The OECD Due Diligence Guidance

for Responsible Supply Chains and

Programme Initiatives (DDG 101)

Shivani KannabhiranPolicy Analyst

OECD Investment Division

Why get involved in responsible mineral sourcing?

Ethical responsibility Avoid risk of UN sanctions if sourcing from the

DRC or neighbouring countries Legal requirement if operating in DRC,

Rwanda and Burundi Supply chain security – avoid unnecessary

disruptions in tantalum supply Avoid reputational damage for your company

and the tantalum industry EU and US market access – meet customer

demands! Gain more information on your supply chain for

better commercial decision-making

Conflict financing

Non-state armed groups or public security forces, associated with serious abuses:

– Illegally control mine sites, transportation routes, or dealers in minerals

– Illegally “tax” or extort money or minerals from artisanal miners, mineral traders and exporters

– Illegally “tax” or extort money or minerals at mine sites, transportation routes, or points where minerals are traded

CASE STUDY: Gold from the Democratic Republic of the Congo• Alluvial, artisanal gold & informally,

illegally mined

• Estimated conflict area annual output: ~20-30 tonnes

• Market value: $840m~$ 1.26 bnSource: WGC & UN GoE DRC (2012)

Demand for responsibly produced minerals

Political Consumer Legal

• G8 (2007, 2008, 2009, 2011, 2013)

• UN Security Council Resolutions on DRC (2009, 2010) and Ivory Coast (2013)

• ICGLR Heads of States endorsement (2010)

• OECD Council Recommendation

• Consumer campaigns in US and Europe

• From brand-name users via industry groups (EICC, GeSI)

• Section 1502 of US Dodd-Frank Act – conflict minerals reporting

• Draft EU legislation on responsible mineral supply chains

• Legal requirement in DRC, Rwanda and Burundi

Conflict Minerals Regulation

► July 2010 – Section 1502 of the US Dodd-Frank Act: Specific reporting requirements

for public companies using 3Ts and gold

DRC and adjoining countries focus (reasonable country of origin inquiry)

If from “DRC countries”, companies need an audited “Conflict Minerals” report

► August 2012 – Final US SEC rules recommend companies use the OECD Due Diligence Guidance

► Early – June 2014 – Deadline for first filings for applicable companies

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Section 1502 of the U.S. Dodd-Frank Act

Under Dodd-Frank, audited “Conflict Minerals” report should include:

Country of mineral origin Due diligence procedures Smelters of minerals Mine of origin (to greatest

possible specificity) Description of products not

“DRC Conflict-Free”

Conflict-Free Minerals Regulation

► March 2013 – European Commission announces intention to develop a comprehensive initiative on responsible supply chains of minerals from conflict-affected and high-risk areas

► May 2013 – EU holds public consultation at the OECD

► March 2014 – Draft EU initiative and legislation released: Voluntary certification scheme for

importers of 3T and gold into EU common market

Based on OECD Due Diligence Guidance

Accompanying measures include public procurement benefits, SME financing for due diligence, funds for OECD implementation)

EU initiative on responsible mineral supply chains

OECD Due Diligence Guidance for Responsible Mineral Supply Chains

Objective: To provide practical guidance for companies to ensure they do not contribute to conflict or abuses of human rights through their mineral and metal procurement practices

Method: 5-step risk-based due diligence process

Scope: Applies to all companies throughout the entire supply

chain that produce or source minerals from any conflict-affected or high-risk area –global, applicable to other minerals

Key features of the OECD Due Diligence Guidance

• One set of expectations A common framework for due diligence expectations throughout the entire mineral supply chain from mines until end users

• Progressive approachThe promotion of constructive engagement with suppliers in order to gradually affect changes in their sourcing practices without embargoes!

• Different treatment Depending on mineral (e.g. Supplements on Gold, and 3Ts) and location of company in the supply chain (e.g. upstream and downstream companies), resulting in complementary due diligence processes

Supplement on GoldApplies to all companies in the supply chain

Mining companies,

ASM

Local gold traders & exporters

Refiners Bullion Banks Jewellers, manufacturers

Upstream Companie

s

Downstream

companies

RecyclersRefiners are the “choke point” in the supply chain!

