An ICGLR-Based Tracking and Certication System for Minerals from the Great Lakes RegionProposal

8/3/2019 An ICGLR-Based Tracking and Certication System for Minerals from the Great Lakes RegionProposal

http://slidepdf.com/reader/full/an-icglr-based-tracking-and-certication-system-for-minerals-from-the-great 1/39

AN ICGLR-BASED TRACKING AND

CERTIFICATION SYSTEM FOR MINERALS

FROM THE GREAT LAKES REGION

March 2010

Shawn Blore and Ian Smillie

Partnership Africa Canada

331 Cooper Street, Suite 600

Ottawa, Ontario, K2P 0G5, Canada

This report is a working document of the ICGLR – the International Conference on the

Great Lakes Region. It was submitted by Partnership Africa Canada to the ICGLRCommittee against the Illegal Exploitation of Natural Resources at its April 12-13, 2010

meeting in Bujumbura, Burundi. That meeting adopted the four principal elements of

the proposed Regional Certification Mechanism, as described in Part III of the report.

April 2010



AN ICGLR-BASED TRACKING AND CERTIFICATION SYSTEM FOR

MINERALS FROM THE GREAT LAKES REGION

Untracked minerals — A Regional Problem

The mineral trade in the Great Lakes region is faced with a number of interrelatedchallenges. Topping the list is the conflict mineral phenomenon, whereby minerals andmine sites are used as a source of financing by armed groups, be they rebels, militias ormilitary forces acting independently of government control. While this phenomenonoccurs primarily within the borders of the DRC, the deleterious effects are feltthroughout the region. Political spillovers include the influx of refugees and temporaryor prolonged incursions by armed groups into neighbouring countries. For the mineraltrade, the spectre of conflict financing scares off customers and depresses tradethroughout the region. Even without formal consumer boycotts, the lack of security withrespect to the mineral trade frightens investors, who might otherwise invest in projects

including formal mines in producer countries and secondary processing and smelting inneighbouring countries.

A second and related challenge is the problem of untaxed and undocumented mineralflows. Producer countries throughout the region are deprived of much needed revenueas a result of mineral shipments that exit their countries without paying due taxes. Nocountry in the region is exempt from this problem, and while some countries benefitwith some minerals, the lack of controls often means they lose out to an equal or largerdegree with other minerals. The result is a beggar-thy-neighbour free-for-all, whereoverall tax revenue across the region winds up being much lower than it could be if governments worked together.

Though not yet at the forefront, the challenge of the social and environmental conditionsin which minerals are produced is already assuming great importance for mineral end-users, and will come in the very near future to carry as much weight as the currentemphasis on conflict sourcing.

Tracking Minerals — A Regional Solution

All of these challenges have regional causes and regional repercussions. Equally, thesolutions to these problems are best dealt with at a regional level.

Conflict sourcing is inevitably a regional phenomenon, as minerals mined in onecountry are exported often clandestinely to one or more neighbouring countries in orderto obscure their origins. Untaxed mineral flows is a similar issue, though the problem isnot the origin of the material, but simply its avoidance of official taxation channels.Often, the problem is simply one of information transfer. Because of the lack of regionalharmonisation, a transit or re-export country may not be fully aware of whichdocuments are required by a producer country before export.

Whatever the underlying cause, the solution for the two problems is the same.Comprehensive tracking systems within producer countries will ensure that mineralsoriginate from certified mine sites, and – as the minerals are being tracked - will enable

governments to make sure that minerals are taxed before export. A standardizedICGLR Regional Certificate (in several of the most used languages of the region) will

2



serve to alert transit and re-export countries that a mineral shipment has paid allnecessary dues and taxes. Those shipments lacking an ICLGR certificate should not beaccepted.

A database, housed at the ICGLR, will keep track of mineral flows within the region,

and exports to destination outside Africa. At regular intervals, the flows in and out of producer areas, comptoirs and countries will be balanced and reconciled, to ensure thatall mineral flows within and from the region are accounted for. Providing full publicaccess to this data will serve as a guarantee to member governments, and to the widerconsuming public, that all is well with Great Lakes mineral flows, that all minerals havebeen tracked and accounted for.

The net result will be a diminution and eventual elimination of minerals as a source forconflict, increased mineral taxation revenues region wide, increased confidence in theinvestment climate, and a cementing of peace and stability in the Great Lakes Region.

About This Proposal

This document is a proposal for just such a regional solution, a Regional MineralTracking and Certification Scheme, housed in the Secretariat for the InternationalConference for the Great Lakes Region (ICGLR).

The proposal for the ICGLR Mineral Tracking and Certification Scheme is laid out infive parts.

Part I draws lessons from existing certification schemes, such as the Kimberley ProcessCertification Scheme (KPCS, or KP) for diamonds, with a view to discovering pitfalls

to be avoided, and important elements to incorporate into the ICGLR scheme.

Part II gives the underlying principles that determine the overall approach of theICGLR Tracking and Certification Scheme, and guide the development of the practicalmeasures proposed to implement the scheme.

Part III delineates the practical measures that the scheme will use to track and certifyminerals from and within the Great Lakes Region.

Part IV outlines the roles and responsibilities of the various stakeholders in the ICGLRMineral Tracking Scheme: the role of national governments, of industry, of civil

society, of concerned international governments, and of course the critical role to beplayed by the ICGLR Secretariat.

Part V focuses on implementation issues specific to certain countries. In the body of proposal, the examples given focus on the DRC and its exports through Rwanda todestinations beyond Africa. For that reason, this section focuses on issues specific toBurundi and Uganda.

An anticipated Part VI of this proposal will cover timelines for implementation of thevarious elements of the ICGLR Mineral Tracking and Certification Scheme. Thissection will be appended after the proposal has been circulated amongst and discussedby regional stakeholders.

3



PART I: LESSONS FROM THE KIMBERLEY PROCESS AND OTHER

REGULATORY SYSTEMS

Purpose

It is important that the purpose of standard setting and supply chain monitoring beclearly established from the outset:

• Limited objectives aimed at solving an immediate problem such as ‘conflict’may produce a system that is incapable in the longer term of dealing withunderlying problems of governance, development or ethical mining practices. Ata minimum, the relationships between conflict, governance and human rights(now and potentially in the future) need to be considered;

• What may appear administratively appropriate at the end of a lengthy period of difficult negotiation may not be adequate as the system matures. The system

must be flexible enough to adapt to new conditions and realities as outliers seek ways to evade regulations.

Administrative Considerations

• The system must encompass more than ‘internal controls’ in producingcountries. It must cover the entire supply chain, tracking minerals from mine toend-user;

• Decision making needs to be open, inclusive and non-obstructive, and it must be

free of political interference. Transparency is important to credibility andcompliance;

• The system needs secretariat services commensurate with the challenges it faces.Weak administrative systems, including data gathering, management andresearch, will hobble effectiveness; top-heavy administrative arrangements willdo the same.

Operational Considerations

• Producing areas must be free of military activity. That may seem self-evident,but even the presence of government forces may become problematic if prolonged;

• It is essential that commodities from other areas are prevented from entering acontrolled production area and passed off as ‘clean’. A reliable data basecapturing production and trade statistics, and an exchange of official data oncommodity trade, are important elements in effective regulation;

• A variety of checks are possible for traders and exporters, but these are only as goodas controls and data-gathering in primary producing areas. If goods enter the stream

before checking takes place, no amount of downstream certification will remedy theproblem; the first level of registration must be brought as close as possible to the

4



mine site. This is crucial deficiency in the diamond controls of many KP countries,and something that must be rectified in any ICGLR system.

• Independent third-party monitoring, including supply-chain monitoring, isessential to ensure equitable, system-wide effectiveness and credibility. This

must be complemented by rigorous follow-up where problems are identified;

• In any system of certification, there must be credible sanctions for non-compliance, including de-certification. Without that as a serious possibility thereis little reason to create or to follow the rules.

