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 ICGLR Committee 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 interrelated challenges. Topping the list is the conflict mineral phenomenon, whereby minerals and mine sites are used as a source of financing by armed groups, be they rebels, militias or military forces acting independently of government control. While this phenomenon occurs primarily within the borders of the DRC, the deleterious effects are felt throughout the region. Political spillovers include the influx of refugees and temporary or prolonged incursions by armed groups into neighbouring countries. For the mineral trade, the spectre of conflict financing scares off customers and depresses trade throughout the region. Even without formal consumer boycotts, the lack of security with respect to the mineral trade frightens investors, who might otherwise invest in projects including formal mines in producer countries and secondary processing and smelting in neighbouring countries. A second and related challenge is the problem of untaxed and undocumented mineral flows. Producer countries throughout the region are deprived of much needed revenue as a result of mineral shipments that exit their countries without paying due taxes. No country in the region is exempt from this problem, and while some countries benefit with some minerals, the lack of controls often means they lose out to an equal or larger degree with other minerals. The result is a beggar-thy-neighbour free-for-all, where overall 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 conditions in which minerals are produced is already assuming great importance for mineral endusers, and will come in the very near future to carry as much weight as the current emphasis on conflict sourcing. Tracking Minerals A Regional Solution All of these challenges have regional causes and regional repercussions. Equally, the solutions to these problems are best dealt with at a regional level. Conflict sourcing is inevitably a regional phenomenon, as minerals mined in one country are exported often clandestinely to one or more neighbouring countries in order to obscure their origins. Untaxed mineral flows is a similar issue, though the problem is not 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 regional harmonisation, a transit or re-export country may not be fully aware of which documents 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 minerals originate from certified mine sites, and as the minerals are being tracked - will enable governments to make sure that minerals are taxed before export. A standardized ICGLR Regional Certificate (in several of the most used languages of the region) will

serve to alert transit and re-export countries that a mineral shipment has paid all necessary dues and taxes. Those shipments lacking an ICLGR certificate should not be accepted. 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 that all mineral flows within and from the region are accounted for. Providing full public access to this data will serve as a guarantee to member governments, and to the wider consuming public, that all is well with Great Lakes mineral flows, that all minerals have been tracked and accounted for. The net result will be a diminution and eventual elimination of minerals as a source for conflict, increased mineral taxation revenues region wide, increased confidence in the investment 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 Mineral Tracking and Certification Scheme, housed in the Secretariat for the International Conference for the Great Lakes Region (ICGLR). The proposal for the ICGLR Mineral Tracking and Certification Scheme is laid out in five parts. Part I draws lessons from existing certification schemes, such as the Kimberley Process Certification 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 the ICGLR Tracking and Certification Scheme, and guide the development of the practical measures proposed to implement the scheme. Part III delineates the practical measures that the scheme will use to track and certify minerals from and within the Great Lakes Region. Part IV outlines the roles and responsibilities of the various stakeholders in the ICGLR Mineral Tracking Scheme: the role of national governments, of industry, of civil society, of concerned international governments, and of course the critical role to be played 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 to destinations beyond Africa. For that reason, this section focuses on issues specific to Burundi and Uganda. An anticipated Part VI of this proposal will cover timelines for implementation of the various elements of the ICGLR Mineral Tracking and Certification Scheme. This section will be appended after the proposal has been circulated amongst and discussed by regional stakeholders.

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 be clearly 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 with underlying problems of governance, development or ethical mining practices. At a 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 producing countries. It must cover the entire supply chain, tracking minerals from mine to end-user; Decision making needs to be open, inclusive and non-obstructive, and it must be free of political interference. Transparency is important to credibility and compliance; The system needs secretariat services commensurate with the challenges it faces. Weak administrative systems, including data gathering, management and research, will hobble effectiveness; top-heavy administrative arrangements will do 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 a controlled production area and passed off as clean. A reliable data base capturing production and trade statistics, and an exchange of official data on commodity trade, are important elements in effective regulation; A variety of checks are possible for traders and exporters, but these are only as good as controls and data-gathering in primary producing areas. If goods enter the stream before checking takes place, no amount of downstream certification will remedy the problem; the first level of registration must be brought as close as possible to the

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, is essential 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 noncompliance, including de-certification. Without that as a serious possibility there is little reason to create or to follow the rules.

