AUDIT REPORT: TANTALIUM MINERALS TRADING

Transcription

1 AUDIT REPORT: TANTALIUM MINERALS TRADING Ltd (TMT) Auditor 1 Hannah Koep-Andrieu, Channel Research Auditor 2 Ashley Elliot, Channel Research Audit visit dates 20, 21, 27 November 2013 Audit assessment period Audit location Company description Position in the supply chain Mineral(s) Production/trade volume during the audit period Audit Objectives 1 November 2012 to 31 October 2013; please note that the company only started operations in March 2013 so the effective audit period for TMT is March to November TMT processing yard, warehouse and office in Kigali, Rwanda TMT is a small and relatively new local processor and exporter, which started its operations in March It buys from a large number of small suppliers, processes at its site in Kigali and exports cassiterite, tantalite and wolframite. The company only buys tagged minerals and has a small team of about 15 staff at its site and office in Kigali. Senior staff has mineral sector experience in Rwanda from previous positions but given the relatively small size and recent start of operations, the team does not yet have sufficient experience with supply chain due diligence but has a good grasp of mineral traceability procedures. The company employs guards from a private security company to protect its yard. TMT so far only implemented one of the recommendations from the preliminary audit of the company at the time of application to the itsci program. Processor and exporter Cassiterite, tantalite, wolframite Total weight of minerals exported in the 13 export lots between March and November 2013: 220,634 kg Tantalite: 74,255 kg in total or an average of 9,294 kg per month Wolframite: 96,933 kg in total or an average of 12,116 kg per month Cassiterite: 49,445 kg in total or an average of 6,180 kg per month 1. Assess the extent to which the company has implemented OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas 2. Evaluate adherence to itsci traceability and due diligence procedures Audit conditions Full access was granted to the audit team and all documentation was made available. One limitation was that there was no material that was ready for export at the time of the visit so the export procedures could not be observed first hand by the audit team. Priority Checks of Annex II for Evidence in Relation to the Company During the Course of the Audit Period Serious abuses associated with extraction, transport or trade of minerals such as inhumane treatment, compulsory labour, worst forms of child labour, gross human rights abuse, crimes against humanity: OECD Annex II para. 1-2 No evidence was found that the company has committed serious abuses associated with export and trade of 3T minerals. While all minerals are covered under the itsci program (as the company only buys tagged material), the company has not conducted its own risk assessment in accordance with the OECD guidance to identify if this risk is present in its supply chain. Direct or indirect support to non-state armed groups through illegal control, taxation, or extortion of mines, mineral transport routes or other actors: OECD Annex II para. 3-4 No evidence was found that the company has directly or indirectly supported non-state armed groups through illegal taxation associated with the export and trade of 3T minerals. While all minerals are covered under the itsci program (as the company only buys tagged material), the company has not conducted its own risk assessment in accordance with the OECD guidance to identify if this risk is present in its supply chain. Direct or indirect support to public or private security forces illegally controlling, taxing extorting mines, mineral transport routes or other actors without the appropriate assessment, contracts and agreed risk management measures being in place: OECD Annex II para 5 &10 STATUS: PUBLIC Page 1 of itsci Programme