Structure of the OECD Due Diligence Guidance

• 5-step risk-based framework for all minerals from conflict-affected and high-risk areas (Annex I)

• A model supply chain policy (Annex II):– NO! Sourcing from parties linked to serious abuses

– NO! Direct or indirect support to non-state armed groups

– MITIGATE! Direct or indirect support to public or private security forces

– MITIGATE! Bribery in the supply chain, fraud or misrepresentation of chain of custody or traceability information

– MITIGATE! Money-laundering through the mineral supply chain

– MITIGATE! Non-payment by suppliers of taxes, fees and royalties related to mineral extraction, transport and export, or non-disclosure of payments by suppliers in accordance with EITI

• Principles for Risk Mitigation (Annex III)

• Supplements on Tin, Tantalum and Tungsten (2011) and Gold (2012), including special Appendix on artisanal and small-scale mining for gold

Five Step Risk-Based Due Diligence

Step 1

• Establish strong company management systems

Step 2

• Identify and assess risks in the supply chain

Step 3

• Design and implement a strategy to respond to identified risks

Step 4

• Support independent third-party audit of the refiner’s due diligence

Step 5

• Report annually on supply chain due diligence

Adopt a company policy on 3TG from conflict-affected and high-risk areas, consistent with the model policy in the Guidance (Annex II)

Structure internal management to support due diligence, e.g. resources, build capacity

Strengthen engagement with suppliers, communicate expectations

Collect and maintain transaction information and documentation with unique internal reference numbers for all inputs and outputs

Request suppliers to provide names of smelters and refiners of all 3TG products by direct sourcing, marks imprinted on gold, or from supplier documentation

Pass on smelter or refiner information to customers

Step 1: Establish strong company management systems

Transaction information for Gold:

a) Information regarding the form, type and physical description of gold and gold-bearing materials, e.g. gold ore, gold concentrate, gold doré, alluvial gold, recyclable gold, gold bullion, type of jewellery, etc.

b) Information provided by the supplier regarding the weight and assay of gold and gold-bearing materials of input, and determinations of the weight and assay of gold inputs and outputs.

c) Supplier details, including “know your counterparty” (“KYC”) due diligence information

d) Unique reference numbers for each input and output.

e) Dates of input and output, purchases and sales.

Chain of custody or traceability optionsGreater risk of fraud = more monitoring!!

- Chain of custody documentationGreater monitoring required!

“Bag and tag” - traceability

Radio frequency tag (RFID) traceability

-

UPSTREAM

Traceability

TRACEABILITY/CHAIN-OF-CUSTODY INFORMATIONa) the mine of origin, with the greatest possible specificity

b) locations where gold or gold-bearing material is consolidated, blended, crushed, milled, smelted and refined

c) the method of extraction (artisanal and small-scale or medium and large-scale mining), and dates of concentrating, smelting and refining

d) the weight and assayed quality characteristics

e) the identity of all suppliers and relevant service providers handling the gold in the upstream supply chain from the mine of origin until the refiner; the ownership (including beneficial ownership); the corporate structure including the names of corporate officers and directors; the business, government, political or military affiliations of those companies and officers within conflict-affected and high-risk areas

f) all taxes, fees or royalties paid to government related to the extraction, trade, transport and export of gold

g) all payments or compensation made to government agencies and officials related to the extraction, trade, transport and export of gold

h) all payments made to public or private security forces or other armed groups at all points in the supply chain from extraction onwards, unless prohibited under applicable law

i) how gold is transported and processes in place to ensure integrity, with due regard taken of security concerns

UPSTREAM

Identify the smelters and refiners in your supply chain!

Collect information directly from suppliers

Use risk-based approach to verify supplier information

Assess whether smelters and refiners are sourcing minerals responsibly!

Do smelters and refiners undertake OECD Due Diligence?

