pactworld.org July 2015 Unconflicted Making conflict-free mining a reality in the DRC, Rwanda and Burundi

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1 pactworld.org July 2015 Unconflicted Making conflict-free mining a reality in the DRC, Rwanda and Burundi

2 About Pact Pact is a promise of a better tomorrow for all those who are poor and marginalized. Working in partnership to develop local solutions that enable people to own their own future, Pact helps people and communities build their own capacity to generate income, improve access to quality health services, and gain lasting benefit from the sustainable use of the natural resources around them. Based in Washington, D.C., and at work in nearly 30 countries in Asia, Africa, Eastern Europe and Latin America, Pact builds local promise with an integrated, adaptive approach that is shaping the future of international development. + Learn more about Pact s Mines to Markets work at ii UNCONFLICTED 2015

3 Contents Acronyms...iv A Time for Action... v Foreword...vi Why We and I Do This Work...vi Unconflicted...1 Awareness of Conflict Minerals Grows...2 Private Industry and Government React...2 The Impact of Dodd-Frank and Efforts to Respond...3 itsci System Launches... 4 Beginnings of Pact s Involvement... 4 The Impact of Dodd-Frank... 6 How the System Works... 6 The Current Implementation of itsci in Numbers...10 Current Challenges for the itsci System...10 The Next Five Years...11 Leveraging and Expanding Security Zones...11 Strengthening Governance in the Mining Sector...12 Formalization of Artisanal Mining...12 Greater Regional Collaboration...13 Greater Transparency Leads to Greater Prosperity...13 Local Ownership...13 Ongoing Challenges...13 Conclusion and Recommendations...15 Closing Thoughts...16 UNCONFLICTED 2015 iii

4 Acronyms 3Ts CEEC CFSP CFTI DBSA DMFA DRC EICC EITI FFI GeSI GMD ICGLR ITRI itsci MIMIRENA NGO OECD OECD DDG OSH RNRA Tin, Tantalum and Tungsten Centre for Evaluation, Expertise and Certification Conflict Free Smelter Program Conflict Free Tin Initiative Development Bank of Southern Africa Dutch Ministry of Foreign Affairs Democratic Republic of Congo Electronic Industry Citizenship Coalition Extractive Industries Transparency Initiative Fauna and Flora International Global e-sustainability Initiative Geology and Mines Department of Rwanda International Conference on the Great Lakes Region International Tin Industry Association ITRI Tin Supply Chain Initiative Ministry of Natural Resources of Rwanda Nongovernmental organization Organization for Economic Cooperation and Development Organization for Economic Cooperation and Development Due-Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas Occupational Safety and Health Rwanda Natural Resources Authority SAESSCAM Service for the Organization and Assistance of Artisanal and Small-Scale Miners SEC SfH T.I.C. WFCL The U.S. Securities and Exchange Commission Solutions for Hope International Tantalum Association Worst Forms of Child Labor iv UNCONFLICTED 2015

5 A Time for Action Dear Reader, Every adult deserves to earn a dignified living. Small-scale mining may be one of the most difficult occupations it s back-breaking work, often with the most rudimentary tools but millions of men and women choose to engage in it, for a variety of good reasons. In Africa s Great Lakes region, Pact and its partners are known for operating the only internationally recognized supply chain monitoring system that ensures minerals go from miner to multinational without interference along the way. As you ll read, we ve implemented this system at hundreds of mines in the Democratic Republic of Congo, Rwanda and Burundi, affecting tens of thousands of artisanal miners. But our work in the artisanal mining industry isn t just about supply chains. It s about making sure that a miner is safe to pursue his or her work undeterred by armed interference and armed against occupational hazards and free to engage in a marketplace that rewards hard work. It s about the opportunity to provide for one s family and realize hopes for a better tomorrow. While our work providing the environment for conflict-free mining is understandably high-profile, it s merely one component of our Mines to Markets signature initiative. Around the world, we also work to reduce child labor in mines, to introduce health and sanitation measures to mining camps and villages and to improve non-mining business opportunities for women who either work in or are connected to mining. I hope that in reading this report, you see the difference we are helping to make, and I encourage you to reach out to Pact and our partners to learn more about how you can join our effort. Mark Viso President Pact UNCONFLICTED 2015 v

6 Foreword Why We and I Do This Work I am often asked why Pact, a development organization, is working on an industry project for miners, mineral traders and smelters. We are not a commercial company and we have no financial interest in the mining business, and yet we choose to work in close partnership with industry to implement a mineral traceability and due diligence system in Africa s Great Lakes region. Why do we do this work? Pact believes that well-regulated business is an effective and sustainable vehicle to deliver the development needed to lift people out of poverty. Natural resource extraction is the economic backbone of the economy in many countries where Pact works, and an integrated approach to development that combines responsible business with good governance and strengthened local capacity can deliver better, safer, healthier livelihoods. Pact started work in the minerals sector of the Democratic Republic of Congo (DRC) long before the United States Congress enacted conflict minerals legislation in 2010 (Section 1502 of the Dodd- Frank Act). In fact, our work has recognized the importance of the sector to economic development since 2005, when we launched a multi-project Mines to Markets program with partners in government, industry and civil society to maximize the benefits of mining for rural communities vi UNCONFLICTED 2015