PART II: PRINCIPLES FOR AN ICGLR CERTIFICATION SYSTEM

MINERAL

TRACKING

AND

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, the ICGLR has developed a number of guiding principles which it believes should guide the initial implementation and ongoing development of the ICLGR Mineral Tracking and Certification 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 (International Cooperation), 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 publicly available via the ICGLR website, not just to system stakeholders, but to civil 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. ngociants, comptoirs, processing plants, smelters would have to report date 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 on Governments 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 noncompliance 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 on governments. Producing countries set up internal controls, which industry often complies with either reluctantly or not at all. NGO and civil society criticism for non-compliance is levelled at producing

country governments, which often lack funds and capacity to implement improvements. 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 these procedures, and the penalties for non-compliance, will fall on industry. C. Civil society will then be able to direct their watchdog efforts towards monitoring 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 and civil society representatives E. Audits paid for by industry, commissioned and administered by ICGLR Audit 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 ngociants and exporters already have good systems for tracking their products from start to finish. Rather than create new government systems, let us try to adapt the systems in place, with as light a touch as possible, so as to reduce expense and increase compliance.

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 and standards tracking minerals from source to final destination, ensuring that minerals do not originate from conflict zones or enrich armed groups, ensuring that taxes on minerals are paid. B. In the near to medium term (2-5 years) ongoing market pressure will necessitate the adoption of additional standards (child labour, reasonable environmental standards, respect for human rights, living wages). Stakeholders should be aware at the beginning that these standards are coming, and that the system will have to adapt to incorporate them. C. Standards should be adopted region-wide. While labour and environmental and other mining standards are set by national governments, 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 be adopted by governments across the region.

PART III: ELEMENTS OF THE ICGLR TRACKING AND CERTIFICATION SYSTEM 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; independent investigations as required into problems and anomalies. These elements are listed below 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 monthly basis b. For each industry participant, data will be processed and analysed to determine if exports equal legal imports c. Where mineral flows do not balance, industry participant will be given a short grace period to explain and correct the discrepancy. If the explanation 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 by independent 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 and civil society participants; initially, numbers could be 3 government, 3 industry, 3 civil society. 4. Independent Mineral Chain Auditor a. The Mineral Chain Auditor will monitor the full mineral chain for discrepancies and anomalies arising from data collected in system b. The Mineral Chain Auditor has authority and resources to initiate investigations at their own discretion c. The Mineral Chain Auditors appointment is structured to provide full independence and freedom of action.

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 be a comprehensive mineral tracking system, to be put in place within each mineral producing or mineral trading country in the region. In order to ensure that minerals do not originate in conflict areas, and that minerals have not been illegally transferred from one country to another, these in-country mineral tracking systems must be able to accurately track each sack or load of minerals from the mine or dig site through to the point 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 de ngoce or trading centre. From there, the minerals are transported to a comptoir in a larger city such as Goma or Bukavu. (Some minerals skip the trading centre and are transported straight to a comptoir). At the comptoir, minerals undergo some basic processing, and are then exported. The mineral tracking system has to be able to track and document the path taken by each sack or container of minerals along every step in the chain. DRC authorities are already in the process of creating a tracking system capable of fulfilling this task. While the 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 trading centre to the comptoir, the Division de Mines and SAESSCAM use a more comprehensive system of paper forms to track bags of ore (colis) as they travel from the trading centre to comptoir. During the export process, several DRC agencies examine the comptoirs chain of documents to ensure that all the material being exported can be tracked back to a known and 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, the certificate of origin can be replaced with an ICGLR Regional Certificate. In Rwanda, authorities may have to expand their tracking systems so that all minerals that exit a mine or artisanal dig can be tracked to a reprocessing centre. Before allowing an export, Rwanda authorities will have to review these chain of custody documents for domestic production, as well as the ICGLR Certificates for imported material, to ensure that the volume of material imported or bought locally matches the volume of material to be exported (taking processing losses into account). If all is in order, Rwanda authorities 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 the material re-processed or combined, either with domestic production or with imported

10

material from another shipment. For shipments that merely transit the country and are thus 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 that minerals were mined under acceptable conditions, in areas free of conflict, and have exited 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 difficulty determining whether a shipment of minerals has legally exited its country of origin. The export 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 in transit countries. Figure 2 shows this situation schematically. Mineral flows of uncertain legality include gold flows from the DRC into Uganda, and coltan and cassiterite flows from Uganda into Rwanda. Many others may also exist. The creation of the ICGLR Regional Certificate should solve this problem. The Certificate will be printed in English, French and Swahili, and will contain all relevant information 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-regional mineral 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 accompanying ICGLR Certificate, it has not been legally exported, and cannot be legally processed, reexported or otherwise incorporated into the transit countrys mineral stream.
Role for Donors

Countries with less experience with mineral tracking systems Uganda, Burundi and Sudan notably - will require some assistance designing and implementing their programmes. Countries with more experience of tracking systems (DRC, Rwanda) will still likely need 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.