5



PART II: PRINCIPLES FOR AN ICGLR MINERAL TRACKING ANDCERTIFICATION SYSTEM

Introduction:In light of the lessons learned from the Kimberley Process and other certification

schemes, and considering the goals of a regional tracking and certification scheme, theICGLR has developed a number of guiding principles which it believes should guide theinitial implementation and ongoing development of the ICLGR Mineral Tracking andCertification Scheme.

Principles:

1. Transparency

Transparency is essential for the system to have legitimacy with member

governments, civil society, industry end users, consumers and public.

This is supported by Articles 2 (Objectives), 3 (Sovereignty), 7 (InternationalCooperation), 10 (Preventive Measures), 11 (Certification), 14 (Protection of Witnesses), 22 (Harmonization), and 25 (Committee Mission) of the Protocol

against the Illegal Exploitation of Natural Resources.

Implementation

A. Data on mineral flows and third-party audits to be made publiclyavailable via the ICGLR website, not just to system stakeholders, but tocivil society and to the general public.

B. Making data public harnesses public and civil society as watchdogs –

allows for more efficient oversight, at no additional cost.C. To protect commercial sensitivity, price data can be taken out (i.e.

négociants, comptoirs, processing plants, smelters would have to reportdate of shipment, material, concentration (if known), weight/volume,source/destination of shipment, but not price paid or price received)

2. Burden of Proof Falls Primarily on Exporters, and only Secondly onGovernments

In the ICGLR system, primary responsibility for assuring a verifiable chain of

documents from dig site to export point will fall on industry. Penalties for non-

compliance will also fall primarily on industry.

This is supported by Articles 2 (Objectives), 3 (Sovereignty), 5 (Investors), 8(Human Rights), 9 (Combating Impunity), 11 (Certification), 15 (Sanctions), 17(Legal Liability), and 25 (Committee Mission) of the Protocol against the Illegal

Exploitation of Natural Resources.

Implementation

A. With the KP, primary responsibility for certification falls ongovernments. Producing countries set up internal controls, whichindustry often complies with either reluctantly or not at all. NGO and

civil society criticism for non-compliance is levelled at producing

6



country governments, which often lack funds and capacity to implementimprovements. This dynamic must be altered in new system.

B. National governments will design and set up procedures that, if followed,will allow products to be tracked and certified. The onus to follow theseprocedures, and the penalties for non-compliance, will fall on industry.

C. Civil society will then be able to direct their watchdog efforts towardsmonitoring and improving the compliance of industry participants,instead of focussing primarily on governments

3. Mandatory Third-party Audits

Trust but check: quarterly third-party audits should be mandatory for all

participants in the mineral chain. Passing these audits should be obligatory for

an entity to achieve and maintain certified status

This is supported by Articles 2 (Objectives), 3 (Sovereignty), 5 (Investors), 7

(International Cooperation), 8 (Human Rights), 9 (Combating Impunity), 10(Preventive Measures), 11 (Certification), 14 (Protection of Witnesses), 15(Sanctions), 25 (Committee Mission), and 34 (Investigations) of the Protocol

against the Illegal Exploitation of Natural Resources.

Implementation

A. Independent auditors accredited by ICGLR Audit Committee

B. Audit reports made publicly available through ICGLR website

C. Substantive and automatic penalties for non-compliance

D. ICGLR Audit Committee made up equally of government, industry andcivil society representatives

E. Audits paid for by industry, commissioned and administered by ICGLRAudit Committee

4. Adapt current systems as much as possible

Business as usual, but with checks: where possible, adapt the current systems

in order to increase compliance and reduce costs.

This is supported by Articles 2 (Objectives), 3 (Sovereignty), and 11 (Certification)

of the Protocol against the Illegal Exploitation of Natural Resources.

Implementation

A. Many négociants and exporters already have good systems for trackingtheir products from start to finish. Rather than create new governmentsystems, let us try to adapt the systems in place, with as light a touch aspossible, so as to reduce expense and increase compliance.

7



5. Design for Adaptability

The system should be able to develop and incorporate new standards into the

existing tracking and certifying framework.

This is supported by Articles 2 (Objectives), 3 (Sovereignty), 5 (Investors), 7

(International Cooperation), 8 (Human Rights), 11 (Certification) and 25(Committee Mission) in the Protocol against the Illegal Exploitation of Natural

Resources.

Implementation

A. Initially, the system will focus on a limited number of goals andstandards – tracking minerals from source to final destination, ensuringthat minerals do not originate from conflict zones or enrich armedgroups, ensuring that taxes on minerals are paid.

B. In the near to medium term (2-5 years) ongoing market pressure willnecessitate the adoption of additional standards (child labour, reasonableenvironmental standards, respect for human rights, living wages).Stakeholders should be aware at the beginning that these standards arecoming, and that the system will have to adapt to incorporate them.

C. Standards should be adopted region-wide. While labour andenvironmental and other mining standards are set by nationalgovernments, an ICGLR Standards Committee (drawn from government,industry and civil society) should develop standards for important criteria(i.e. child labour, environmental impact, living wages) that can then beadopted by governments across the region.

8



PART III: ELEMENTS OF THE ICGLR TRACKING AND CERTIFICATIONSYSTEM

Introduction:There are four principal elements to the ICGLR Mineral Tracking and Certification

Scheme: chain of custody tracking from mine site to export point; regional tracking of mineral flows via an ICGLR database; regular third-party audits; independentinvestigations as required into problems and anomalies. These elements are listedbelow in point form, and then explained in greater detail in subsequent sections

A. Principal System Elements

1. Chain of custody tracking from mine site to export

a. implemented by national governments prior to export

b. successful export applications given ICGLR Regional Certificate, which

serves as proof of compliance throughout region

2. Regional Tracking of Mineral Flows via ICGLR Database

a. Data on regional mineral flows to be transmitted to ICGLR on a monthlybasis

b. For each industry participant, data will be processed and analysed todetermine if exports equal legal imports

c. Where mineral flows do not balance, industry participant will be given ashort grace period to explain and correct the discrepancy. If theexplanation is unsatisfactory, or the imbalance continues, the participant

will be declared non-compliant

d. All data and analyses will be stored on publicly accessible database

3. Regular Independent third-party audits

a. All actors in mineral chain must submit to quarterly audits byindependent third-party auditors

b. Industry participants must pass audits to be considered compliant (i.e.those failing audits will be declared non-compliant)

c. An Audit Committee within ICGLR accredits auditors, sets terms of reference for auditors, commissions audits

d. An Audit Committee composed equally of government, industry andcivil society participants; initially, numbers could be 3 government, 3industry, 3 civil society.

4. Independent Mineral Chain Auditor

a. The Mineral Chain Auditor will monitor the full mineral chain fordiscrepancies and anomalies arising from data collected in system

b. The Mineral Chain Auditor has authority and resources to initiateinvestigations at their own discretion

c. The Mineral Chain Auditor’s appointment is structured to provide fullindependence and freedom of action.

9



B. Detailed Explanation of Principal System Elements

1. Chain of custody tracking from mine site to export

Purpose

The first key element in the ICGLR Mineral Tracking and Certification scheme will bea comprehensive mineral tracking system, to be put in place within each mineralproducing or mineral trading country in the region. In order to ensure that minerals donot originate in conflict areas, and that minerals have not been illegally transferred fromone country to another, these in-country mineral tracking systems must be able toaccurately track each sack or load of minerals from the mine or dig site through to thepoint of export.

Function

Figure 1 provides a schematic diagram of the domestic and regional mineral flows,beginning in the DRC (other nations are covered in country-specific sections in Part V).

