Responsible Minerals: Mitigating Sanctions Risk

Responsible Minerals: Mitigating Sanctions Risk

The origin of tin, tantalum, tungsten and gold (3TGs) in a company’s supply chain is a central consideration of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In order to meet conflict minerals reporting requirements outlined by the legislation, companies are required to perform reasonable efforts to determine if a 3TG originated from the Democratic Republic of the Congo (DRC) or its adjoining countries. 

These metals are known as conflict minerals, as armed groups in the region may profit from their purchase. Section 1502 of the Dodd-Frank Act requires public disclosures on the presence of conflict minerals in supply chains and associated due diligence activities. However, responsible mineral sourcing is more than a goodwill gesture; it’s essential to protecting against reputational and financial risk.

Sanctions 

In May 2019, the U.S. added Minerven, the Venezuelan state-run mining company, to its sanctions list and warned gold traders about using gold sourced from Venezuela. The move came in response to the political upheaval in Venezuela, illustrating how quickly the mineral sourcing landscape may change.

In 2014, then U.S. President Barack Obama issued an executive order, adding new criteria to existing DRC sanctions. The amendment named the “illicit trade in natural resources in the (DRC)” as a new prohibited activity. 

Minerals outside the DRC also present a risk to businesses. In 2019, President Donald Trump authorized new sanctions against Iran with respect to iron, steel, aluminum and copper. Under the new sanctions, any business found to have knowingly engaged in a transaction for the purchase, transportation or sale of these metals will be subject to enforcement action.

Minerals from North Korea also present a business risk, as sourcing from that country is prohibited through the Countering America’s Adversaries Through Sanctions Act. Any party knowingly purchasing, either directly or indirectly, gold, titanium ore, vanadium ore, copper, silver, nickel, zinc or rare earth minerals will be subject to penalties.

Global Magnitsky

The Global Magnitsky Human Rights Accountability Act empowers the U.S. government to levy sanctions for human rights abuses against countries, companies or individuals. In 2018, the U.S. sanctioned businessman Dan Gertler and his businesses, which operated numerous mines in the DRC, in relation to the act. 

Mitigating Enforcement Action

The Office of Foreign Assets Control (OFAC) reached a $1 million USD settlement with E.l.f. Cosmetics after the cosmetic company determined they had imported eyelash kits with materials sourced from North Korea. These materials were purchased by E.l.f. suppliers in China.

The company voluntarily disclosed their violation after discovering the source of origin for their product. During the investigation, OFAC concluded the violation necessitated a penalty due to the ineffectiveness of E.l.f’s supply chain data management program considering the size of the company. The voluntary disclosure was considered a mitigating factor, resulting in a less severe fine.

The final judgement of OFAC notes the risks for companies “that do not conduct full-spectrum supply chain due diligence,” and encouraged companies to implement processes to identify areas of risk.

The Assent Compliance Platform

The Assent Compliance Platform automates the supplier data collection process, streamlining due diligence activities and centralizing information to allow for efficient assessment of supply chain risks. Contact us at info@assentcompliance.com to learn more

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