2 No evidence was found that the company has directly or indirectly supported non-state armed groups through illegal taxation associated with the export and trade of 3T minerals. While all minerals are covered under the itsci program (as the company only buys tagged material), the company has not conducted its own risk assessment in accordance with the OECD guidance to identify if this risk is present in its supply chain. The company is not aware of the Voluntary Principles on Security and Human Rights. Bribery and fraudulent misinterpretation of the origin of minerals to disguise the origin of minerals or misrepresent payments made to Governments for mineral extraction and trade: OECD Annex II para 11 No evidence was found that the company is involved in bribery and fraudulent misrepresentation of the origin of minerals. While all minerals are covered under the itsci program (as the company only buys tagged material), the company has not conducted its own risk assessment in accordance with the OECD guidance to identify if this risk is present in its supply chain. Money laundering to contribute to the identification of risk of, and elimination of, money laundering connected to extraction and trade of minerals from illegal taxation at points in the supply chain: OECD Annex II para 10 No evidence for money laundering was found during the audit, though the opportunity to identify money laundering was limited. While all minerals are covered under the itsci program (as the company only buys tagged material), the company has not conducted its own risk assessment in accordance with OECD guidance to identify if this risk is present in its supply chain. Payment of taxes, fees and royalties to governments and disclosure of payments according to the company's position in the supply chain and prevailing EITI expectations: OECD Annex II para 13 All taxes, fees and royalties have been paid according to Rwandan regulations. The company has not disclosed its payments in line with EITI expectations as Rwanda is not an EITI candidate or compliant country and has no requirement for disclosure. Sources of evidence for the audit report Internal company documents, procedures and policies, supplier contracts, financial statements and transactional documentation, employee and government agent interviews and direct observations. Summary of Implementation of OECD Due Diligence Guidance by the Company STEP 1: Establish strong management systems A. Adopt and commit to a supply chain policy for minerals originating from conflict-affected and high-risk areas TMT has a supply chain policy which is not available online. The policy is broadly in line with the aims and objectives of Annex II but does not make reference to Annex II and does not cover all aspect; it is so far only available in English. The company does not have a due diligence plan and has not yet updated its policy given that it only started operating in March TMT so far only implemented one of the recommendations from the preliminary audit of the company at the time of application to the itsci program, which is to start carrying out mine site visits. Outstanding recommendations include supplying and explaining the conflict minerals policy to staff and suppliers and providing it in local languages; draft and implement a written due diligence plan; implement procedures to assess partners and suppliers. B. Structure internal management systems to support supply chain due diligence TMT does not have an internal management system for supply chain due diligence. While the employee who is responsible for due diligence is of senior enough level, his focus so far is on the traceability aspect and his knowledge of the requirements of supply chain due diligence is limited. Warehouse managers are well versed in traceability procedures. The company does not have a due diligence plan, nor a method for disseminating its conflict minerals policy or critical information on supply chain risks to its employees or suppliers. It has not defined sanctions for employees who repeatedly fail to carry out their due diligence tasks. C. Establish a system of controls and transparency over the mineral supply chain The company has made information on taxes, royalties and payments to government and private and public security available to the audit team. TMT only buys tagged material but does not have a full list of suppliers and is not aware if all suppliers are itsci members. The company has not carried out any due diligence evaluation of those non-itsci suppliers. Compliance with itsci requirements is not included in contacts; so far TMT only signed two contracts with suppliers. TMT avoids cash payments where possible and pays suppliers by cheque. D. Strengthen company engagement with suppliers STATUS: PUBLIC Page 2 of itsci Programme