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 been agreed not to collect price information for the regional database, this information could be restricted to the certificate and not be transmitted to or included in the database.

11

Figure 1: Great Lakes Mineral Flows in the Congo Region

Dem. Rep. Congo Rwanda Exterior

Artisanal Dig Site

(certifiable)

Centre de Ngoce

Comptoirs

Domestic Production

End Users

Centre de Ngoce - protected by MONUC - Ngociants buy from miners, managers, petit ngociants - Ngociants ship to comptoirs CEEC, Div. Mines, SAESSCAM all present to register, track productions mine site registration and tracking provided by SAESSCAM
Div Mines Check point

Formal Mine

Reprocessing Centre
SMELTER

Reprocessing Centre

Non-certifiable Legal Mineral Flows

12

Illegal Mineral Flows

Figure 2: ICGLR Certificates Carrying Information Across the Region

Current Situation Mineral Flows Undocumented SUDAN UGANDA KENYA DUBAI ICGLR Certificates Document Regional Mineral Flows SUDAN UGANDA KENYA DUBAI

Gold

Gold

Gold

Gold

DRC
Gold

DRC
Gold Gold

DRC RWANDA
Coltan/Cassiterite

Coltan/Cassiterite

DRC TANZANIA
Coltan/Cassiterite Gold

RWANDA

Coltan/Cassiterite

TANZANIA
Gold

BURUNDI
Gold Gold Gold

BURUNDI
Gold

DRC

DRC

Undocumented Mineral Flows

13

Mineral Flows Traced and Documented using Regional Certificates

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 cross border mineral flows travel through approved and registered channels. By balancing exports and imports, purchases and sales for all industry actors from the top to the bottom of the mineral chain, the database will account for all minerals produced, traded within and exported from the region. This comprehensive coverage should negate the possibility 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 a final destination abroad. (While this example focuses on the Congo, the principle is the same for all other mineral flows in the region. Examples for other countries in the region 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 the ICGLR and stored in the ICGLR publicly accessible database. These data are then used to balance and reconcile mineral flows. The volume of minerals exiting a particular mine site are balanced with the minerals arriving at the nearest trading centre (centre de ngoce). The volume of minerals exiting all the centres de ngoce are balanced against the volume of minerals entering all the comptoirs. For each individual comptoir, the volume of minerals purchased by the comptoir is balanced with the volume of mineral exported by the comptoir (adjustments are made for processing). For re-processing centres, the volume of material imported and purchased locally is balanced 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 at smelters, either within or outside Africa. By calculating and publishing these balances, the ICLGR Tracking and Certification Scheme will allow all countries and all stakeholders in the region to follow with accuracy 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 mine sites.

14

Role for Donors Information Technology and Data Collection Assistance

Many of the government regulators in the mineral chain will require assistance with data collection. At its most basic form, this could take the form of providing laptop computers and printers, which many of the more remote bureaux lack. Though nearly all regulatory personnel are proficient in the use of spreadsheets (the most logical way to collect data), government regulators could benefit from assistance in data collection methods, and particularly in standardizing the types of data collected (it is common to use proper names on forms, often lumped together in one field, in place of a more useful ID 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 at the ICLGR headquarters. Though not especially complex from a database perspective, it will require one database designer to get up and running. A second IT professional will likely be required to work in the field, travelling to various government and industry data providers to ensure that data is collected correctly and transmitted on a timely basis.

15

Figure 3: ICGLR Monitoring of Great Lakes Mineral Flows

Dem. Rep. Congo
Artisanal Dig Site (certifiable) Centre de Ngoce - protected by MONUC - Ngotiants buy from miners, managers, petits ngotiants - Ngotiants ship to comptoirs CEEC, Div. Mines, SAESSCAM all present to register, track production mine site registration and tracking provided by SAESSCAM
Div Mines Check point

Rwanda
Comptoirs
Domestic Production

Exterior
End Users
Formal Mine

Reprocessing Centre

SMELTER

Non-certifiable Reproc essing Centre

ICGLR Collects data on outgoing and incoming mineral flows from all actors in the chain (diggers, managers, ngociants, comptoirs, re-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
16