7 and the national economy. When Dodd-Frank came to pass, we were already working on interventions and solutions to protect men, women and children laboring in Central Africa s artisanal mines. Participation in efforts to make mineral supply chains conflict free was a natural step for us. In the Great Lakes region of Africa, the conflict minerals legislation was initially seen as a colonial-style imposition, as a penalty and even as a stealth mechanism to divert mineral trade to competitor markets. Despite this resentment and the hardships that the countries have suffered, the governments of the DRC, Rwanda and Burundi, in partnership with industry and Pact, adopted and adapted the ITRI Tin Supply Chain Initiative (itsci) a comprehensive due diligence and mineral traceability system as a means to strengthen the governance of their minerals sectors. In the five years since the partnership started, itsci has protected and improved the lives of tens of thousands of miners working in hundreds of mines that are free of armed groups and human rights abuses. Hundreds of local businesses are meeting international standards of operations to become credible suppliers to international minerals markets. Actors in the region are already focusing on other important socio-economic issues as the supply chain spotlight starts to expand beyond conflict minerals and directs attention to broader challenges in the sector. Pact is beginning to overlay desperately needed development programs onto these conflict-free sites to further improve development outcomes in these underserved communities. This is what drives Pact. As to what drives me, I would like to share just a few personal thoughts before you read this report. As a Congolese citizen, I am incredibly proud of what is being achieved in my country and in those of our neighbors to build a responsible minerals sector in the region. As a development professional, I continue to be amazed at the rate at which we have achieved broad, impressive results in such a short time. As a brother, I remain deeply concerned for, and committed to, the welfare of the artisanal miners of the Great Lakes region who still need so much support to earn a safer, more dignified living. As a father, I am working to build a better country for my children so they never have to face such hardship. Pact s Mines to Markets program and the itsci system are part of that better future. Sincerely, Yves Bawa Regional Director, DRC, Rwanda and Burundi Pact UNCONFLICTED 2015 vii

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9 UNCONFLICTED Making conflict-free mining a reality in the DRC, Rwanda and Burundi In 2010, when the United States adopted legislation to stop the use of conflict minerals in American products, the system known as itsci, that today is in use at more than 800 mines in Africa s Great Lakes region, was in its infancy. The road to this point has not been easy. It involved many partners working in muddy trenches to build a local answer to an international question demanding immediate action: How do you reliably trace hundreds of thousands of tonnes of minerals from mine to market in one of the most challenging environments in the world? Of course, the itsci system is not perfect. But by all measures, it works. What follows is an explanation of why itsci exists, how it was created, how it works and what must be done to expand the system and build on its success information that is especially critical as additional Western governments consider their own conflict minerals legislation. UNCONFLICTED

10 Awareness of Conflict Minerals Grows Perhaps surprisingly, the first news articles linking the conflict in eastern DRC to minerals markets appeared around 2000, when illegal bush meat hunting in protected areas to feed the burgeoning coltan 1 mining camps in eastern DRC came to public attention. An early initiative to address this issue was the Durban Process, led by wildlife conservationists who sought to engage industry in regulating supply chains to address illegal mining. However, attention soon widened, with headlines about violence and human rights abuses by armed groups that controlled mineral flows and preyed upon miners, using their profits to fund corrupt administrations. Over the following years, reports from the United Nations Group of Experts and nongovernmental organizations (NGOs) such as Global Witness and Fauna and Flora International (FFI) drew attention to the complex conflict in the region and the devastating impact of the illegal mineral trade. The key minerals identified as being the source of the conflict were tin, Sources of the 3Ts Cassiterite is the ore containing tin Wolframite is the ore containing tungsten Tantalite (also locally called coltan) is the ore containing tantalum tantalum and tungsten (now often referred to as the 3Ts ) and gold. The terms blood minerals and conflict minerals became regular features in the media, and organizations such as The Enough Project launched a powerful lobby in the United States to push for legislation to control mineral sourcing in the region. Private Industry and Government React Consumer companies and industry associations were highly sensitive to the negative publicity and took steps to respond. Notable among these steps were the actions of the International Tin Industry Association (ITRI), which, later joined by the International Tantalum Association (T.I.C.), began developing a due diligence and traceability mechanism to enable their members to buy so-called clean minerals from the region. This was the start of the ITRI Tin Supply Chain Initiative (itsci). At the same time, the Electronic Industry Citizenship Coalition (EICC) and the Global e-sustainability Initiative (GeSI) started to work on a mechanism to control minerals entering their supply chains from metal smelters, called the Conflict Free Smelter Program (CFSP). In 2010, the powerful NGO-led lobby achieved a significant milestone. The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed by Congress in July of that year, contained a specific section on conflict minerals. Dodd-Frank Section 1502 directs the U.S. Securities and Exchange Commission (SEC) to require companies publicly traded on U.S. stock markets to disclose their use of the 3Ts or gold if the mineral is necessary to the functionality or production of a product. Companies must ensure that minerals in their supply chain are not produced under conditions of conflict, do not fund conflict and are not connected to human rights abuses. The regulation applies to minerals coming from the DRC or any adjoining 1 Coltan is a local name for ore containing the minerals columbium (also known as niobium) and tantalum. The name comes from the abbreviation of columbo-tantalite. 2 UNCONFLICTED 2015