Have the smelters and refiners been audited under an industry programme?

Step 2: Identify and assess riskDOWNSTREAM

Preliminary indicators of due diligence may include: A public policy on minerals

from conflict-affected and high-risk areas, consistent with Annex II of the Guidance

A public report on refiner‘s due diligence

Participation in international or industry collaboration on responsible sourcing, e.g. OECD Forum and implementation programme, industry or other multi-stakeholder initiatives

Verify a sample of chain of custody or traceability information

Increase sample size if inconcistencies found!

Map the circumstances of the supply chain(s), under way and planned

Step 2: Identify and assess riskUPSTREAM

Risk Factors for Mined GoldUse a risk-based approach, with more due diligence for persons, places and transactions that present higher

risk!

Any affiliation of suppliers with military, criminal networks or non-state armed groups.

Militarisation of mine sites, transportation routes and points where gold is traded and exported.

Evidence of any serious abuses committed by any party in mines, transportation routes and points where gold is traded and/or processed.

Information on any direct or indirect support to non-state armed groups or public or private security forces through the extraction, transport, trade, handling or export of gold.

Instances of conflict or tensions in the relationship between ASM and LSM.

Any instances, reports or suspicions of fraud or contamination in the supply chain

Report findings to designated senior management

Enhance engagement with suppliers and the internal systems of transparency, information collection and control over the gold supply chain

Devise, adopt and implement a risk management plan with stakeholders, that includes:

continuing trade throughout the course of measurable risk mitigation efforts

temporarily suspending trade while pursuing ongoing measurable risk mitigation

disengaging with a supplier in cases where mitigation appears not feasible or unacceptable

Monitor supply chain with support from stakeholder networks

Step 3: Design and implement a strategy to respond to identified risks

Risk Mitigation Focus on building

capabilities of suppliers and smelters to conduct due diligence, with clear performance indicators and concrete and specified timeframes for improvement (e.g. 6 months recommended)

Companies should only suspend or terminate a business relationship with relevant suppliers when :

The smelter is not using reasonable and good faith efforts to implement the Guidance or participate in related programmes

Evidence that the smelters sources from suppliers that provides direct or indirect support to illegal armed groups, or contribute to “serious abuses” associated with the extraction and trade of minerals in conflict areas

The scope of the audit All activities, processes and systems used by the refiner

to implement supply chain due diligence of gold from conflict-affected and high-risk areas

Audit criteria The audit should determine the conformity of the

implementation of refiner’s due diligence practices against an audit standard that is based on this Guidance

Audit activities Documentation review On-site investigations of smelter facilities, a sample of

the suppliers, meeting with smelters on-the-ground risk assessment, and consultation with other experts

**Can be carried out through industry programmes**

Step 4: Carry out or support independent third-party audits of refiners’ due diligence

Report on management practices (i.e. policy, internal systems of control)

Report on the company risk assessment and risk management with due regard taken of business confidentiality and other competitive and security concerns ( i.e. supplier relationships, prices, security)

Publish the summary audit reports of refiners with due regard taken of business confidentiality and other competitive or security concerns

Step 5: Report annually on supply chain due diligence

Summary on Due Diligence

Step 1• Establish strong company

management systems

Step 2• Identify and assess risks in the

supply chain

Step 3• Design and implement a strategy

to respond to identified risks

Step 4• Support independent third-party

audit of the smelter or refiner’s due diligence

Step 5• Report annually on supply chain

due diligence

• Risk-based, intensity of due diligence proportional to risk!• Reasonable and good faith efforts, not 100 % compliance

overnight!• Government and industry programmes can help

accomplish due diligence tasks!• Use and build upon existing systems!