Mineral Flows

Information Collection

Information Flows

Regional Certificate

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, industry and 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 actors in the mineral chain. The regular performance of audits, and the publication of audit results, 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 export without proving chain of custody and then being awarded a ICGLR Regional Certificate, 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. It is 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, for the 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 by government appointees. Instead, the audits will be managed by an Audit Committee, composed equally of members from government, industry and civil society. Initially, the Audit 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 be something for the ICGLR (and the Audit Committee itself, once it is established) to establish and modify as circumstances require. The following discussion is offered as a suggestion. It is suggested that committee members serve for a period of two years; the issues they will 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 a complete simultaneous changeover in membership. Selection of members is perhaps a more problematic area. One possible method is for each sectoral group to work out within itself who will put forward to sit on the committee. Government members will likely be drawn from the ICGLR Steering Committee. Industry members will likely be drawn from regional associations (FEC), international associations (i.e. ITRI), or from larger industry stakeholders. Civil Society membership will likely consist of a mixture of national NGOs with experience in resource issues (i.e. CENADEP, OGP, etc) and international NGOs (i.e. PAC, Global Witness, 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 ineffective when confronted with controversial issues. A simple majority on the other hand would allow 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 this formula, a measure would require unanimous support from 2 sectors (i.e. government and industry), plus at least one vote from one member of the hold-out sector. Thus, for a 9-member committee, a measure would require 7 votes to pass. Such a formula would still require substantial consensus, but would prevent a single recalcitrant member from blocking progress. Again, the committee should be empowered to adjust its voting procedures from time to time, 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 which industry actors should be audited, what methodologies should be used by auditors in order to produce an acceptable audit. The audit committee will also have to develop a set of rules for dealing with situations where 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 chain is one key factor is assessing whether a comptoir is compliant, there may well be situations 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 these situations. For example, in the initial phases of the system, it may well be impossible to track all material to source. The committee may want to develop a rule that a comptoir can have up 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 an illegal armed group is clearly not permissible, there may well be situations where an armed 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 to develop clear rules for such situations. For example, if illegal taxes levied by an armed group or military comprise more than 10% of all taxes on given unit of mineral (i.e. a colis) then that material and that site should be considered a conflict site, and as such inadmissible. Obviously, these formulas will vary, and will require careful consideration by the Audit Committee. The point of this section is not to determine these rules, but merely to indicate 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 are conducted. The interval between audits must be short enough that audits will catch errors and anomalies, and thus maintain the integrity of the system, but long enough so as 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 participant being audited. The audits must be comprehensive enough not only to balance the material entering and exiting an export house or comptoir, but also to verify that the minerals do in reality originate from the mining site claimed in the paperwork. A field component will thus be an essential part of every audit. Figure 4 below shows the suggested scope for audits for different types of industry participants. A comptoir audit (solid red line) will reconcile the material exported with material purchased, and in addition follow the chain of custody documents and track the material purchased to source, to ensure that the material is, as claimed, coming from a certified mine site. A reprocessing centre audit (solid green line) will likewise reconcile exported material with purchased material, and track any domestic production back to its source. A full chain smelter audit (blue dotted line) will follow the document chain to track material from reprocessing centres, comptoirs, and from each of those back to the mine site, to verify that all material entering a smelter comes from a legitimate certified 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 accredited by the Audit Committee will further reinforce the legitimacy of the auditing system, by preventing the engagement of auditors that either lack the requisite competence, or are known or suspected of bias either for or against industry. The Audit Committee will oversee the tendering and awarding of audit contracts. It is suggested that the committee develop terms of reference for each type of audit, and then solicit for auditors through open public tenders. (For a city such as Goma, where there are some 20 comptoirs, each contract should encompass a number of comptoirs - say 34 - in order to limit bidding overheads and bring down the audit costs through economies of scale. Care should be take to ensure that the same auditors are not paired with the same auditees every year, in order to avoid the appearance of bias that might creep in to a longer term relationship) The winners of the public tender will be awarded audit contracts and proceed to conduct audits. The Audit Committee will also have the responsibility of receiving the audits, reviewing them for quality, and seeing that they are made publicly available on the ICGLR website.
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 auditing results. Training for new and existing staff will also be necessary to establish and

19

maintain the system. The numbers required to administer audits and databases will not be large, but they will need to be educated and motivated professionals. Donor countries may wish to earmark funds for supporting this effort.
Paying for Audits

In keeping with the principle that industry should bear the primary responsibility for ensuring the traceability and certifiability of their products, industry should fund and pay 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 the auditor. Instead, the audits will be commissioned by the ICLGR, which then becomes the client and paymaster. Funding should be channelled from industry actors into an auditing fund housed at the ICGLR. A formula based on volumes of material exported will ensure that each industry participant 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, which is similar to what industry members already contribute towards the traceability scheme under consideration by ITRI. To avoid any misuse of funds, the industry contributions should be placed in a reserve or escrow account, which will stipulate that withdrawals can be made for the sole purpose of paying third-party auditors. The ICGLR administrators of the account will be explicitly prohibited from using these monies for any internal ICGLR purpose, even one related to the auditing system.
Penalties for non-compliance