11 country. 2 The SEC rules were aligned with the Organization for Economic Cooperation and Development s (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (also known as OECD DDG). The Impact of Dodd-Frank and Efforts to Respond In the Great Lakes region of Africa, mining of tin, tantalum and tungsten has been carried out for decades under various systems and at various scales. In the colonial era, industrial tin mines existed in many areas. However, these fell into disrepair and decay in the latter decades of the twentieth century. When Dodd- Frank was passed, all mining of the 3Ts in the region was being carried out on an artisanal basis using rudimentary tools and manual labor, or in some cases with a degree of mechanization and investment by small-scale mining companies, although still using manual labor. Some mines were reportedly controlled by state and non-state armed groups, or their minerals were assumed to be financing conflict and human rights abuses. But many others with no connection to conflict were merely providing a living for miners, traders and their families. Dodd-Frank caught the region including the DRC, Rwanda and eight other countries offguard and unprepared. The law was drafted without consultation with governments in the region and with no mechanisms or resources in place to help them cope with the immediate and massive impact on their minerals indus- 2 UNCONFLICTED

12 The immediate impact was the threat of a de-facto embargo on the sector if mineral buyers suspended their trading relationships in the region. The livelihoods of tens of thousands of tin, tantalum and tungsten miners and other operators were at risk, with no warning or explanation. No alternative employment was offered. itsci System Launches tries. Economies with no connection to the targeted conflict were among those affected. The power of Dodd-Frank created bewilderment in central Africa, with miners asking, How can an American law dictate how we work in Africa? Locally, Dodd-Frank is often referred to as Obama s Law. Dodd-Frank did not have the support of the United Nations, was not developed as a multi-country treaty or agreement, and does not have legal jurisdiction in the DRC or other affected countries. Despite this lack of local legitimacy, the legislation has had enormous influence. Dodd-Frank did not need the cooperation of the DRC to achieve its goal; it pulled the powerful lever of the market. End-user industries faced negative pressure from NGOs and lobby groups and reputation and brand risks, as well as legal reporting requirements, costs of compliance and penalties for failure to clean up their supply chains. The easiest response was to cut all central African material from their products, and this is what many chose to do. It was against this background that itsci started operations. The system had been in development by ITRI and others before 2009 based on United Nation Group of Experts reports and ITRI s desire to improve artisanal mining areas a large and important part of the tin business. There was also an assumption that regulation was coming and industry needed to get ahead of it to maintain local markets and livelihoods. ITRI teams visited 3T mines, studied supply chains, identified local partners, held negotiations with governments in the region, and developed documentation to comply with anticipated regulations. itsci was designed as an industry-led, holistic system to deliver due diligence and mineral traceability. It conformed to OECD DDG, Dodd- Frank and, critically, requirements of the CFSP smelter audit process that had been developed by EICC and GeSI. Beginnings of Pact s Involvement In early 2010, ITRI and Pact entered into a partnership for the field-level implementation of itsci. The system was piloted in the DRC in May of that year, just before passage of Dodd-Frank. Ironically, the pilot was halted immediately after the passage, as DRC Presi- 4 UNCONFLICTED 2015

