At the end of August, the US Securities and Exchange Commission (SEC) issued new regulations governing the trade in conflict minerals from the Democratic Republic of the Congo. The new rules, known commonly as Provision 1502 of the Dodd-Frank Wall Street Reform Act, seem to have made nobody happy: business has long complained the rules are too onerous, civil society is irritated that traders have been given a two-to-four year grace period, and artisanal miners are none the wiser as to when they will get their livelihoods back.
What few seem to have realized is that the conflict minerals law may be a harbinger of a new approach to the way in which the global system relates to economies of armed violence.
Until now the global economy has been unfettered in its circulation of all kinds of commodities to and from war zones. After all, there is no law against profiting in or from war (indeed, what would the defense industries be up to if there was such a law?).
In that unregulated space a whole range of dodgy commerce takes place. The illicit traffic in small arms is an example of the flow of goods into war zones. Conflict minerals are an example of goods flowing in the opposite direction. They are only less directly deadly than small arms.
The US Congress enacted Section 1502 in July 2010 to address the urgent humanitarian situation in the eastern DRC. One month later, in August of that year, over 300 civilians were raped by armed groups in an incident that took place in three villages located close to mining sites and documented in detail by the UN. The UN Human Rights Commissioner noted that the violence was just one example of the direct link between mineral extraction and a long series of human rights abuses including gender-based violence such as sexual slavery, forced recruitment, forced prostitution, and rape, part of the violence which has plagued the eastern part of the DRC for decades. That link has been proven beyond a doubt by the UN Expert Groups monitoring illicit exploitation in DRC for almost a decade and many others.
The dynamics at work are probably best described as economies of irregular armed violence, or war economies for short. These economies have contributed to the deaths of millions of people over more than a decade of violence that has encompassed the deterioration of the state of Zaire and the DRC, the eruption of micro and macro conflicts across the country and across borders, the intervention of countries from throughout Africa, and the deployment of the largest UN peace operation of our time. Economics is not the primary cause of the violence, nor have the economic or conflict dynamics remained static during the past decade-and-a-half of war. But throughout, the economies of irregular armed violence in the DRC have helped to sustain elite networks associated with ever-changing political-military alliances, finance of foreign intervention, marginalize two generations of youth from the east of the country, and finance state and non-state armed groups, many of which have been accused of international crimes.
Slowly, it has dawned on policy makers that if they are serious about managing, preventing or resolving such violence, they need to get serious about managing the economic relations that make it sustainable, in particular the link between armed violence and economic activity. At the very least, DRC has taught policy makers that the assumption that war economies get a free pass when it comes to regulation is no longer automatic.
Of course, that link between violent and predatory behaviour and economic activity is by no means limited to the DRC. In Afghanistan, Iraq, Somalia, Sudan, the former Yugoslavia, Cambodia, Sierra Leone, Liberia and Sudan, or for that matter in Mexico and Colombia, there are or have been micro-level economies which co-exist with armed violence. Economic activity continues during armed conflict or in situations of widespread violence. It does so in the actual areas of conflict, not just on the margins. These economies have helped to prolong the violence, render peace-making more difficult and the efforts at peace-building less certain.
Yet, until now, international measures to deal with the economic dimensions of conflict and international crime have been scattershot and devoid of strategy. Anti-bribery and anti-money laundering laws, and even attempts to control terrorist financing, have all been implemented in the past decade. But those have very narrow policy targets and are more about the risks to non-conflict countries than to the people actually living in war zones.
At the turn of the century, wars in West Africa prompted an international response that sought to control conflict diamonds, which resulted in a certification scheme implemented by diamond producing countries called the Kimberly Process (more on that later). Also, there have been repeated efforts at the UN Security Council to make sanctions ‘smarter’, based on the realization that, in the context of globalization and porous borders, ‘dumb’ sanctions – like those imposed on Saddam Hussein’s Iraq during the 1990s – did little to undermine targeted regimes and only strengthened the resources available to the elites, often at the expense of the rest of society.