An auditing system only functions when there are real and immediate penalties for noncompliance. It should be recalled that the ICLGR Mineral Tracking and Certification Scheme 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 considered compliant. Those industry actors that are not compliant will suffer real penalties in the marketplace. The Audit Committee will have the responsibility of determining the rules by which an exporter is declared non-compliant. One possibility is to follow the yellow-card red-card progression 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 (or any further audits that calendar year, or within a 12-month period) it is red-carded; that is, the industry player is declared non-compliant. The Audit Committee will have the responsibility of determining the rules by which further sanctions are applied to noncompliant 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 should also use their influence to encourage companies within their jurisdictions to respect and comply with the requirements of the ICGLR Mineral Tracking and Certificate Scheme.

20

Figure 4: Scope of Audits

Dem. Rep. Congo

Rwanda

Exterior
Domestic Production End Users
Formal Mine

Artisanal Dig Site

(certifiable)

Centre de Ngoce
Centre de Ngoce - protected by MONUC - Ngotiants buy from miners, managers, petits ngotiants - Ngotiants ship to comptoirs CEEC, Div. Mines, SAESSCAM all present to register, track productions
Div Mines Check point

Comptoirs

Reprocessing Centre

Smelter

Reprocessing Centre Audit

Non-certifiable

Comptoir Audit Smelter Audit (Full Chain)

4. Independent Mineral Chain Auditor

Purpose

The Independent Mineral Chain Auditor is the fourth and final key element in the ICGLR Mineral Tracking and Certification System. The Auditors function is to analyse the data streaming into the ICGLR, and look for anomalies and problems, and then initiate further investigation as required. The Auditor is empowered to conduct these investigations, to issue reports, and to suggest both sanctions and solutions. If an Auditors report shows significant noncompliance on the part of an industry participant, the Auditor has the authority to declare that participant non-compliant. To preserve independence and freedom of action, the Mineral Chain Auditor does not report 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 not be covered by the existing set of controls. A pair of examples may be the best way to illustrate the Mineral Chain Auditors role.
Phantom Gold Production

With the establishment of an ICGLR tracking system for DRC gold, those exporting gold 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 for their gold. Theoretically, as Sudan is part of the ICGLR, this gold would be subject to the same tracking requirements as DRC. However, it is likely that Sudan will lag behind the DRC in implementing tracking mechanisms, and for some period possibly years DRC gold could be laundered through Sudan. Eventually, tracking mechanisms and third-party audits in Sudan might well catch this problem. However, an independent auditor 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 source of the DRC gold they wish to export via Uganda. Neither tracking mechanisms nor audits would then be sufficient to catch and close this loophole. However, an investigation by the ICGLR Auditor would be able to disclose what was happening, and so bring pressure on exporters to bring the practice to a halt. Continuing with gold, a situation might arise where gold dealers ceased to declare their gold altogether, and exported straight to Dubai without obtaining requisite export permits. This kind of irregularity would not be uncovered via tracking mechanisms or database analysis or even regular audtis. However, a Mineral Chain Auditor could travel to Dubai, liaise with officials there, and through investigation and analysis of customs declarations 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 could easily become an issue with a variety of minerals, from gold to coltan to tin to wolframite. Minerals mined in areas that are not and cannot meet the necessary requirements could be shipped out to a neighbouring country with porous borders and good transport facilities ie South Africa, among several others. This outside country would then claim the minerals as domestic production, and sell them into the world market with no need for certificate. Neither mineral tracking nor database balances nor third-party audits would uncover this loophole. However, gaps in production data might well lead to an investigation by the Mineral Chain 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 were not seen or envisioned at the time of the systems creation. The Mineral Chain Auditor is thus a crucial part of the system, because while it is impossible to anticipate what these 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, CIVIL SOCIETY, AND THE ICGLR