13 dent Joseph Kabila suspended all mining and mineral exports from eastern DRC for a period of several months. Rwanda was the first country in the Great Lakes region to commit to large-scale implementation of itsci. Starting in December 2010 (before CFSP came into force in April 2011), the country quickly moved to have all of its 3Ts mines covered by the system. This alone was a remarkable step, as popular opinion was that Rwanda had few, if any, mines. This myth was dispelled when more than 500 were visited and recorded in the course of start-up baseline studies. In the DRC, also just before CFSP came into force, the southern province of Katanga implemented itsci with funding from local businesses and the Development Bank of Southern Africa (DBSA). Within months, dozens of mines and thousands of miners were working again in Katanga. With considerable awareness already raised in the tin industry, buyers transitioned smoothly to the itsci system. Motorola Solutions set up a project to engage tantalum buyers in a direct-purchase, closed-pipe supply chain through the Solutions for Hope (SfH) initiative at one conflict-free mine in Katanga using the itsci system. Electronic components supplier Kemet set up a similar project in Katanga using itsci. These efforts helped signal to consumer-focused, end-user industries that resumption of tantalum purchases from the region was possible. Mineral traceability in the eastern DRC provinces of South Kivu and Maniema followed, when the Dutch Ministry of Foreign Affairs (DMFA) gave funding for startup in South Kivu in 2013 through the Conflict Free Tin Initiative (CFTI). More support came from local businesses, especially in Maniema. The start of activities in the volatile province of North Kivu in 2014 depended entirely on local business investment. It was only in 2015 that the program could be launched in the critically important Walikale area of North Kivu, which was the subject of much attention during the pre-dodd-frank conflict minerals campaign. Why Have We Seen Greater Progress in 3Ts than in Gold? Dodd-Frank was equally applied to four minerals without an appreciation of the diversity of their supply chains and market structures. Tin, tantalum and tungsten (the 3Ts) are all heavy minerals that are hard to move without infrastructure. Their local value is relatively low, given that they must be exported to be smelted because of in-region capacity and infrastructure issues. The smelters of these minerals are the effective choke point in the supply chain. So long as a credible upstream mechanism feeds clean minerals into regulated smelters, minerals flowing downstream to retailers and ultimately consumers will be compliant with the standards. The U.S. market for end products containing tin, tantalum and tungsten is extremely important, enough so that most smelters want to be able to sell their product into that market. In light of this, key tin and tantalum smelters took leadership roles in bringing about change. However, Dodd-Frank also includes gold, which is an entirely different commodity a high-value material that in its raw form can be used as currency. It is portable and does not require infrastructure to move or process. It is fungible, making traceability difficult. The major international markets for gold include India, China, Russia and the United Arab Emirates, whose buyers are less concerned about eventually reselling into U.S. supply chains. There are no systems in place for due diligence or mineral traceability of conflict-free gold. For these and other reasons, despite the itsci system s significant successes in regulating 3Ts supply chains, Dodd-Frank has had negligible impact on gold mining and trade and conflict in the Great Lakes region. Startup in Burundi took several years and was finally achieved in 2014 with the support of the national government, local businesses and the World Bank. In 2015, the DMFA committed funding for three years of expansion plus strengthening of the itsci system. UNCONFLICTED

14 Frank, coupled with the itsci system, has had a remarkable impact in the region. The Impact of Dodd-Frank There inevitably have been negative repercussions of Dodd-Frank. These include loss of livelihoods with resulting economic hardship, the cost and time needed for compliance and heavy burdens of reporting and audits. An entirely new industry has sprung up for researchers, consultants, auditors and others who deliver a new suite of services to the conflict-free mineral market. A plethora of systems and services are offered to companies to handle SEC reporting with initial compliance costs estimated to reach between $8 billion and $16 billion, 3 dwarfing the sum available for upstream implementation. The annual schedule of meetings, forums, conferences and working groups on these issues is a full one. Easily accessible mines suffer from conflict-mineral tourism, with some receiving 12 to 15 visits per month from researchers, journalists, activists, NGOs, government delegations, donors and authorities. However, despite these unresolved issues and frustrations, it is important to note that Dodd- Mines in remote areas where exploitation and abuse went unrecorded are now operating under government supervision and are regularly checked to ensure that no armed groups are benefitting. This marks a huge achievement and has been extremely important in delivering security to remote parts of the DRC. Local stakeholder committees have been established with mandates to work with communities to resolve disputes related to the system. Accurate data are available on miners and in production and export levels, enabling governments to improve their management of the sector. Hundreds of local businesses that were operating under the radar five years ago are now reporting on their efforts to implement international standards for responsible operations. Tens of thousands of people are making a living and working in safer conditions, supporting hundreds of thousands of people in the region. This level of uptake and change would not have happened if adoption had been discretionary. The change came about because the market demanded it because Dodd-Frank demanded it. How the System Works itsci is a comprehensive due diligence and mineral traceability system that incentivizes positive change in the Great Lakes region by providing information on clean minerals, enabling access to international markets. Through its various components, including stringent membership standards, audits, baseline studies of mines, mineral tracking, data analysis and incident monitoring, itsci has created secure mines that are free of the presence or influence of armed groups and in which human rights abuses are rare, recognized, reported and resolved UNCONFLICTED 2015

