Source: Thomson Reuters

Tracking Conflict Metals Poses Hurdle for Refiners

March 3rd, 2016 by

For the companies around the globe that refine precious metals, there is always the risk of a bad source. This doesn’t refer to fake metals—the refiner would quickly know if that was the case—but rather to legitimate gold that has been mined by terrorist groups or other criminals. These are commonly called “conflict metals.”

This has grown into an increasingly pressing problem for refiners, especially as less well-known rare metals like tantalum have become more useful in high-end electronics.

Supply Chain Integrity

chainsThe issue at hand has everything to do with supply chains—where are the metals coming from? When this question can’t be answered, the refiners (and any other company in the supply chain, such as retailers) could be held liable for essentially helping fund terrorism activities. This is considered keeping up good supply chain integrity.

This doesn’t only apply to precious metals refiners, either. Further down the supply chain, jewelers and scrap dealers are similarly tasked with knowing where their metals are coming from. Anyone who is aware of the high volumes that typically flow through even a local metals dealer may be wondering how compliance with such a burdensome responsibility could possibly be maintained.

Therein lies the problem. Isn’t the law asking too much?

Regulations Abound

There are a variety of regulations that have been implemented in recent years to handle the problem of sourcing conflict metals. Below are some of the legislation and regulations that set the guidelines:

  • §1502 of Dodd-Frank Act
  • Organization for Economic Cooperation and Development (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas
  • London Bullion Market Association (LBMA) Responsible Gold Guidance
  • Switzerland and U.S. regulations: Know Your Customer (KYC) and Anti-Money Laundering and Combating Terrorist Financing

The Dodd-Frank requirements for sourcing and reporting gold was one of the first attempts to resolve the conflict metals issue. The LBMA guidance is perhaps the most important item above, considering that 70% of the gold trade is “Loco London” and goes through the LBMA at some point in the supply chain. Overall, countries in the West have been cracking down on this problem for the past 5 years or so.

Where Conflict Metals are Coming From

Source: Thomson Reuters

Source: Thomson Reuters

As the map above shows, virtually all of the countries where conflict metals come from are located in Central Africa. In particular, the Democratic Republic of the Congo and Rwanda, both ravaged by war, are at the center of the problem. Bordering countries are included because of how frequently criminal groups may simply move their operations on the other side of an international border.

Source: TechNotes

Source: TechNotes

The main metals that the regulations mentioned above are concerned with are tin, tungsten, tantalum, and gold. They are simply called “3TG” for shorthand.

The problem is a big one for refiners, whether from a moral standpoint or simply as a good business practice. (If your customers realize buying metals from you could aid terrorism, they’ll find other sellers.) Some large refiners are attacking the problem from a global standpoint, while others are more focused on the local level to simplify things. It remains to be seen whether this will have an impact on global supplies as industry participants become increasingly wary of allowing conflict metals into their supply chain.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.