1. Role of National Governments A. Establish mineral tracking and certification systems within national borders a. system must be able to track national production from mine or pit to export point b. system must be able to track minerals that are imported and then re-exported (often with re-processing) c. before allowing a mineral export, review chain of custody documents to establish that minerals can be tracked from mine site to exporting comptoir (producer countries), or from border post to exporting comptoir (transit, reprocessing countries) d. issue an ICGLR regional certificate to mineral exports that have all the appropriate chain of custody documents e. For transit and reprocessing countries, accept only an ICGLR regional certificate as proof that a mineral shipment has been legally exported from a producer countries B. Establish standards for artisanal and formal mineral production a. standards must cover presence of armed groups and conflict financing b. standards should cover environmental standards, child labour, forced labour, human rights and working conditions c. in setting standards, national governments should be guided by the ICGLR Standards Committee C. Transmit data from national tracking systems to the ICGLR on a regular basis, as required by the ICGLR D. Give full cooperation, include access to all records and documents, to auditors 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, to accompany legal mineral flows (exports, imports, transits) both within 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 noncertified exporters C. Track and balance regional mineral flows a. store data transmitted to the ICGLR database by industry participants and national governments in a publicly accessible database 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 on results 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-certified depending 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 to acceptably balance their mineral flows, or have failed independent audit standards as set out by the Audit Committee b. The ICGLR has responsibility to impose penalties on noncompliant industry participants (penalties to be established by Audit Committee, but may consist of revocation of right to export, or revocation of right to claim exports are certified) c. The ICGLR has responsibility to delineate for non-compliant industry participants the steps they must take to regain compliant status. F. Setter of Standards a. Tri-partite Standards Committee establishes regional standards for all elements pertaining to tracking and certification, including i. mineral tracking standards and techniques ii. acceptable standards for conflict financing, militarisation of mine sites iii. standards for child environmental impact labour, working conditions,

G. Initiate Investigations via Independent Mineral Chain Auditor

25

a. Mineral Chain Auditor can initiate investigations as required into system abnormalities or situations of concern. b. Mineral Chain Auditor can publish reports, recommend sanctions on non-compliant participants, recommend steps to be taken to correct 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 to export b. industry must present these records to national governments in order 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 documents as 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 data and records E. Fund Third-party Audits a. payments made to dedicated (escrow) account, to be used solely for 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 and Certification Scheme with technical and financial assistance B. Support national governments with their development of internal mineral tracking systems C. Maintain engagement with regional governments and mineral trading industry in order to sustain current momentum for the development of a tracking and certification system. D. Provide recognition of and political support for the ICGLR Mineral Tracking 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 mineral chains involving neighbouring countries including Burundi and Uganda. This section will concentrate on the situation in those countries. 1. Burundi
Challenges

The main challenge facing Burundi is the gold sector, and in particular allegations that gold mined in the DRC is being imported clandestinely into Bujumbura and then exported as if were domestically sourced production. Burundi officials feel these claims are exaggerated, and ignore the extent of Burundis own gold production. While it is true that Burundi has significant domestic gold production, the production monitoring systems currently in place are not sufficient to track this domestic production from source. It is thus impossible to determine effectively how much of the gold exported from Burundi truly originates within the country. The challenge for those implementing the ICGLR Mineral Tracking and Certification Scheme in Burundi is to upgrade Burundis 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 to their share of the production. Artisanal miners who retain their share in gold most often sell to field buyers based in their region. Mine owners sometimes also sell to locally based regional buyers. These regional buyers in turn transport their gold to the capital Bujumbura and sell to Burundis one large gold exporter. (Theoretically, there is nothing in the Burundi system that prevents the existence of numerous gold exporters, and historically there has most often been more than one. Currently, however, well over 90% of Burundis gold exports pass through one individual). In more organized regions, mine owners have organized into regional producer associations, and these collect some rudimentary statistics on production. Burundis Ministry of Mines also performs field visits several times a year, and from these generates rough estimates of the number of miners, pits and overall production. However, data collection is far from comprehensive, and it is thus impossible to reconcile exports with domestic production, or refute or substantial allegations that DRC 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 Burundi gold 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 be necessary. Each office would be staffed by two mines officers, one to do carry out field inspections, and to perform outreach and extension work among local artisanal diggers. The other officer would perform the chief function of the office - weighing and registering gold. Figure 6 below shows a diagram of this new tracking system. With the Regional Mines Office located close to production areas, regional gold buyers and artisanal mine owners and all others who used to take their gold straight to the capital will instead have to make a short stopover at the Mines Office. (It will no longer be permissible to transport gold 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 data concerning 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 data will be recorded on a paper register, in a computer spreadsheet, and on a numbered Gold Origin Form. On a weekly basis, the information in the computer spreadsheet is transmitted to the ministry in the capital.
Origin Forms

One copy of the Origin Form will remain in the regional office, one copy will be given to the golds 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 will be 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 the gold 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 can visit without arousing undue attention. Miners and mine owners consulted as part of this research indicated they would have no objection to registering their gold production in such an office, as long as there was no charge, and their gold was immediately handed back to them once registered. The miner or trader then transports his gold to the capital in his usual fashion, and sells it to a Bujumbura exporter. The numbered seal and one copy of the Origin Form are handed 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 Origin Forms 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 for the 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 ICGLR Regional Certificate.