Minerals originate in an artisanal pit, and are then transported to a regional centre denégoce or trading centre. From there, the minerals are transported to a comptoir in alarger city such as Goma or Bukavu. (Some minerals skip the trading centre and aretransported straight to a comptoir). At the comptoir, minerals undergo some basicprocessing, and are then exported.

The mineral tracking system has to be able to track and document the path taken byeach sack or container of minerals along every step in the chain. DRC authorities arealready in the process of creating a tracking system capable of fulfilling this task. Whilethe system is still being developed, it looks very promising.

SAESSCAM, the DRC artisanal mining agency, uses paper forms to register and track bags of ore as they exit the mine site and travel to the trading centre. From the tradingcentre to the comptoir, the Division de Mines and SAESSCAM use a morecomprehensive system of paper forms to track bags of ore (colis) as they travel from thetrading centre to comptoir.

During the export process, several DRC agencies examine the comptoir’s chain of documents to ensure that all the material being exported can be tracked back to a knownand approved mine site.

Currently, DRC authorities signify their approval of these documents by issuing an

export permit and a certificate of origin. Once the ICGLR system is in place, thecertificate of origin can be replaced with an ICGLR Regional Certificate.

In Rwanda, authorities may have to expand their tracking systems so that all mineralsthat exit a mine or artisanal dig can be tracked to a reprocessing centre. Before allowingan export, Rwanda authorities will have to review these chain of custody documents fordomestic production, as well as the ICGLR Certificates for imported material, to ensurethat the volume of material imported or bought locally matches the volume of materialto be exported (taking processing losses into account). If all is in order, Rwandaauthorities would then issue their own ICGLR Regional Certificate for the export.

(Note that an intermediate country such as Rwanda would only issue its own ICGLR

Regional Certificates in cases where an incoming shipment has been opened and thematerial re-processed or combined, either with domestic production or with imported

10



11

material from another shipment. For shipments that merely transit the country and arethus never opened, the certificate from the producing country will suffice).

Role of ICGLR Regional Certificates

The ICLGR Regional Certificates will serve as a recognized guarantee region-wide thatminerals were mined under acceptable conditions, in areas free of conflict, and haveexited their country of origin in a legal fashion with all dues and taxes paid.

Currently, government officials in a transit or reprocessing country often have difficultydetermining whether a shipment of minerals has legally exited its country of origin. Theexport procedures and documents used in the producing country are often unfamiliar,difficult to understand, and usually written only in the language of the country of origin.As a result, mineral shipments of doubtful or illegal status are sometimes accepted intransit countries.

Figure 2 shows this situation schematically. Mineral flows of uncertain legality includegold flows from the DRC into Uganda, and coltan and cassiterite flows from Ugandainto Rwanda. Many others may also exist.

The creation of the ICGLR Regional Certificate should solve this problem. TheCertificate will be printed in English, French and Swahili, and will contain all relevantinformation to identify the mineral shipment (i.e. exporter, importer, mineral type,weight, purity, etc1).

The ICGLR Certificate will serve as the sole acceptable document for intra-regionalmineral shipments – if a shipment has an ICGLR Certificate, it can legally be imported,

processed and later re-exported. If a mineral shipment does not an accompanyingICGLR Certificate, it has not been legally exported, and cannot be legally processed, re-exported or otherwise incorporated into the transit country’s mineral stream.

Role for Donors

Countries with less experience with mineral tracking systems – Uganda, Burundi andSudan notably - will require some assistance designing and implementing theirprogrammes.

Countries with more experience of tracking systems (DRC, Rwanda) will still likelyneed technical or logistical assistance (laptops for mines officials, training in data

design and data collection, assistance with transportation infrastructure (motorbikes)and communications tools (radios).

The design of the ICGLR Regional Certificate would also benefit from the assistance of a nation with experience designing and printing Kimberley Process Certificates.

1 Note that current export certificates contain the declared value of the shipment. For customs purposes,

the ICGLR Regional Certificates may also have to list the value of the shipment. However, as it has beenagreed not to collect price information for the regional database, this information could be restricted to thecertificate and not be transmitted to or included in the database.



Figure 1: Great Lakes Mineral Flows in the Congo R

RwandaDem. Rep. Congo

Centre de Négoce Comptoirs

Centre de Négoce

- protected by MONUC

- Négociants buy from miners,managers, petit négociants

- Négociants ship to comptoirs

- CEEC, Div. Mines,SAESSCAM all present toregister, track productions

FormalMine

ReprocessingCentre

Artisanal Dig Site

(certifiable)

R e p r

o c e s s i n g C e n t r e

Non-certifiable

Domestic Productio

mine siteregistrationand trackingprovided bySAESSCAM

Div MinesCheck point

Illegal Mineral FlowsLegal Mineral Flows

12



13

TANZANIA C o l t a n / C a s s i t e r i t e

C

l t

/ C

i t

i t

KENYAUGANDA DUBAIUGANDA UGAND

DRC

DRC

SUDAN

RWANDA

BURUNDI

Gold

Gold

Coltan/Cassiterite

Gold

Gold

Gold

Gold

SUDAN

RWANDA

BURUNDI

Gold

Gold

Coltan/Cassiterite

Gold

DRC

DRC

DRC

DRC

ICGLR Certificates DocumCurrent Situation – Mineral Flows Undocumented

Figure 2: ICGLR Certificates – Carrying Information Across th

Mineral Flows Traced and DocuRegional Certificate

Undocumented Mineral Flows



2. Regional Tracking of Mineral Flows via ICGLR Database

Purpose

The Tracking Database is the second key element in the ICGLR Mineral Tracking and

Certification System. Developing and operating this database will be a critical task of the ICGLR Secretariat in Bujumbura.

Tracking and reconciling mineral flows via the ICGLR database will ensure that crossborder mineral flows travel through approved and registered channels. By balancingexports and imports, purchases and sales for all industry actors from the top to thebottom of the mineral chain, the database will account for all minerals produced, tradedwithin and exported from the region. This comprehensive coverage should negate thepossibility of minerals being smuggled into or out of the system.

Making the data publicly accessible will secure the legitimacy of the system in the eyes

of stakeholders, governments, civil society, and the wider international community.

Function

A schematic diagram of mineral flows in the Great Lakes region is shown in Figure 3.The diagram is based on mineral flows from the DRC, travelling through Rwanda to afinal destination abroad. (While this example focuses on the Congo, the principle is thesame for all other mineral flows in the region. Examples for other countries in theregion are given in Part V)

The basic methodology of the ICGLR database is quite simple. The data concerning all

sales and purchases and all exports and imports, are transmitted on a regular basis to theICGLR and stored in the ICGLR publicly accessible database. These data are then usedto balance and reconcile mineral flows. The volume of minerals exiting a particularmine site are balanced with the minerals arriving at the nearest trading centre (centre denégoce). The volume of minerals exiting all the centres de négoce are balanced againstthe volume of minerals entering all the comptoirs. For each individual comptoir, thevolume of minerals purchased by the comptoir is balanced with the volume of mineralexported by the comptoir (adjustments are made for processing).

For re-processing centres, the volume of material imported and purchased locally isbalanced against the volume of material exported. Finally, on a region wide scale, the

volume of material produced in the region is balanced against the volume that arrives atsmelters, either within or outside Africa.

By calculating and publishing these balances, the ICLGR Tracking and CertificationScheme will allow all countries and all stakeholders in the region to follow withaccuracy the routes by which their minerals are travelling to the international market.Discrepancies in these balances should demonstrate where there are leaks in the system,and over time allow governments and industry to put an end to contraband,undocumented mineral flows, and minerals sourced from unacceptable regions or minesites.

