Conflict Minerals: How You Can be Sure
Blood diamonds were the first conflict resource to make the news. These stones are gems mined in war zones. Profits from their sale funded war efforts.
Brutal warlords forced local people to work in the mines under inhumane conditions. These slaves were often young children stolen from their homes. Civil war raged across Angola, Sierra Leone, Liberia and Cote d’Ivoire for much of the 1990s. Illegal diamond sales provided the cash to buy arms.
The diamond industry fought back against the rebels. In 2002, the World Diamond Council agreed to abide by the Kimberley Process Certification Scheme. This allows diamond markets to block the sale of blood stones. It requires every rough diamond that crosses any border to have a KPCS document. The UN, the WDC and many consumer groups all agreed to the rules.
The U.S. passed the Clean Diamond Trade Act in 2003. It bans importing rough diamonds from the countries with the worst track records. It put real teeth into the KPCS for the first time.
Today, three metals cause similar human misery. The three are coltan, wolframite and cassiterite. Gold is also deemed part of the conflict metal group. Timber, cotton, cocoa, oil, gas and some other commodities also fund conflicts and civil wars.
All of these substances are valuable. They are key parts of many products. Industry depends on them. As such, they are a necessary part of a modern economy.
Many exchange-traded funds and commodity funds invest in these items. Investing in these items creates profit. People have a right to invest in ventures they believe will make them a good profit. No one wants to stop this investment.
Many people object to the way these metals are mined. They dislike the brutal nature of the warlords who control the mines. They hate the idea of slavery. The thought of young children working in such hellish conditions disgusts them. They do not want their cash used to fund bloody civil wars.
The question becomes one of controlling the flow of conflict ores. We must prevent the warlords from making a profit on the backs of helpless people. We must prevent them from using our money to fund their unlawful wars and evil acts.
This is not an easy feat. The conflict countries band together to hide the source of ores destined for export. They accept bribes to fake required documents. They combine legal and illegal lots of metal so that it all seems to be legally mined. They have many ways of skirting the rules.
The Dodd-Frank Act requires countries hoping to import goods into the U.S. to track materials through every step in their supply chain. This requirement even extends to their suppliers’ supply chains. Companies must file this report with the SEC every year. The report is called form SD.
Companies filed the first Form SDs in May 2014. These reports covered calendar year 2013. When companies began carefully tracking the source of minerals, much of the trade in illegally mined ores stopped.
Prices for these ores have fallen since the tracking went into effect. Requiring Form SD makes it harder to sell contraband ore, much as the KPCS did for blood diamonds.
Most investors do not buy ores directly. They invest in funds that specialize in gold or other commodities. So how can people be sure that their money isn’t funding conflict mining?
One way is to invest only in funds that guarantee their purchases are conflict free. The Responsible Sourcing Network is an organization devoted to championing human rights. They publish a checklist for investors to use in evaluating companies.
The checklist suggests the following guidelines:
- State what has been done in regard to conflict mineral management
- Adhere to industry standards
- Support efforts to create conflict-free products
- Promote transparency
- Participate in conflict free sourcing initiatives
Other organizations publish similar lists.
When deciding which fund to put your cash in, you will want to be sure that the fund has a commitment to conflict free buying and investing. Their commitment should be called out in the prospectus in the section on strategy and goals.
You may also want to investigate the processes in place to ensure they invest in conflict free goods.
Everybody wants to make a profit. We all need to ensure that out profit doesn’t come at the cost of another persons basic human rights. When choosing an ETF or commodity fund, you will want to take all your usual steps to decide on the right fund for you. In the case of metals, you may want to add the extra step of ensuring that the fund adheres to ethical sourcing guidelines and practices to help end the horrors that occur.
When the diamond industry made an effort to put an end to blood diamonds, the flow of conflict stones slowed to a trickle. We can do the same thing for all conflict resources if we band together and refuse to buy goods that don’t follow the rules.