their way to the communities that need them rather than to the armed groups that prey on them.

Some will argue that the proposed thresholds catch the vast majority of imports. But if the aim of the regulation is to disrupt the financing still flowing to armed groups, the objective cannot be as simple as capturing the majority of EU trade. The aim must be to make sure the riskiest imports and transactions are subject to the basic checks and scrutiny that can help deny ill-gotten gains easy access to international markets. A regulation that captures 95% of EU imports will have limited impact if it still leaves the riskiest 5% of imports entirely unchecked.

Suspect supply chain

This problem is exacerbated further by a concession EU policy makers have already made to big business. The international standard the regulation is designed to implement engages the whole supply chain in the due diligence process, asking every company to act responsibility and remain alert to risks. But the EU has opted instead to focus only on one small part of this supply chain. Only companies that import the covered minerals in their raw forms – as ores and metals – from outside the EU are obliged to demonstrate that they have sourced them responsibly. Companies that import the very same minerals inside products or components are left entirely off the hook. So are companies that buy minerals from other EU companies – even if those companies have done nothing to source responsibly as their imports fall below the proposed threshold. By concentrating its scrutiny entirely on one link in the supply chain, the EU system now risks making it the weak link in the chain. Minerals that sneak below the proposed thresholds will be free to circulate within the EU without any further checks, all the while enjoying the assumption that they were checked by others upon entry.

This is not an isolated problem, but part of a broader pattern. In a welcome step forward the EU is increasingly determined to guide its trade policy by values as well as economics. But too often ethics take a back seat to euros when it is time to talk specifics. If the EU truly wants to promote more responsible supply chains, it should stop looking for ways to help companies duck their responsibilities, and start looking for ways to get them on board.