14



15

Role for Donors

Information Technology and Data Collection Assistance

Many of the government regulators in the mineral chain will require assistance withdata collection. At its most basic form, this could take the form of providing laptopcomputers and printers, which many of the more remote bureaux lack. Though nearlyall regulatory personnel are proficient in the use of spreadsheets (the most logical wayto collect data), government regulators could benefit from assistance in data collectionmethods, and particularly in standardizing the types of data collected (it is common touse proper names on forms, often lumped together in one field, in place of a more usefulID number). This will help to avoid duplicating matches and facilitate the integration of these data into the design of the overall database.

Transportation Equipment

Field based regulatory personnel are also in urgent need of transportation infrastructure(i.e. motorcycles and gasoline) and communications equipment.

Database Design and Implementation

The database outlined in this proposal will have to be designed, coded, and installed atthe ICLGR headquarters. Though not especially complex from a database perspective, itwill require one database designer to get up and running. A second IT professional willlikely be required to work in the field, travelling to various government and industrydata providers to ensure that data is collected correctly and transmitted on a timelybasis.



16

Dem. Rep. Congo Rwanda

(certifiable)

Artisanal Dig Site

Formal

MineCentre de Négoce


- Négotiants buy from miners,managers, petits négotiants

- Négotiants ship to comptoirs

- CEEC, Div. Mines,SAESSCAM all present toregister, track production

Non-certifiable

ReproessingCentre

Domestic Prod

mine siteregistrationand trackingprovided bySAESSCAM


R e pr o c e s si n g

C en t r e

ICGLR

- Collects data on outgoing and incoming mineral flows from all actors in the chain (diggers, managers, négociansmelters); makes this data available in public database

- Balances and reconciles mineral flows on a monthly basis; this information also made publicly available- Commissions quarterly third-party audits- Auditor General supervises entire chain, has mandate to initiate investigations into potential problem areas

Fi ure 3: ICGLR Monitorin of Great Lakes Minera

Information Flows

Comptoirs

Information CollectionMineral Flows



3. Regular Independent Third-party Audits

Purpose

Independent third-party audits are one of the key innovations in the ICGLR Mineral

Tracking and Certification Scheme. Conducted independently of government, industryand civil society, the audits will provide a regular check that the sourcing and chain of custody procedures demanded by the system are being adequately followed by all actorsin the mineral chain. The regular performance of audits, and the publication of auditresults, will cement the legitimacy of the ICLGR system in the eyes of end-users,consumers, civil society, and the international community.

The ICGLR scheme is a ‘dual-key system’. Comptoirs and exporters cannot exportwithout proving chain of custody and then being awarded a ICGLR RegionalCertificate, but that in itself is not enough to be considered a ‘certified exporter’.Exporters must also regularly pass third-party audits. Those that do not pass will be

declared non-compliant, and will have their exports flagged as being non-compliant. Itis anticipated that the market penalties for ‘non-compliance’ will be substantial.

Audit Committee –Tri-partite Composition

The audits will be commissioned and managed from within the ICGLR. However, forthe audits to have the confidence of system stakeholder and legitimacy in the eyes of end-users and the international community, they cannot be managed solely bygovernment appointees. Instead, the audits will be managed by an Audit Committee,composed equally of members from government, industry and civil society. Initially, theAudit Committee should be composed of 3 members from each sector, with one of the

civil society positions reserved for international civil society. The committee itself should be empowered to adjust its numbers as time goes on, so long as the principle of equal tri-partite representation is preserved.

The composition, election and voting procedures of the Audit Committee will besomething for the ICGLR (and the Audit Committee itself, once it is established) toestablish and modify as circumstances require. The following discussion is offered as asuggestion.

It is suggested that committee members serve for a period of two years; the issues theywill manage are complex, and some learning will be required before members are fully

effective. Turnover could perhaps be staggered, to avoid the loss of expertise with acomplete simultaneous changeover in membership.

Selection of members is perhaps a more problematic area. One possible method is foreach sectoral group to work out within itself who will put forward to sit on thecommittee. Government members will likely be drawn from the ICGLR SteeringCommittee. Industry members will likely be drawn from regional associations (FEC),international associations (i.e. ITRI), or from larger industry stakeholders. Civil Societymembership will likely consist of a mixture of national NGOs with experience inresource issues (i.e. CENADEP, OGP, etc) and international NGOs (i.e. PAC, GlobalWitness, IPIS).

17



Voting procedures within the committee is another important aspect to be considered.While consensus is the ideal, it does pose its own dangers. The Kimberley Process’decision to rely on 100% unanimity has often rendered the organization ineffectivewhen confronted with controversial issues. A simple majority on the other hand wouldallow any two of the three groups to band together to over-rule the third. Perhaps the

best formula would be a compromise between the two, either an expanded majority (i.e.7 out of 9 votes, for example) or perhaps a “2 sectors plus 1 member model”. With thisformula, a measure would require unanimous support from 2 sectors (i.e. governmentand industry), plus at least one vote from one member of the hold-out sector. Thus, for a9-member committee, a measure would require 7 votes to pass. Such a formula wouldstill require substantial consensus, but would prevent a single recalcitrant member fromblocking progress.

Again, the committee should be empowered to adjust its voting procedures from time totime, in order to adjust as new conditions arise.

Terms of Reference for Audits

The Audit Committee will set the terms of reference for auditors, including whichindustry actors should be audited, what methodologies should be used by auditors inorder to produce an acceptable audit.

The audit committee will also have to develop a set of rules for dealing with situationswhere information is lacking, or where there is some ambiguity in the audit results.For example, while the presence or absence of armed groups in the mineral supply chainis one key factor is assessing whether a comptoir is compliant, there may well besituations where a clear cut answer is not available. The Audit Committee should

develop a clear set of guidelines, and indeed hard and fast rules, for dealing with thesesituations.

For example, in the initial phases of the system, it may well be impossible to track allmaterial to source. The committee may want to develop a rule that a comptoir can haveup to 10% of its material from untrackable sources, but if the percentage goes over 10%,the comptoir is non-compliant.

Similarly, while material from a militarized mine site or a site under the control of anillegal armed group is clearly not permissible, there may well be situations where anarmed group does not formally control a site, but manages to levy illegal taxes or other

fees that allow it to profit from a dig or mining area. The committee may want todevelop clear rules for such situations.

For example, if illegal taxes levied by an armed group or military comprise more than10% of all taxes on given unit of mineral (i.e. a colis) then that material and that siteshould be considered a conflict site, and as such inadmissible.

Obviously, these formulas will vary, and will require careful consideration by the AuditCommittee. The point of this section is not to determine these rules, but merely toindicate that the committee should develop such rules, once it has been established.

18



Scope and Frequency of Audits

The Audit Committee will determine the frequency with which third-party audits areconducted. The interval between audits must be short enough that audits will catcherrors and anomalies, and thus maintain the integrity of the system, but long enough soas not to overwhelm the capacity of participants and auditors. It is suggested that audits

be conducted quarterly (4 times a year) or semesterly (3 times per year).

The scope of each audit will be largely determined by the role of the industry participantbeing audited. The audits must be comprehensive enough not only to balance thematerial entering and exiting an export house or comptoir, but also to verify that theminerals do in reality originate from the mining site claimed in the paperwork. A fieldcomponent will thus be an essential part of every audit.

Figure 4 below shows the suggested scope for audits for different types of industryparticipants. A comptoir audit (solid red line) will reconcile the material exported withmaterial purchased, and in addition follow the chain of custody documents and track thematerial purchased to source, to ensure that the material is, as claimed, coming from acertified mine site. A reprocessing centre audit (solid green line) will likewise reconcileexported material with purchased material, and track any domestic production back toits source. A full chain smelter audit (blue dotted line) will follow the document chainto track material from reprocessing centres, comptoirs, and from each of those back tothe mine site, to verify that all material entering a smelter comes from a legitimatecertified source.