29

In the case of discrepancies, the gold should be held by the Ministry of Mines while an investigation ensues. If it is found that the discrepancies were a deliberate attempt to mislead 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 the table, 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 gold parcel. The second part lists data from the Regional Mines Office. Note that though the total weight is the same, there are actually two discrepancies in this export. Miner Michael Buble, listed in the Exporter Declaration as the seller of 95 grams, is entirely absent 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 into the Regional Mines Office. This export, then, is one that should be held pending investigation.
ICGLR Tracking

On a monthly basis, the Regional Mines Offices should transmit their data on gold production in their region to the ICGLR. The Ministry of Mines currently collects good data on gold exports from Burundi. These data should also be transmitted to the ICGLR on a monthly basis. The ICGLR Regional Database can then perform a balancing analysis, comparing the volumes of gold produced in Burundis three gold mining regions with the volume exported from the capital. Any discrepancy in these figures should trigger an audit, and then potentially an investigation. Loopholes Note 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 gold physically to a producing region, presenting it at a Regional Mines Office, and passing it off as locally produced gold. However, anyone wishing to do this would have to find an ally in a local trader, who would be willing to claim the gold as his own, and then take the risk that this person will not simply abscond with the gold. And as the Regional Office also collects data on the area and pit that produced the gold and as Mines Officers do check dig sites and do estimates of their potential production - the fraud would eventually become apparent in the unsustainably high production figures claimed for some pits. Eventually, then, the net result of these small modifications in Burundis gold system should be much greater certainty about the origins of Burundis gold exports.

30

Figure 5: Current Burundi Gold Flows DRC

Diggers/Miners Artisanal Mine Owner
Regional Producers Association

Burundi

Dubai

Regional Gold Buyer

Gold Buyers Gold Buyers

Miners Artisanal Mine Owner

Exporter

Gold Buyers

Possible DRC gold smuggling

Gold Buyers Min. Mines

- Receives Export Volume, Value figures, and foreign buyer name during export process - compiles rough estimates of numbers of diggers, production volumes, through intermittent field visits - Lack of comprehensive data collection makes it impossible to reconcile exports with domestic production; allegations of DRC contraband cannot be either disproved or substantiated Non-essential Information Flows

Intermittent Data Collection

Gold Flows

Clandestine Gold Flows

Information Collection
31

Information Flows

Figure 6: Burundi Gold Flows with ICGLR Mineral Tracking and Data Collection DRC
Miners Artisanal Mine Owner Regional Buyer
- must keep register with gold bought and sold - must keep copy of Mines Office Form for each lot of gold registered and sold

Burundi Regional Mines Office - Mines officer weighs gold.

- Records name and ID of owner, date, weight of gold - No charge for service - Office is discreet, secure -Seals gold in tamper proof bag, with numbered seal; seal travels with gold to exporter -Weight of gold, number of seal, ID of seller recorded on form, which travels with gold

Dubai

Gold Buyers Gold Buyers

Regional Producers Association

Miners Artisanal Mine Owner

All production routed through Provincial Mines Office

Exporter
- must show seal and forms corresponding to weight of gold exported.

Gold Buyers

Possible DRC gold smuggling

Gold Buyers Min. Mines

- Reconciles Exporter purchases (seals, forms) with exports before issuing ICGLR Certificate

Gold Flows

ICGLR Collects data on gold flows from Provincial Mines Offices and Exporters; 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 Mineral Chain Auditor supervises entire chain, has mandate to initiate investigations into potential problem areas
Clandestine Gold Flows Information Collection
32

Critical Information Flows

Secondary Information Flows

Regional Certificate

Table 1: Example Burundi Gold Export with Cross Referencing

Exporter Declaration Export Number 102 Date 28/02/2010 Exporter Data Exporter Name ID Number John Smith 20 Owner Data Owner Name Mick Jagger Keith Richards Bob Marley Keith Moon Joan Jett Bob Seger Michael Buble Bryan Adams Mark Knopfler Gold Characteristics Mass Appearance 500 ingot Gold Characteristics Mass Appearance 25 grains 75 sand 45 nuggets 50 sand 75 sand 75 nuggets 95 grains 15 very fine 45 very fine 500 g Processing Data Mines Officer Mines Office Ulysses Timbaya Bujumbura Tracking Data Form Number 1001 1002 1003 1004 1005 1006 1007 1008 1009

Export Number 102 102 102 102 102 102 102 102 102 Total Gold

Date 12/02/2010 12/02/2010 13/02/2010 14/02/2010 15/02/2010 16/02/2010 17/02/2010 18/02/2010 19/02/2010