15 Where itsci Operates Rwanda Democratic Republic of Congo Burundi UNCONFLICTED

16 designed to achieve sustainable self-financing when operating at scale. Industry Government itsci Civil society The field components of itsci include: identification of conflict-free mines and mineral trade routes; engagement of local stakeholders in monitoring their status; mineral tracking; mineral production and trade data collection; mineral sampling; and a mechanism for incident reporting and resolution. Data collected in the field is entered into a centralized database, which provides complete chain-of-custody information from mine to smelter. itsci involves a multi-step mineral tagging and data collection process implemented by three governments in the Great Lakes region and designed to be entirely absorbed into the normal management practices of government mining services. itsci provides complementary services relating to due diligence on companies, management of data within the supply chain and for CFS audits, as well as independent governance assessments, company audits (carried out by ITRI s partner, Synergy Global Consulting) and a dispute resolution process through an ombudsman, Foley Hoag LLP in Washington, D.C. itsci also has an advisory board comprised of experts in conflict minerals, including Global Witness. The itsci program is successful due to the combination of these essential components and is In sum, as illustrated at left, the itsci program is funded by industry and implemented by governments in the region, under the monitoring and training of civil society. Each component is essential to the effective implementation of the program. itsci operates under memorandums of understanding with the governments of the DRC, Rwanda and Burundi. In all countries, itsci mineral tagging and data collection is carried out by government agents. This is essential to local ownership and to reinforcing the authority and resources of the state, strengthening good governance and ensuring sustainability of the system. itsci is designed to build the capacity of government agencies and workers, strengthening good governance and enabling mineral traceability to be absorbed into the normal functioning of state mining services. Pact is ITRI s partner for field implementation of itsci and supports the governments of the DRC, Rwanda and Burundi in the daily management of mineral traceability and facilitation of participation of local civil society in monitoring the itsci process. In the field, working with local partner NGOs, Pact provides training and ongoing support to government agents who are active at three major points along the domestic supply chain: the mine and washing/processing point, the intermediate trading point and the point of export. Minerals are tracked and data is collected at each of these points by the relevant agents. The primary agencies involved in implementing itsci are: DRC: the small-scale mining service, SAESS- CAM; the Division of Mines; and the mineral export certification authority, CEEC. All of these are in the Ministry of Energy and Mines. Rwanda: The Geology and Mines Department (GMD) of the Rwanda Natural Resource Au- 8 UNCONFLICTED 2015

17 itsci, By the Numbers * Average Monthly Production (metric tonnes) Country Province itsci Mines Miners 2014 thru May 2015 DRC Katanga 232 sites, 141 active 26, Maniema 178 sites, 167 active 6, South Kivu 46 sites, 43 active 2, North Kivu 1 15 sites, 14 active 4, Rwanda All 815 sites, 442 active 37, Burundi All 2 40 sites, 35 active 3, totals 1,326 sites, 842 active 80,649 1,793 1,698 * Pact figures, not yet verified by ITRI 1 Launched March Launched April 2014 thority (RNRA), which is part of the Ministry of Natural Resources (MINIRENA). Burundi: The Ministry of Energy and Mines. Pact also supports partner governments in facilitating multi-stakeholder consultation meetings at national, provincial and local levels. At these meetings, other government services are represented including civilian and military security forces and local and traditional authorities. During these meetings, stakeholders including miners, traders, companies, security services, mining services, local administration and civil society discuss issues related to the mining sector. They also implement mitigation measures to lower risks of fraud, conflict, human rights violations or other abuses in the mineral supply chain. As of April 2015, there were 30 national, provincial and local committees overseeing the implementation of the program and following up on risks in the supply chain. itsci uses an incident matrix to identify and categorize by severity violations of the system and abuses that occur in mining areas or during transport. These incidents may include infractions of the tagging system, security problems, instances of corruption or human rights violations. Every incident is recorded and examined using the OECD risk assessment and mitigation model for progressive movement. itsci is designed to operate as a sustainable self-financed system through a levy paid by mineral exporters. The levy is paid per tonne of metal contained in each tonne of ore covered by the system and varies by mineral. However, the time lag from mine to smelter can be considerable, and local exporters have struggled with years of embargo. Loss of earnings have limited their cash flow to restart business. Therefore, itsci needs external donor support to get the system up and running to prime the pump, so to speak before levies can be collected. itsci is a not-for-profit system in that it covers its operating costs and nothing more. UNCONFLICTED