Accreditation and Commissioning of Auditors

The Audit Committee will have the authority to accredit third-party auditors. Accredited

auditors can then bid on and conduct third-party audits. Having the auditors accreditedby the Audit Committee will further reinforce the legitimacy of the auditing system, bypreventing the engagement of auditors that either lack the requisite competence, or areknown or suspected of bias either for or against industry.

The Audit Committee will oversee the tendering and awarding of audit contracts. It issuggested that the committee develop terms of reference for each type of audit, and thensolicit for auditors through open public tenders. (For a city such as Goma, where thereare some 20 comptoirs, each contract should encompass a number of comptoirs - say 3-4 - in order to limit bidding overheads and bring down the audit costs througheconomies of scale. Care should be take to ensure that the same auditors are not pairedwith the same auditees every year, in order to avoid the appearance of bias that mightcreep in to a longer term relationship) The winners of the public tender will be awardedaudit contracts and proceed to conduct audits.

The Audit Committee will also have the responsibility of receiving the audits, reviewingthem for quality, and seeing that they are made publicly available on the ICGLRwebsite.

Administration of Auditing System

The ICGLR Secretariat will require additional staff and resources, both to run the

database and its associated reports, and to administer, vet and publish the auditingresults. Training for new and existing staff will also be necessary to establish and

19



20

maintain the system. The numbers required to administer audits and databases will notbe large, but they will need to be educated and motivated professionals. Donor countriesmay wish to earmark funds for supporting this effort.

Paying for AuditsIn keeping with the principle that industry should bear the primary responsibility forensuring the traceability and certifiability of their products, industry should fund andpay for the third-party audits. However, in order to maintain the independence of auditors, payments cannot be made directly from the company under audit to theauditor. Instead, the audits will be commissioned by the ICLGR, which then becomesthe client and paymaster.

Funding should be channelled from industry actors into an auditing fund housed at theICGLR. A formula based on volumes of material exported will ensure that each industryparticipant contributes in proportion to his share of the market. Initial calculations

indicated that audits could be amply funded via a contribution level of $30/tonne, whichis similar to what industry members already contribute towards the traceability schemeunder consideration by ITRI.

To avoid any misuse of funds, the industry contributions should be placed in a reserveor escrow account, which will stipulate that withdrawals can be made for the solepurpose of paying third-party auditors. The ICGLR administrators of the account will beexplicitly prohibited from using these monies for any internal ICGLR purpose, even onerelated to the auditing system.

Penalties for non-complianceAn auditing system only functions when there are real and immediate penalties for non-compliance. It should be recalled that the ICLGR Mineral Tracking and CertificationScheme is a dual-key system. Participants need both an ICLGR Regional Certificate(issued with every export) and a passing grade on regular audits to be consideredcompliant. Those industry actors that are not compliant will suffer real penalties in themarketplace.

The Audit Committee will have the responsibility of determining the rules by which anexporter is declared non-compliant. One possibility is to follow the yellow-card red-cardprogression used in soccer. The first time an industry player fails an audit, it is given a

warning and declared yellow carded. If the industry player fails the subsequent audit (orany further audits that calendar year, or within a 12-month period) it is red-carded; thatis, the industry player is declared non-compliant. The Audit Committee will have theresponsibility of determining the rules by which further sanctions are applied to non-compliant participants, as required by circumstances.

Role for Donors

Donor countries should consider supporting the activities of the ICGLR Secretariat,either through training or direct position support. Countries outside the region shouldalso use their influence to encourage companies within their jurisdictions to respect and

comply with the requirements of the ICGLR Mineral Tracking and Certificate Scheme.



Artisanal Dig SiteCentre de Négoce

Comptoirs

Dem. Rep. Congo Rwanda

(certifiable)

Non-certifiable

FM

Centre de Négoce


- Négotiants buy from miners,managers, petits négotiants

- Négotiants ship to comptoirs

- CEEC, Div. Mines,SAESSCAM all present to

register, track productions

R e p r o c e s s i n g C e n

t r e

Domestic


Reprocessing Cent

Comptoir AuditSmelter Audit (Ful

Figure 4: Scope of Audits



4. Independent Mineral Chain Auditor

Purpose

The Independent Mineral Chain Auditor is the fourth and final key element in theICGLR Mineral Tracking and Certification System. The Auditor’s function is to analysethe data streaming into the ICGLR, and look for anomalies and problems, and theninitiate further investigation as required.

The Auditor is empowered to conduct these investigations, to issue reports, and tosuggest both sanctions and solutions. If an Auditor’s report shows significant non-compliance on the part of an industry participant, the Auditor has the authority todeclare that participant non-compliant.

To preserve independence and freedom of action, the Mineral Chain Auditor does notreport to the Audit or Standards committees, but directly to the head of the ICGLR.

Function

The Auditor is intended to investigate situations that will likely arise, and that will notbe covered by the existing set of controls. A pair of examples may be the best way toillustrate the Mineral Chain Auditor’s role.

Phantom Gold Production

With the establishment of an ICGLR tracking system for DRC gold, those exportinggold from the DRC will be required to pay taxes, and to show tracking documents back to the mine site. Some gold exporters will comply. Others will seek out less expensive

alternatives, the most simple of which is to continue to export DRC gold to Uganda,while claiming it originates somewhere else.

Initially, these exporters may try to choose South Sudan as the nominal origin point fortheir gold. Theoretically, as Sudan is part of the ICGLR, this gold would be subject tothe same tracking requirements as DRC. However, it is likely that Sudan will lag behindthe DRC in implementing tracking mechanisms, and for some period – possibly years –DRC gold could be laundered through Sudan. Eventually, tracking mechanisms andthird-party audits in Sudan might well catch this problem. However, an independentauditor empowered by the ICGLR would uncover this kind of gap much sooner.

Extending this idea, it is entirely possible that once the Sudan loophole was closed,dishonest gold dealers might try to claim a non-ICGLR country as the ostensible sourceof the DRC gold they wish to export via Uganda. Neither tracking mechanisms noraudits would then be sufficient to catch and close this loophole. However, aninvestigation by the ICGLR Auditor would be able to disclose what was happening, andso bring pressure on exporters to bring the practice to a halt.

Continuing with gold, a situation might arise where gold dealers ceased to declare theirgold altogether, and exported straight to Dubai without obtaining requisite exportpermits. This kind of irregularity would not be uncovered via tracking mechanisms ordatabase analysis or even regular audtis. However, a Mineral Chain Auditor could travelto Dubai, liaise with officials there, and through investigation and analysis of customsdeclarations in that country uncover this kind of contraband traffic.

22



Neighbour Country Traffic

The laundering of ICGLR minerals by neighbouring countries not in the ICGLR couldeasily become an issue with a variety of minerals, from gold to coltan to tin towolframite. Minerals mined in areas that are not and cannot meet the necessaryrequirements could be shipped out to a neighbouring country with porous borders and

good transport facilities – ie South Africa, among several others. This outside countrywould then claim the minerals as domestic production, and sell them into the worldmarket with no need for certificate. Neither mineral tracking nor database balances northird-party audits would uncover this loophole.

However, gaps in production data might well lead to an investigation by the MineralChain Auditor, who could uncover and close such a loophole.

Summary

The Mineral Chain Auditor should thus be seen as the reserve, the last key line of

defence, with the ability to react to unforeseen situations and close loopholes that werenot seen or envisioned at the time of the system’s creation. The Mineral Chain Auditoris thus a crucial part of the system, because while it is impossible to anticipate whatthese new scams and dodges and loopholes will look like, it can be said with 100%certainty that they will be created, and they will thus have to be closed.