OECD Gold and 3T Implementation Programme

Information-sharing and promotion of due diligence– Tools, workshops, webinars and training seminars – Outreach and training: Africa’’s Great Lakes region, China,

Colombia, Middle East, Turkey, India Collaboration and problem-solving

– Consistency, harmonisation and mutual recognition of industry programmes

– Develop common and coordinated solutions

Peer-learning– Share tools, best practice, promote discussion

ICGLR-OECD-UN GoE Forum on Responsible Mineral Supply Chains– Twice a year in May and November– 7th Forum this May

Governed by the Multi-stakeholder Steering Group – selection of members

BEDEWA

OGP

Industry and Sector Initiatives Guide

Introduction

• A number of industry and sector initiatives in the gold sector seek to operationalize the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas

• The booklet/guide provides an overview of these industry and sector initiatives and how they complement each other

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Gold sector initiatives - mutual recognition

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G

lob

al M

iner

al

Su

pp

ly C

hai

n

Mining Companies

Artisanal & Small-scale Miner (ASM) Organisations

Refiners & Smelters

Bullion Banks

Downstream manufactures – jewellers & others

Sample of global industry initiatives for 3T supply chains

Initiative Organisations involved

Purpose Participation type

Independent audit

required ICGLR’s Regional Certification Mechanism

International Conference on the Great Lakes Region (ICGLR)

Establishes a certification mechanism for the mining and trading of conflict minerals from the Great Lakes Region. Based on OECD standards. Industry programmes may be used for traceability/chain of custody.

Mandatory for member countries

Yes

ITRI Tin Supply Chain Initiative (iTSCi)

ITRI; Tantalum Niobium International Study Center; Pact; Channel Research

Supports responsible sourcing from Central Africa through the development of a physical chain-of-custody system that tracks and monitors minerals from mine to smelter and a due diligence system that includes independent audits and mine site and transportation route assessments.

Voluntary Yes

Conflict-Free Sourcing Initiative (CFSI) - includes the Conflict-Free Smelter (CFS) program

Global e-Sustainability Initiative (GESI); Electronic Industry Citizenship Coalition (EICC)®

Verifies that the sources of conflict minerals processed by smelters are conflict-free. Enables downstream companies to identify and source from conflict-free smelters. Operationalizes OECD Guidance for smelter/refiners.

Voluntary Yes

Solutions for Hope; Make Africa Work; Conflict-Free Tin Initiative

Private companies: AVX, Kemet, F&X, Motorola, Intel, Philips, and many more!

Close pipe initiatives to enable downstream companies to source conflict-free 3Ts from the DRC with positive development impacts

Voluntary Yes, Through implementing initiatives (e.g.

iTSCi, CFS)26

3T Industry Initiatives – complementarities

Great Lakes region

mining & export

SmeltingManufactur

-ing

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Support & Mutual recognition of initiatives on-going

iTSCi assesses risk and brings traceability from mine to

smelter

Conflict-FreeSmelter Initiative

CFSI Tools:e.g. Reporting

Templates

1502 Dodd Frank issuers - downstream

due diligence and demand for conflict-free

minerals!!

Remember: OECD Due Diligence Guidance

Step 1• Establish strong company

management systems

Step 2• Identify and assess risks in the

supply chain

Step 3• Design and implement a

strategy to respond to identified risks

Step 4• Support independent third-

party audit of the smelter or refiner’s due diligence

Step 5• Report annually on supply

chain due diligence

• The Guidance provides an internationally recognised framework for companies to responsibly source minerals from conflict-affected and high-risk areas

• The Guidance enables companies to meet due diligence requirements (Dodd-Frank Section 1502)

• Risk-based, intensity of due diligence proportional to risk!• Reasonable and good faith efforts, not 100 % compliance

overnight!

Remember: Industry programmes and the OECD Due Diligence Guidance

• Many industry and sector initiatives have been developed to help companies operationalise the OECD Guidance

• Work continues to further harmonise industry and company initiatives to support outreach and implementation and reduce unnecessary duplication of supply chain audits

• For further information on this project and to keep informed of latest developments: www.oecd.org/daf/investment/mining

• OECD contact emails:• Tyler.gillard@oecd.org; shivani.kannabhiran@oecd.org,

hannah.koep-andrieu@oecd.org 29