18 A Weighty Question Short ton, long ton, metric tonne. What s the difference? The smaller U.S. ton is usually called a short ton. It is equal to approximately 907 kilograms, or 2,000 pounds. The larger British ton is usually called a long ton. It is equal to approximately 1,016 kilograms, or 2,240 pounds. There is also a third measure, the metric tonne sometimes written as metric ton equal to 1,000 kilograms, or approximately 2,204 pounds. itsci now has 231 members. This is an extremely important factor in the system s success. About 67 percent are local businesses that just a few years ago were invisible to outside observers. These companies are working to achieve OECD standards in their operations to comply with itsci membership requirements, and this represents a sea-change in the way business is done in the region. itsci s policy of inclusivity, which promotes best practice, provides market incentives for change and engages actors by bringing them in from the cold, has been critical to its success. safeguarded by the itsci program is estimated to approach 1 million. This number does not reflect the development of communities around mining hubs, the inclusion of which would considerably increase the total number of indirect beneficiaries of the program. In 2013, it was estimated that 1,395 metric tonnes of the 3Ts were produced within the itsci program on a monthly basis. In 2014, this number increased to 1,793 metric tonnes. So far in 2015, production figures have dropped somewhat as there has been a significant drop in the price of tin due to reduced international demand. This is not related to conflict-free minerals sourcing issues but is a global issue affecting tin production worldwide. The latest analysis of the international mineral trade estimates that 87 percent of DRC cassiterite and 92 percent of central African cassiterite came from a mine that was formally included in the itsci program. Percentage coverage of tantalum and tungsten trade is expected to be similar, although it is more difficult to define precise figures for those metals. Added to this, the trade has generated legal taxes paid to governments in the region. The Current Implementation of itsci in Numbers Five years after the first itsci pilot was launched in Nyabibwe, South Kivu, there are now 1,326 identified mine sites in the itsci program in the DRC, Rwanda and Burundi (of which more than 800 are currently active as of the date of this report). In March 2015, there were more than 80,000 miners participating in the program. Mines provide employment for many additional individuals who transport, process and trade minerals and other goods and services. If they are counted, along with immediate dependents of miners conservatively estimated at five per miner the total number of people whose livelihoods have been Current Challenges for the itsci System Over the years, despite its importance for local communities, the itsci program has faced challenges. The itsci program had to cope with the mobility of the sector, as artisanal miners frequently move among sites looking for better opportunities. This means that new baselines are always required for mines, yet there are limited resources for this kind of repeat activity. Artisanal miners lack proper equipment 10 UNCONFLICTED 2015

19 to maximize production, but funding for the system depends on production levels, resulting in difficulty achieving financial sustainability. Solutions undertaken by the itsci team have included expansion of the program and motivating other actors in the supply chain (such as mine owners and mineral traders) to provide more equipment for miners. However, problems remain in places such as Maniema and Burundi where low production levels make economies of scale difficult. With expansion of the program to North and South Kivu, the level of required monitoring of the security and human rights situation at mines and along transport routes is high. While this monitoring is essential for every mine in the program to stay conflict free, it comes at a cost. The itsci team has also reinforced its anti-smuggling work and is in the process of starting a partnership with a local NGO to carry out a whistle-blowing mechanism to reinforce itsci s efficiency in reporting and following up on incidents along the supply chain. Other challenges include difficulty transmitting data from remote sites, missing or illegible information and limited numbers of available government agents, some of whom are not consistently paid. Continued retraining of government agents is necessary, although many have become experts in traceability procedures. The introduction of electronic data collection and transfer is helping, but it is not an ideal solution in all areas and comes with additional costs. The Next Five Years Five years after Dodd-Frank, the landscape for the 3Ts in the Great Lakes region is dramatically different than it was in July At that time, there was a palpable desperation about what was going to happen and extreme frustration that regulation was being forced upon the region against its will. Today, these frustrations persist, yet the benefits of Dodd-Frank are visible and tangible, with transparency in a previously opaque sector and security as the norm rather than a distant aspiration. The current reality of visible, identifiable mines where government agents are present and civil society is monitoring security is an exceptional platform for strengthening security and good governance in the mining sector in the region. There is enormous opportunity to invest in local monitoring committees, to strengthen government capacity and to address other challenges in the mining sector by partnering with and building on the network of traceability and on-the-ground field teams. So what do the next five years hold? Leveraging and Expanding Security Zones To date, there has been a failure to routinely connect broader security processes with what is being achieved in the mineral sector. The value of these monitored oases of security should be built upon for effective scaling-up of stabilization. Unless this happens, 3Ts sites will remain islands of security in a landscape of conflict. Dodd-Frank is based on the expectation that cleaning up the minerals sector will result in less conflict in the region. However, this is not automatic. It requires an integrated, coordinated and large-scale approach. Imagine the illegal trade as a balloon: Squeezing one part simply pushes air into another part. As conflict has gone down at 3Ts mines, it has increased for gold, charcoal and other natural resources. UNCONFLICTED