23



PART IV: ROLE OF NATIONAL GOVERNMENTS, INDUSTRY, CIVILSOCIETY, AND THE ICGLR

1. Role of National Governments

A. Establish mineral tracking and certification systems within nationalborders

a. system must be able to track national production from mine or pitto export point

b. system must be able to track minerals that are imported and thenre-exported (often with re-processing)

c. before allowing a mineral export, review chain of custodydocuments to establish that minerals can be tracked from minesite to exporting comptoir (producer countries), or from borderpost to exporting comptoir (transit, reprocessing countries)

d. issue an ICGLR regional certificate to mineral exports that haveall the appropriate chain of custody documents

e. For transit and reprocessing countries, accept only an ICGLRregional certificate as proof that a mineral shipment has beenlegally exported from a producer countries

B. Establish standards for artisanal and formal mineral production

a. standards must cover presence of armed groups and conflictfinancing

b. standards should cover environmental standards, child labour,forced labour, human rights and working conditions

c. in setting standards, national governments should be guided bythe ICGLR Standards Committee

C. Transmit data from national tracking systems to the ICGLR on a regularbasis, as required by the ICGLR

D. Give full cooperation, include access to all records and documents, toauditors commissioned by or working for the ICGLR

E. Give full cooperation, including access to all records and documents, to

investigations run or commissioned by the ICGLR

2. Role of the ICGLR

A. Regional Secretariat

a. keep system running

b. convene meetings, issues reports, general administration

c. establish a standard for an ICGLR Regional Certificate, toaccompany legal mineral flows (exports, imports, transits) bothwithin the region and to destinations abroad

B. Clearing house for information

24



a. maintain publicly accessible database of regional mineral flows

b. maintain publicly accessible library of third-party audits

c. maintain publicly accessible up-to-date list of certified and non-certified exporters

C. Track and balance regional mineral flows

a. store data transmitted to the ICGLR database by industryparticipants and national governments in a publicly accessibledatabase

b. analyse, reconcile and balance mineral flows on a monthly basis,highlighting any discrepancies or errors

c. declare traders/exporters compliant or non-compliant based onresults of mineral flow analysis

D. Serve as agency through which third-party audits are commissioned and

published

a. Tri-partite Audit Committee accredits auditors, sets terms of reference for audits, commissions auditors

b. The ICGLR publishes audit results on publicly accessible website

c. The ICLGR declares exporters certified or non-certifieddepending on results of audits

E. Regional Regulator

a. The ICLGR has responsibility to declare ‘non-compliant’ traders

or exporters or other industry participants that have failed toacceptably balance their mineral flows, or have failedindependent audit standards as set out by the Audit Committee

b. The ICGLR has responsibility to impose penalties on non-compliant industry participants (penalties to be established byAudit Committee, but may consist of revocation of right toexport, or revocation of right to claim exports are certified)

c. The ICGLR has responsibility to delineate for non-compliantindustry participants the steps they must take to regain compliantstatus.

F. Setter of Standards

a. Tri-partite Standards Committee establishes regional standardsfor all elements pertaining to tracking and certification, including

i. mineral tracking standards and techniques

ii. acceptable standards for conflict financing, militarisationof mine sites

iii. standards for child labour, working conditions,environmental impact

G. Initiate Investigations via Independent Mineral Chain Auditor

25



a. Mineral Chain Auditor can initiate investigations as required intosystem abnormalities or situations of concern.

b. Mineral Chain Auditor can publish reports, recommend sanctionson non-compliant participants, recommend steps to be taken tocorrect problem situations

3. Role of Industry

A. Adequately Document Mineral Chain of Custody

a. industry must obtain and keep records adequate to show chain of custody beginning at the mine or pit for all minerals they wish toexport

b. industry must present these records to national governments inorder to obtain an export permit and an ICGLR certificate

B. Transmit data to the ICGLR on a regular basis, as required by the ICGLR

a. Data on purchases and exports, plus copies of original documentsas required, should be sent to the ICGLR on a monthly basis

C. Cooperate in Managing System through Audit, Standards Committees

a. 1/3 of key Audit, Standards Committees reserved for industry

b. intelligent, engaged participation crucial to system success

D. Cooperate with Audits, Investigations

a. Provide third-party auditors with full access to records and data

b. Provide investigators from the ICGLR with full access to all dataand records

E. Fund Third-party Audits

a. payments made to dedicated (escrow) account, to be used solelyfor paying auditors

F. Industry Self-Policing

a. inform the ICGLR of wilfully non-compliant actors

4. Role of national, international Civil Society

A. Cooperate in Managing System through Audit, Standards Committees a. 1/3 of key Audit, Standards Committees reserved for civil society

b. intelligent, engaged participation crucial to system success

B. Target non-compliant actors for market pressure

C. Continue Watchdog role

a. independent investigations

b. analysis of public data

26



5. Role for International Community and International Donors

A. Support the development of the ICGLR Mineral Tracking andCertification Scheme with technical and financial assistance

B. Support national governments with their development of internal mineral

tracking systemsC. Maintain engagement with regional governments and mineral trading

industry in order to sustain current momentum for the development of atracking and certification system.

D. Provide recognition of and political support for the ICGLR MineralTracking and Certification Scheme.

E. Require ICGLR Certification in their home markets.

27



PART V: COUNTRY SPECIFIC IMPLEMENTATION ISSUES

The example mineral chains given in previous sections focused on DRC exports through

Rwanda to smelters overseas. However, there are equally important issues and mineralchains involving neighbouring countries including Burundi and Uganda. This sectionwill concentrate on the situation in those countries.

1. Burundi Challenges

The main challenge facing Burundi is the gold sector, and in particular allegations thatgold mined in the DRC is being imported clandestinely into Bujumbura and thenexported as if were domestically sourced production. Burundi officials feel these claimsare exaggerated, and ignore the extent of Burundi’s own gold production. While it is

true that Burundi has significant domestic gold production, the production monitoringsystems currently in place are not sufficient to track this domestic production fromsource. It is thus impossible to determine effectively how much of the gold exportedfrom Burundi truly originates within the country. The challenge for those implementingthe ICGLR Mineral Tracking and Certification Scheme in Burundi is to upgradeBurundi’s tracking of domestic gold production.

Current System

The current Burundi gold system is shown in Figure 5. In the gold bearing regions,artisanal diggers produce gold, often working on a dig site controlled by a supplier or

financial backer. Sometimes diggers split their production with the mine owner,sometimes the mine owner takes all the gold and pays miners a cash sum equivalent totheir share of the production. Artisanal miners who retain their share in gold most oftensell to field buyers based in their region. Mine owners sometimes also sell to locallybased regional buyers.

These regional buyers in turn transport their gold to the capital Bujumbura and sell toBurundi’s one large gold exporter. (Theoretically, there is nothing in the Burundisystem that prevents the existence of numerous gold exporters, and historically there hasmost often been more than one. Currently, however, well over 90% of Burundi’s goldexports pass through one individual).

In more organized regions, mine owners have organized into regional producerassociations, and these collect some rudimentary statistics on production. Burundi’sMinistry of Mines also performs field visits several times a year, and from thesegenerates rough estimates of the number of miners, pits and overall production.However, data collection is far from comprehensive, and it is thus impossible toreconcile exports with domestic production, or refute or substantial allegations thatDRC contraband is making its way into the system.

28



Proposed System under ICGLR Mineral Tracking and Certification Scheme

Regional Mines Offices

The proposed modifications would require only minor changes to the current Burundigold system. The key adaptation would be the creation of small regional mines offices

in the areas where gold is produced. In Burundi, three such offices will likely benecessary. Each office would be staffed by two mines officers, one to do carry out fieldinspections, and to perform outreach and extension work among local artisanal diggers.The other officer would perform the chief function of the office - weighing andregistering gold.

Figure 6 below shows a diagram of this new tracking system. With the Regional MinesOffice located close to production areas, regional gold buyers and artisanal mine ownersand all others who used to take their gold straight to the capital will instead have tomake a short stopover at the Mines Office. (It will no longer be permissible to transportgold from a mining region to the capital without passing by a Regional Mines Office.)