Still, the experience of the past decade has taught us a couple of things. First, economies of armed violence – war economies – are more often than not well integrated into global market flows. For more than a decade, studies and campaigns have documented how commodities – such as diamonds, timber, oil, tin, tungsten, tantalum, gold – have been laundered from conflict-affected or repressive countries into global supply chains leading to legitimate consumer markets. Similarly, but travelling in the other direction, the illegal arms trade, the securitization of humanitarian and development aid as part of counter-insurgency, and the injection of military assistance into conflict areas has provided the basis for the ballooning of the global private security sector. The realization that micro-economies of violence are well integrated into global economic flows means that they cannot be dealt with in isolation from global supply and demand. The implication is clear: getting to grips with war economies in far off conflict means getting to grips with the way non-conflict economies are part of the problem.
Second, the economies which sustain households and businesses in a war zone can be connected to the armed groups operating there. In other words, revenues generated by economies of irregular armed violence can help to sustain both vulnerable households as well as finance those involved in the fighting, or their associates. In the DRC, for example, illicit exploitation of natural resources has for years sustained both artisanal miners as well as state and non-state armed groups. Informal economic activities are often transformed by irregular armed violence – households can become more vulnerable, certain sectors can cease to be active while others can become more active. But the larger implication is that international policy interventions which target state or non-state armed groups need to be designed in a way that avoids creating ‘no-go-zones’ in local-global trade patterns, and risking in effect shutting off all economic opportunity to households who share the same economic space as combatants.
In May 2011, the Council of Ministers of the Organization for Economic Cooperation and Development (OECD) signed off on the "Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High Risk Areas," a detailed description of responsible sourcing of the kinds of minerals found in DRC, but cast with enough generality to be applicable to supply chains extending to any conflict situation. The Guidance was endorsed by those African countries most directly involved in the trade via the International Commission on the Great Lakes Region (ICGLR) in early 2011 and was also supported by the UN Security Council as the basis for responsible business engagement in the DRC. It was also referred to last month by the SEC as the basis for companies to claim their mineral supply chains are “conflict free”.
The Guidance itself is voluntary, although the SEC statement means it becomes a requirement for all US domiciled companies sourcing from the DRC. That amounts to entire sectors of the high-tech industry.
The Guidance is also a very technical document. But buried in its overly-complex depiction of conflict minerals due diligence, is a paradigm shift from previous attempts to deal with conflict commodities.
Like the Kimberly Process, or even UN sanctions, the Guidance seeks to exclude certain commodities from global trade flows. But there the similarity ends. Instead of obligating states, the Guidance places the responsibility on business to manage their supply chains. Instead of relying on a certification regime hobbled by a lack of state capacity, the Guidance deploys the concept of business due diligence, the practice of self-investigation and risk management in a business activity. And instead of targeting a commodity based on its association with rebel groups – a definition that has plagued the Kimberly Process, for example preventing it from taking action where abuses are committed by state armed forces, as in the case of Zimbabwe – the Guidance in effect focuses on the problems of conflict financing and human rights abuse associated with mineral extraction, regardless of whether the perpetrator is a state or non-state armed group.
In effect, the Guidance places the onus on businesses to show they are not financing conflict or contributing to human rights abuse through their sourcing of minerals. And nothing in the Guidance prevents states from regulating this responsibility to conduct due diligence, which is precisely what the US has done with the conflict minerals provision of Dodd-Frank, a measure the EU is now considering.
The Dodd-Frank provision is a transparency rule, in effect requiring business to make public its compliance with the OECD Guidance. There are no penalties in the law. But even a mild transparency rule was too much for some business, many of whom stopped sourcing from the DRC. The de facto boycott of DRC minerals generated intense debate about the effects on local households of the Dodd-Frank provisions. But the stoppage in trade was a function of eighteen months of delays in clarity as to the rules, something the SEC finally solved last month.
The combination of an obligation on business to conduct due diligence and a duty of states to regulate that practice is a far more effective approach than asking states to certify a trade over which they have little oversight. The objective should be to enable economic activity to continue, but to draw a line at violent and predatory behavior. By focusing on conflict financing and human rights as the principle problem with conflict minerals, the emerging standards are designed to enable the continuation of economic activity that sustains the most vulnerable, while at the same time excluding those commodities produced through violations of universally accepted standards of behavior.
Distinguishing between these twin objectives in practice is bound to be a messy and imperfect process. If the recent past is any indication, it also likely to be hotly contested. But what no one seems to contest is that profiting from predatory or violent crimes – like paying a bribe to obtain an economic advantage – is unacceptable business behaviour. There has never been any statute designed specifically to outlaw such behavior. Perhaps one is overdue?
This article was produced with the support of the Norwegian Peacebuilding Resource Centre, NOREF.