20 Responding to Critics: Understanding itsci itsci draws criticism from various critics as being expensive and lacking transparency, and it is worth addressing these concerns as doing so leads to improved understanding of the current situation and liberates thinking about the future. In terms of its cost, itsci is a not-for-profit model. It is funded by a levy that should cover its cost of operation. The levy is subject to economies of scale; therefore, the wider the reach of the system and the more production that passes through it, the lower the cost of participation becomes. The system is free to artisanal miners. It is unrealistic to imagine that a system that meets complex international standards, that builds government accountability and transparency, and that is implemented in an area that has some of the greatest challenges in the world from infrastructure, access and security to corruption and conflict can be implemented without some degree of cost. The cost of the system is borne upstream. The levy is paid by exporters with no significant contributions coming from downstream companies. There is no premium for itsci material; it must be commercially competitive with other sources if the system is to be sustainable. The cost of the system places a significant burden on local businesses, and there is constant pressure to find ways to reduce the levy, especially when mineral prices drop. Over time, as confidence in the market increases, some oversight activities may be reduced, thereby cutting costs. However, this would have to be acceptable to the smelter audit process, OECD Guidance and end users. In terms of data transparency, all itsci data is collected by the governments of the region and transferred to itsci by government agents. Data that is analyzed by itsci is shared with governments on the basis of memorandums of understanding that are regularly reviewed. Much of this aggregated data is publicly available but some is not for reasons of commercial confidentiality. No system working with companies will be able to share all data at its own discretion. This is neither acceptable to industry nor required by international standards. Strengthening Governance in the Mining Sector Important efforts are being made to improve governance in the sector, and this is a key area for further development in the coming years. The PROMINES project of the government of the DRC and World Bank is supporting the articulation of appropriate policy and building of essential capacity to manage the artisanal mining sector, as well as supporting interventions such as the registration of artisanal miners. The government of Rwanda has articulated its vision for the formal development of its sector with impressive commitments to business resources, investment and gender equity. The government of Burundi is undertaking measures to facilitate and accelerate access to licenses for artisanal miners. The World Bank is supporting Pact and the government of Burundi to use mineral traceability as the basis for revenue transparency with a groundbreaking project to implement the Extractive Industries Transparency Initiative (EITI) using itsci as its base. All of these are building on the basis of vibrant, formal trade that has been facilitated by mineral traceability. Formalization of Artisanal Mining Even though itsci is creating safer mines where miners work free from abuse and predation by armed groups, their working and living conditions in many mines remain pitiful. Some local companies and cooperatives are making real efforts to improve their mining operations, but these are the exception. Artisanal mining remains blisteringly hard manual labor carried out with little consideration for health and safety. The legal status of many miners is, at best, fragile. The sector is under-resourced and performs poorly in terms of efficiency and productivity. It will be a game-changing achievement if efforts to deliver conflict-free minerals become a stepping stone to a comprehensive process for 12 UNCONFLICTED 2015

21 the formalization of artisanal and small-scale mining in the region. The ultimate goal is to strengthen legal, safe and secure artisanal and small-scale mining under an appropriate policy framework that allocates resource rights and access, with investments to make it an effective, efficient and resilient livelihood for the men and women of the region. sector to develop. Importantly, the inclusion of civil society in the process of developing new policies has become the norm through multi-stakeholder monitoring of itsci. As due diligence and traceability become the accepted standard, their relative importance will reduce as other mineral sectoral governance issues come to the forefront. Greater Regional Collaboration Three countries in the Great Lakes region are using the same system for tracking their mineral flows. This presents an important opportunity for regional collaboration and cross-border strengthening. The International Conference on the Great Lakes Region (ICGLR) is the primary mechanism for collaboration between these countries on natural resource flows, and itsci is integral to the ICGLR Regional Certification Mechanism. Improved data sharing, tax harmonization, customs integration and related activities can build on the shared system currently in operation. Incorporating other countries into the shared process will also strengthen regional coordination of natural resource governance and flows. Uganda, Tanzania, Republic of Congo and Zambia are natural points for expansion of a unified due diligence and traceability system in the region. Greater Transparency Leads to Greater Prosperity The DRC, Rwanda and Burundi have all made great efforts to turn an obligation into an opportunity. Each one of these countries is using itsci as a means to extend the reach of their mining services, to gain visibility into their mining sectors, to attract new investment to the country and to generate taxes for the national treasury. The conflict-free minerals agenda is creating opportunities for the mining Local Ownership A key part of Pact s vision for the coming years is that our involvement will be reduced. This is Pact s signature approach, which focuses on building the capacity of local partners in government, business and civil society so that over time they can sustain the work with true local ownership, independent of international NGO support. We believe that our success comes from creating an environment in which we are no longer needed. However, our ability to withdraw depends on several factors: donor investment in capacity building to allow responsible transfer of duties to local partners in a timely, planned manner; the confidence of international markets in local partners; and the context of the legislation and market changes. Ongoing Challenges Many reports about the region focus on difficulties and challenges. While these indeed exist and should not be downplayed, they are not the only story. A concerted effort focused on collective commitment to improvement by strengthening systems that includes some celebration of positive change could make an important contribution to donor and industry confidence in remaining engaged in the region. The idea of alternative, competing traceability systems is sometimes proposed. However, the practicalities of having multiple systems oper- UNCONFLICTED