3 TMT is mainly using the same suppliers since the start of operations in March 2013 though it has increased its supplier base by about 20% since then. The company does not communicate its supply chain policy to suppliers and does not include its conflict free supply chain requirements in contracts. The two contracts TMT so far signed with suppliers do not include the right to carry out unannounced spot checks. The company does not yet work with itsci in order to support and build capabilities of suppliers to improve performance in supply chain policy conformance. E. Establish a company level grievance mechanism The company does not have a grievance mechanism but itsci is in the process of developing a more robust mechanism for all member companies of the program. STEP 2: Identify and assess risks in the supply chain A. Identify the scope of the risk assessment of the mineral supply chain TMT does not carry out any individual or additional risk assessment of its mineral supply chain aside from the risk assessments performed by itsci. B. Map the factual circumstances of the company's supply chain(s) underway and planned TMT does not carry out any additional risk assessment of its mineral supply chain. The due diligence manager was not aware of itsci information, such as the Rwanda Governance Assessments and Audit reports. He is aware of the incident reports but does not use them for due diligence purposes. The due diligence manager started carrying out site visits in late October 2013 but the scope of those so far focused on commercial considerations and did not include due diligence aspects. C. Assess risks in the supply chain See 2A and 2B. STEP 3: Design and implement a strategy to respond to identified risks A. Report findings to designated senior management TMT did not design and implement a strategy to respond to risks (given that it also does not have a process to identify risks). B. Devise and adopt a risk management plan See 3A. C. Implement the risk management plan See 3A and 3B. D. Undertake additional fact and risk assessments for risks requiring mitigation, or after a change of circumstance See 3A and 3B. STEP 4: Independent third party audits of smelters due diligence practices B. Facilitation of safe access for auditors conducting Step 4 Yes, the auditors were provided safe access to the facility that was being audited. STEP 5: Report annually on supply chain due diligence N/a as the company has only been operational for less than a year. Summary of Implementation of itsci chain of custody TMT staff and the GMD agent assigned permanently to the TMT site are correctly implementing the itsci chain of custody system. The TMT warehouse manager and his deputy have a very good understanding of itsci requirements and the GMD agent made only minimal mistakes in logbooks. Completed logbook sheets were not signed by the company representative and returned to GMD in a timely enough manner. Observations on plausibility of production/trade Purchase and export volumes appear plausible. Please note however that the company only started operating in March 2013 and hence it is impossible to compare the purchase and export figures to previous years. STATUS: PUBLIC Page 3 of itsci Programme

4 Audit issues, improvement plans and recommendations Audit s must be resolved for continued programme participation. Recommendations by the auditor are not obligatory for the company but are guidance or requests for specific actions, offered as a point to consider by the company that may aid resolution of the Audit. The company must independently decide and take the appropriate actions. Audit issue reference: Step 1A 1.A. Adoption and commitment to a supply chain policy for minerals originating from conflict-affected and highrisk areas in accordance with Annex II Major 1, 2, Consider expanding the existing conflict minerals policy in line with Annex II of the OECD due diligence guidance. 2. Translate the conflict minerals policy into Kinyarwanda and actively distribute it to staff members and suppliers (in paper form and/or through training and awareness raising). Keep attendance lists / minutes of trainings or discussions. 3. Adopt a written due diligence management plan outlining what process (checks and actions) the company plans to take regarding the 5 steps of due diligence. TMT agreed to implement the recommendations and raise awareness during mine site visits. 4-6 weeks Audit issue reference: Step 1B 1.B. Structure of internal management systems to support supply chain due diligence Major 5, 13-15, Increase involvement of senior management in due diligence activities to support the due diligence manager. Increase due diligence manager's awareness of OECD guidance and conflict minerals issues and ensure that he takes a more active stance in assessing supply chain risks, documenting them and flagging them for follow-up to senior management. 2. Ensure that due diligence activities are documented, such as a brief note after site visits, and share those with itsci and GMD. 3. Define accountability/sanctions for employees repeatedly not performing due diligence tasks. Audit issue reference: Step 1C 1.C. Established a system of controls and transparency Major 29, 30 over the mineral supply chain 1. Develop a full list of suppliers and confirm that they are accepted itsci members (except if not a registered enterprise) 2. If the supplier is not an itsci member carry out a due diligence evaluation, record findings and share a copy with itsci 3. Given TMT's large supplier base and large number of small purchases, take action to monitor and understand fluctuation in production from each supplier and report concerns to itsci and GMD. STATUS: PUBLIC Page 4 of itsci Programme