At the Regional Office, the mines officer will weigh the gold, and record key dataconcerning its owner and origin. These data will include the date, the weight of the gold,the ID and name of the owner, the area and pit where the gold was produced. These datawill be recorded on a paper register, in a computer spreadsheet, and on a numberedGold Origin Form. On a weekly basis, the information in the computer spreadsheet istransmitted to the ministry in the capital.

Origin Forms

One copy of the Origin Form will remain in the regional office, one copy will be givento the gold’s owner, to keep in his records, and one copy will travel with the gold and be

handed over to the exporter, or whomever next buys the gold. In addition, the gold willbe sealed in a tamper proof bag, with a unique numbered seal attached.

Note that there will be no charge for this registration service, and no attempt to tax thegold at this point. The Regional Mines Office will provide a free registration service,and moreover be located in a secure, discreet location, so that miners and traders canvisit without arousing undue attention. Miners and mine owners consulted as part of this research indicated they would have no objection to registering their gold productionin such an office, as long as there was no charge, and their gold was immediatelyhanded back to them once registered.

The miner or trader then transports his gold to the capital in his usual fashion, and sellsit to a Bujumbura exporter. The numbered seal and one copy of the Origin Form arehanded over to the exporter when he purchases the gold.

Export Process

When it comes time for an export, the exporter will have to be able to show OriginForms and numbered seals corresponding to the weight of gold he wishes to export.(Note that there is no requirement to keep gold parcels separate; simply to account forthe origin of the total mass of gold). The mines officer processing the export must check all the Origin Forms included in the export package, and the seals, and then cross check them against the data in the spreadsheets recorded in the Regional Mines Office. If there

are no discrepancies, the gold export is granted a license and awarded an ICGLRRegional Certificate.

29



30

In the case of discrepancies, the gold should be held by the Ministry of Mines while aninvestigation ensues. If it is found that the discrepancies were a deliberate attempt tomislead government officials, some or all of the gold shipment should be forfeit.

Table 1 shows a simplified example of such an export application. In the first part of thetable, the exporter declares his gold, and in the rows below lists where it was obtained,including the name, date, form and seal number and weight of each purchased goldparcel. The second part lists data from the Regional Mines Office. Note that though thetotal weight is the same, there are actually two discrepancies in this export. MinerMichael Buble, listed in the Exporter Declaration as the seller of 95 grams, is entirelyabsent from the Regional Mines Office data. Miner Bryan Adams, listed as the seller of 110 grams in the Exporter Declaration, is only listed as having brought 15 grams intothe Regional Mines Office. This export, then, is one that should be held pendinginvestigation.

ICGLR TrackingOn a monthly basis, the Regional Mines Offices should transmit their data on goldproduction in their region to the ICGLR. The Ministry of Mines currently collects gooddata on gold exports from Burundi. These data should also be transmitted to the ICGLRon a monthly basis. The ICGLR Regional Database can then perform a balancinganalysis, comparing the volumes of gold produced in Burundi’s three gold miningregions with the volume exported from the capital. Any discrepancy in these figuresshould trigger an audit, and then potentially an investigation.

LoopholesNote that if gold was being imported illegally from the DRC, it might still be possible to

fool this system, but only by the quite inconvenient measure of transporting the goldphysically to a producing region, presenting it at a Regional Mines Office, and passingit off as locally produced gold. However, anyone wishing to do this would have to findan ally in a local trader, who would be willing to claim the gold as his own, and thentake the risk that this person will not simply abscond with the gold. And as the RegionalOffice also collects data on the area and pit that produced the gold – and as MinesOfficers do check dig sites and do estimates of their potential production - the fraudwould eventually become apparent in the unsustainably high production figures claimedfor some pits.

Eventually, then, the net result of these small modifications in Burundi’s gold systemshould be much greater certainty about the origins of Burundi’s gold exports.



Figure 5: Current Burundi Gold Flows

BurundiDRC

RegionalGold Buyer

Diggers/Miners

Artisanal MineOwner

Artisanal MineOwner

Miners

Min. Mine- Receives Export Volume, Valueforeign buyer name during export

- compiles rough estimates of numproduction volumes, through inte

- Lack of comprehensive data colimpossible to reconcile exports wproduction; allegations of DRC cobe either disproved or substantiat

Regional ProducersAssociation

Exporter

Possible DRC gold smuggling

Intermittent Data Collection

Information FlowsInformation CollectionGold Flows Clandestine Gold Flows

31



32

Figure 6: Burundi Gold Flows with ICGLR Mineral Tracking and D

BurundiDRC

Regional Buyer- must keep register withgold bought and sold

- must keep copy of

Mines Office Form for each lot of goldregistered and sold

Miners

Artisanal MineOwner

Artisanal Mine

Owner

Miners

Regional ProducersAssociation

Expor- must show seal acorresponding to wexported.

Possible DRC gold smuggling

Regional Mines Offic- Mines officer weighs gold.

- Records name and ID of owner, date

- No charge for service

- Office is discreet, secure

-Seals gold in tamper proof bag, with nuseal travels with gold to exporter

-Weight of gold, number of seal, ID of son form, which travels with gold

All production routed throughProvincial Mines Office

Min. M- Reconciles Exppurchases (sealswith exports befoICGLR Certificat

ICGLR

- Collects data on gold flows from Provincial Mines Offices and Exporters; makes this data available in public d- Balances and reconciles mineral flows on a monthly basis; this information also made publicly available- Commissions quarterly third party audits- Mineral Chain Auditor supervises entire chain, has mandate to initiate investigations into potential problem ar

CriticalInformation Flows

Information CollectionGold Flows Clandestine Gold Flows



33

Exporter Declaration

Exporter Data Gold Characteristics

Export Number Date Exporter Name ID Number Mass Appe

102 28/02/2010 John Smith 20 500 ingot

Owner Data Gold Characteristics

Export Number Date Owner Name ID Number Mass Appea

102 12/02/2010 Mick Jagger 111200 25 grains

102 12/02/2010 Keith Richards 111201 75 sand

102 13/02/2010 Bob Marley 232436 45 nugge

102 14/02/2010 Keith Moon 222341 50 sand 102 15/02/2010 Joan Jett 234321 75 sand

102 16/02/2010 Bob Seger 543234 75 nugge102 17/02/2010 Michael Buble 443562 95 grains

102 18/02/2010 Bryan Adams 332521 15 very fi102 19/02/2010 Mark Knopfler 2345222 45 very fi

Total Gold 500 g

Regional Mines Office Data

Owner Data Gold Characteristics Track

Date Owner Name ID Number Mass Appearance Form

12/02/2010 Mick Jagger 111200 25 grains 1001 12/02/2010 Keith Richards 111201 75 sand 1002

13/02/2010 Bob Marley 232436 45 nuggets 1003 14/02/2010 Keith Moon 222341 50 sand 1004

15/02/2010 Joan Jett 234321 75 sand 1005

16/02/2010 Bob Seger 543234 75 nuggets 1006

18/02/2010 Bryan Adams 332521 110 very fine 1008 19/02/2010 Mark Knopfler 2345222 45 very fine 1009

Total Gold 500 g

Table 1: Example Burundi Gold Export with Cross Referen



2. Uganda

Challenges

The challenge in Uganda is also largely with gold, though here the situation is

somewhat different from that in Burundi. Uganda exports very large volumes of gold,much of which is admitted to originate outside the country. Though there is Ugandandomestic production, it is insufficient to match Uganda’s export volumes.

Uganda’s neighbours claim that a large portion of this gold has never been declared norsubjected to taxes in its country of origin. Though there is much truth in this claim,Ugandan officials note that due to the complexity of export processes in neighbouringDRC and Sudan, and Ugandan officials’ unfamiliarity with those countries’ exportforms, Ugandan officials often find themselves unable to verify the export status of goldshipments using foreign-country forms. Instead, Ugandan officials largely rely on theforms from their own country’s customs service as proof the minerals have been legally

imported. While this satisfies Ugandan legal requirements, it does not solve the problemof taxation in the country of origin.