22 ating should be evaluated, as this could lead to exporters and other industry actors effectively paying for multiple sets of compliance, cost barriers to participation for miners, government agents expected to cover two or more Changing the Face of Artisanal Mining Pact is one of the leading organizations in the world working on development issues in the mining sector. One of our signature programs, Mines to Markets, works with organizations and businesses around the world on the social impact of mining and social opportunities connected to responsible business practice by mining companies. But much our effort is focused at the other end of the mining spectrum, working with the hidden workforce of millions of men, women and children who carry out back-breaking work in hazardous conditions in rudimentary, artisanal mines across the world. Our M2M program aims to help artisanal miners to have increased access to health care, improved livelihoods, technical support, access to finance, access to markets and a safer working environment in a legal framework that respects and protects them. Pact s vision is that all people, regardless of which profession they choose, are able to earn a dignified livelihood and lead healthier lives. While our portfolio of practical action demonstrates our efforts, we intend to go beyond a suite of projects. We aim to change the way people see and understand artisanal miners. We hope to address the lack of dialogue between companies, consumers and the public and artisanal miners and their families about how international regulations and market demands affect their lives. It is our belief that seeing artisanal miners as individuals with families, stories and aspirations will help to change perceptions of the sector and to direct greater effort and support to making artisanal mining a dignified, legal, safe livelihood. systems, mineral mixing at depots becoming impossible (so only closed pipe monopolies can operate, rather than an open market) and a breakdown in the integrity of having a single system across the region s borders. In the next five years, a consolidation of progress and a strengthening of a single system for the 3Ts, operating in partnership with national governments and ICGLR, can be a reality if all actors agree to focus on strengthening what already exits. The issue of mineral fraud in the Great Lakes region persists as a point of concern. However, it is important to note the difference between mineral fraud (illegal or criminal activity) and conflict minerals (an issue specific to Dodd- Frank and OECD). Any system for mineral traceability will focus specifically on the minerals moving through its processes and cannot be held accountable for operations that choose to conduct business outside the system. Expansion of traceability so that it is available in all sites on an equal basis will go a long way toward reducing incentives for fraud. Despite the success seen in the 3Ts supply chain, gold remains a challenge. Dodd-Frank aspires to control gold but is probably not the most appropriate instrument. A reassessment is required to design an approach that is grounded in the realities of the international gold market and local supply chains. The approach should bring local industry, intermediate traders and all other local actors to the table and be rooted in business barriers and incentives. Treating gold traceability as a governance project will have only limited success; gold traceability needs to be framed as a business opportunity and should embrace the concept of inclusion, which has been an important factor in the 3Ts transformation. 14 UNCONFLICTED 2015

23 New legislation will be enacted by the European Union, and perhaps also by Canada and others, in relation to conflict minerals. It is important that there is a reasonable degree of coherency among the various instruments to avoid delivering mixed messages and allowing for so-called compliance shopping as miners, traders or illegal actors seek to find opportunities and loopholes. International supply and demand, mineral prices, competitive sources, new conflicts, changes in government, geopolitical priorities and other macro-level issues all will continue to shape the context in which mineral sector interventions occur. These factors will contribute to determining the relevance and success of Dodd-Frank in Africa. What is sure is that the last five years have delivered huge upheaval, extraordinary change and unexpected benefits in equal measure. The next five may be even more dramatic. Conclusion and Recommendations In considering how different actors and sectors can consolidate and scale-up the success of conflict-free programs in the region, the following points are raised for consideration. Governments in the region should embrace opportunities for sectoral governance that are presented by the new dynamics related to conflict-free mineral markets. Governments must also recognize that systems depend on genuine security in mining regions and credible, coordinated effort to address violations of the system and mineral fraud. Market confidence is relatively fragile and is knocked by media reports of violence, NGO reports of fraud and other negative stories. The governments of the DRC, Rwanda and Burundi need to make all possible efforts to maintain market confidence by ensuing rigor in the credibility of the system and integrity in the actions of their agents as well as penalizing infractions in a timely and appropriate manner. External governments in their capacity as bilateral donors should also determine how their development resources can strengthen and expand achievements to date. Seed funding for the final stages of expansion of 3Ts traceability is still needed. Investment in security interventions, social opportunities and needs and better local business services and opportunities all will make major contributions. Artisanal and small-scale mining is a critically important rural livelihood in the region, and investment in making it safer, more efficient, and more productive, coupled with initiatives to reinvest mining revenues into improved income-generating activities, are desperately needed. For companies, the most important point is to remain engaged. Compliance takes time, costs money, absorbs staff and creates legal and reputational risks. Committing to source minerals from the remote artisanal mine of the Great Lakes region is not necessarily the easiest option, but it is the right one. The successes that have been achieved in terms of improved security can only be maintained by ongoing market engagement that demonstrates and delivers peace dividends to all. There are key technical, organizational and social issues still to be addressed as a matter of priority, although it must be noted that this could increase operating costs. In considering how donors and downstream actors might add value, attention should be given to: Occupational Safety and Health (OSH) to improve working conditions in mines; the eradication of the Worst Forms of Child Labor (WFCL) from mines; technical and financial assistance to miners, along with support for organization UNCONFLICTED