5 Audit issue reference: Step 1D 1.D. Strengthened company engagement with suppliers Major Communicate TMT's supply chain policy and incorporate clauses on due diligence in commercial contracts or written agreements. TMT agreed to progressively sign contracts with all suppliers. Audit issue reference: Step 2B 2.B. Mapped factual circumstances of the company's supply chains Major 1. Evaluate Governance Assessments and other reports from itsci. 2. Ensure mines are identified on the itsci mine list and therefore subject to baseline evaluation. 166, 167 Within 3 Audit issue reference: Step 2C 2.C. Identify and assess of risks in the supply chain Major , 172, Assess all information gathered against standards of Annex II, national laws of the relevant countries (relevant to mineral extraction, transport, trade and export) and legal agreements such as financing agreements, contractor agreements, and supplier agreements. 2. Evaluate the risks reported by itsci to determine if they are appropriate, correct and consistent with individual company circumstances. Audit issue reference: Step 3A 3.A. Reporting of findings to designated senior management Major 1. Record findings relating to due diligence activities and assessments in writing, report to senior management and ensure that follow-up action is taken. 174 STATUS: PUBLIC Page 5 of itsci Programme

6 TMT agreed to put the recommendation into action. Audit issue reference: Step 3B 3.B. Development and adoption of a risk management plan Major 175, 176, Develop and adopt a risk management plan, taking into account the level of risk identified during risk identification and assessment (such as through supplier and site visits). 2. Evaluate whether mitigation/suspension/disengagement actions by itsci have been appropriate, correct and consistent with individual circumstances (reference Annex II). 3. Apply leverage on suppliers to promote risk mitigation as appropriate. Within 3 Audit issue reference: Step 3D 3.D. Undertaking of additional fact and risk assessments for risks requiring mitigation, or after a change of circumstance 1. Review results of mitigation after a change of circumstances or failed attempts at mitigation. TMT agreed to put the recommendation into action. Audit issue reference: OECD Annex II Major 190 Other - Annex II Major Require security service providers (public or private) to adhere to the Voluntary Principles on Security and Human Rights. TMT agreed to put the recommendation into action. Audit issue reference: Other Other -ITSCI Chain of Custody Requirements Major 229, Ensure that the company representative signed in agreement of each logbook page in a timely manner. STATUS: PUBLIC Page 6 of itsci Programme

7 THE ABOVE REPRESENTS A SUMMARY OF THE AUDIT FURTHER DETAILS AND EVIDENCE RECORDED IN THE AUDIT CHECKLIST REMAIN CONFIDENTIAL TO THE COMPANY AND ITSCI PROGRAMME MANAGEMENT The audit evidence is based on samples of the available information. There is an element of uncertainty in auditing, and those acting upon the audit conclusions should be aware of this uncertainty 1. Any conclusions and recommendations contained in this report are made in good faith and on the basis of the information available to the independent auditors at that time. The OECD Guidance recognises that "Flexibility is needed in the application of due diligence". itsci has applied flexibility in that disclosure to an independent third-party has been deemed as practical and sufficient to meet the disclosure requirements while enabling business confidentiality to be maintained. The information contained in this report is the view of the independent auditors of the itsci Programme and does not explicitly represent the views of the companies or organisations within the report, or the views of any other actors in the itsci Programme. The authors believe the information provided is accurate and reliable, but it is furnished without warranty of any kind. The itsci Programme gives no condition, warranty or representation, express or implied, as to the conclusions and recommendations contained in the report, and potential users shall be responsible for determining the suitability of the information to their own circumstances. Under no circumstances will the itsci Programme nor any of the companies or organisations within the Programme be liable for any loss or claim whatsoever arising as a result of the use of or reliance upon such conclusions or recommendations. The report should be reproduced only in full, with no part taken out of context without prior permission. REFERENCES OECD (2013) Due Diligence Guidance for Responsible Supply Chain of Minerals from Conflict-Affected and High-Risk Areas, Second Edition UN Security Council committee established pursuant to resolution 1533 concerning the DRC, Due diligence guidelines 2010 ISO 19011:2002(E) ISO 17021: 2006(E) 1 ISO 19011:2002 (E) Clause STATUS: PUBLIC Page 7 of itsci Programme