The challenge then in Uganda is a lack of effective information flow to match the flowof gold.

Current System

Figure 7 shows a diagram of current gold flows in and out of Uganda. As noted above,gold entering Uganda is often of indeterminate legal status. It is declared to Ugandancustoms, but more often than not has left its country of origin undocumented and

untaxed. In addition, while gold traders do have to declare imported gold to Ugandacustoms, they have in practice been granted a waiver allowing them to postponedeclaring their gold until it arrives in Kampala, because of the security issues associatedwith declaring gold at an isolated border post.

In practice then, small gold traders arrive at the office of a Kampala gold exporter withgold that to that point has not been declared or registered. They sell the gold to theexporter, making a verbal declaration at the time as to where the gold comes from. Theexporter notes their declaration, and then takes care of the rest of the paperwork tolegalize the gold. In effect then, there is little to no tracking of gold exported throughUganda. Domestically produced gold is similarly untracked.

Proposed System under ICGLR Mineral Tracking and Certification Scheme

ICGLR Regional Certif icates

The solution to the challenge posed by Uganda’s gold exports is the region-wideadoption of ICGLR Regional Certificates as the sole legitimate proof of a mineralshipment’s legal export status. A diagram of the proposed scheme is shown in Figure 8.

Incoming gold traders will have to show and hand over an ICGLR Regional Certificatematching the volume of gold they wish to sell. Upon export, an exporter would have to

show ICGLR Regional Certificates matching the volume of gold submitted for export.

34



Only if sufficient certificates are submitted should Ugandan officials approve ashipment for export.

Clearly, this system will work only if officials in DRC and Sudan implement trackingand certification systems for their domestically produced gold. The DRC has been

making some progress in this endeavour, largely by lowering the licensing costs forgold comptoirs. Tracking systems still need to be developed. However, the DRC hasbeen hampered by the fact that traders who export without documentation have afinancial advantage over those attempting to export legally. There has thus beenrelatively little impetus for traders in the DRC to shift towards formalisation.

Officials in both countries are thus caught in something of a Catch 22. Ugandanofficials cannot demand certificates from DRC if DRC does not have the systems inplace to produce them. But traders within DRC will not begin to seek out certificatesuntil Ugandan officials begin to demand them.

The solution is for officials in both countries, in cooperation with each other, with goldtraders, and with the ICGLR, to begin implementing the tracking and certifying systemsimultaneously, in a carefully phased approach. Ugandan officials, in cooperation withthe ICLGR, should begin educating their gold exporters on the need for certificates. Therequirement for gold exports to have certificates could be phased in over a period of atime, perhaps a year. Simultaneously, DRC officials could begin a campaign to bring itstraders and exporters into legality. After some pre-agreed cut-off point, certificateswould become a hard and fast requirement.

Domestically, Uganda will have to develop an internal tracking system to track goldfrom mine site to exporter. This should be a system very similar to the one proposed forBurundi, with regional mines offices, Origin Forms, numbered seals, and data sharingwith the ministry of mines and the ICGLR. Foreign governments may want to assist theUgandan government in this effort.

In countries such as Dubai, importers would be educated on the need for gold shipmentsfrom ICGLR countries to be accompanied by ICGLR Regional Certificates. Dubaiimporters would be encouraged to share data with the ICGLR on gold imports from theregion. Underlying these education efforts would be an understanding that if voluntarycompliance cannot be obtained, market campaigns and NGO pressure will follow.

Building Ugandan Acceptance

Bringing the system into full functionality will likely take some time. While thereappears to be complete goodwill on the part of Ugandan officialdom, there is also anincomplete understanding of the urgency of the problem from the perspective of producer countries. This is partly because, to date, the status quo has seeminglybenefited Uganda.

However, while it is true that the status quo has brought some advantages to Uganda,the disadvantages of the uncontrolled trade in gold are beginning to surface, and willonly grow as time goes on. UN reports have already begun criticizing this trade. FurtherNGO investigations are sure to follow. If the previous campaigns concerning diamonds

are any guide, purchasers in countries such as Dubai will soon find themselves underinvestigation, while exporters in Uganda will find themselves singled out for

35



36

international censure. The reputational damage to exporters, purchasers, the gold tradeand Uganda itself could easily grow to significant proportions.

Rather than go down that route, it would be to the advantage of all parties to anticipateworld opinion by moving forward now on implementing a tracking and certification

system like the one outlined here. In reality, Uganda has little to lose.

Even with full documentation of incoming mineral flows, the gold export trade will inall likelihood remain based in Uganda. The expertise and business connections of Ugandan citizens, the country’s settled business climate, its advanced infrastructure andits direct flight connections to Dubai combine to give Uganda a natural competitiveadvantage. There is thus no real reason to fear that fully documenting gold flows willwork to Uganda’s commercial disadvantage. On the contrary, it will help to secureUganda’s market access, by guaranteeing buyers that Ugandan gold exports have beencertified conflict free, and have provided the requisite benefits to their countries of origin.

In addition to these considerations, region-wide acceptance of the ICGLR Certificatesystem will bring financial advantages to Ugandan in related mineral sectors. WhileUganda has benefited from neighbouring gold flows, Ugandan officials believe theyhave been disadvantaged by undocumented mineral flows running from their south-western regions into neighbouring Rwanda. Given this region’s proximity to the border,it is entirely possible such mineral flows are occurring at least to some extent.

Once all countries in the region accept the need for ICGLR Certificates as proof of legalexport status, it should quickly bring an end to the beggar-thy-neighbour practice of accepting undocumented mineral flows. With the elimination of this race-to-the-bottomcompetition, nations in the region can then work cooperatively to slowly increasemineral royalties region wide, while allowing minerals to flow along the trade routesdictated by natural commercial forces.



Figure 7: Current Uganda Gold Flows

DRC

UGANDA

RegionalFieldBuyer

Miners

Artisanal MineBoss

Gold Exporte

Gold Exporte

Min. Mines- Uganda customs declarations accepted as proo

importation (foreign documents not required); cusdeclaration can be made in Kampala (not at borde

- Exporters largely allowed to declare where their from (little independent checking)

- Domestic production tracked via unverified verbwhen gold arrives at Kampala gold trader

Gold Exporte

SUDAN

Information FlowsInformation CollectionGold Flows

37



38

UGANDA

DRC

RegionalField Buyer

Miners

Artisanal

Mine Boss

Gold Exporte

Gold Exporte

Gold Exporte

Min. Mines

Regional Mines OfficeMines officer weighs gold.Records name and ID of owner,date, weight of gold

No charge for service; office isdiscreet, secure

Seals gold in tamper proof bag,with numbered seal; Seal travelswith gold to exporter

Info also recorded on form, whichtravels with gold; copies rest withseller and with re ional office

ICGLR

- Collects data on outgoing and incoming mineral flows from all actors in the chain (diggers, managers, négocian

processors, smelters); makes this data available in public database- Balances and reconciles mineral flows on a monthly basis; this information also made publicly available- Commissions quarterly third party audits- Auditor General supervises entire chain, has mandate to initiate investigations into potential problem areas

Figure 8: Uganda Gold Flows with ICGLR Mineral Tracking and D

Information FlowsInformation CollectionGold Flows

SUDAN



March 2010

Shawn Blore and Ian Smillie

Partnership Africa Canada331 Cooper StreetSuite 600Ottawa, OntarioK2P 0G5Canada

An ICGLR-Based Tracking and Certication System for Minerals from the Great Lakes RegionProposal

Documents

Transcript of An ICGLR-Based Tracking and Certication System for Minerals from the Great Lakes RegionProposal