ID Number 111200 111201 232436 222341 234321 543234 443562 332521 2345222

Seal Number 456 457 458 459 460 461 462 463 464

Regional Mines Office Data Owner Data Date Owner Name 12/02/2010 Mick Jagger 12/02/2010 Keith Richards 13/02/2010 Bob Marley 14/02/2010 Keith Moon 15/02/2010 Joan Jett 16/02/2010 Bob Seger 18/02/2010 Bryan Adams 19/02/2010 Mark Knopfler Total Gold

ID Number 111200 111201 232436 222341 234321 543234 332521 2345222

Gold Characteristics Mass Appearance 25 grains 75 sand 45 nuggets 50 sand 75 sand 75 nuggets 110 very fine 45 very fine 500 g
33

Tracking Data Form Number 1001 1002 1003 1004 1005 1006 1008 1009

Seal Number 456 457 458 459 460 461 462 463

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 Ugandan domestic production, it is insufficient to match Ugandas export volumes. Ugandas neighbours claim that a large portion of this gold has never been declared nor subjected 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 neighbouring DRC and Sudan, and Ugandan officials unfamiliarity with those countries export forms, Ugandan officials often find themselves unable to verify the export status of gold shipments using foreign-country forms. Instead, Ugandan officials largely rely on the forms from their own countrys customs service as proof the minerals have been legally imported. While this satisfies Ugandan legal requirements, it does not solve the problem of taxation in the country of origin. The challenge then in Uganda is a lack of effective information flow to match the flow of 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 Ugandan customs, 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 Uganda customs, they have in practice been granted a waiver allowing them to postpone declaring their gold until it arrives in Kampala, because of the security issues associated with declaring gold at an isolated border post. In practice then, small gold traders arrive at the office of a Kampala gold exporter with gold that to that point has not been declared or registered. They sell the gold to the exporter, making a verbal declaration at the time as to where the gold comes from. The exporter notes their declaration, and then takes care of the rest of the paperwork to legalize the gold. In effect then, there is little to no tracking of gold exported through Uganda. Domestically produced gold is similarly untracked.
Proposed System under ICGLR Mineral Tracking and Certification Scheme ICGLR Regional Certificates

The solution to the challenge posed by Ugandas gold exports is the region-wide adoption of ICGLR Regional Certificates as the sole legitimate proof of a mineral shipments 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 Certificate matching 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 a shipment for export. Clearly, this system will work only if officials in DRC and Sudan implement tracking and certification systems for their domestically produced gold. The DRC has been making some progress in this endeavour, largely by lowering the licensing costs for gold comptoirs. Tracking systems still need to be developed. However, the DRC has been hampered by the fact that traders who export without documentation have a financial advantage over those attempting to export legally. There has thus been relatively little impetus for traders in the DRC to shift towards formalisation. Officials in both countries are thus caught in something of a Catch 22. Ugandan officials cannot demand certificates from DRC if DRC does not have the systems in place to produce them. But traders within DRC will not begin to seek out certificates until Ugandan officials begin to demand them. The solution is for officials in both countries, in cooperation with each other, with gold traders, and with the ICGLR, to begin implementing the tracking and certifying system simultaneously, in a carefully phased approach. Ugandan officials, in cooperation with the ICLGR, should begin educating their gold exporters on the need for certificates. The requirement for gold exports to have certificates could be phased in over a period of a time, perhaps a year. Simultaneously, DRC officials could begin a campaign to bring its traders and exporters into legality. After some pre-agreed cut-off point, certificates would become a hard and fast requirement. Domestically, Uganda will have to develop an internal tracking system to track gold from mine site to exporter. This should be a system very similar to the one proposed for Burundi, with regional mines offices, Origin Forms, numbered seals, and data sharing with the ministry of mines and the ICGLR. Foreign governments may want to assist the Ugandan government in this effort. In countries such as Dubai, importers would be educated on the need for gold shipments from ICGLR countries to be accompanied by ICGLR Regional Certificates. Dubai importers would be encouraged to share data with the ICGLR on gold imports from the region. Underlying these education efforts would be an understanding that if voluntary compliance 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 there appears to be complete goodwill on the part of Ugandan officialdom, there is also an incomplete understanding of the urgency of the problem from the perspective of producer countries. This is partly because, to date, the status quo has seemingly benefited 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 will only grow as time goes on. UN reports have already begun criticizing this trade. Further NGO investigations are sure to follow. If the previous campaigns concerning diamonds are any guide, purchasers in countries such as Dubai will soon find themselves under investigation, while exporters in Uganda will find themselves singled out for

35

international censure. The reputational damage to exporters, purchasers, the gold trade and Uganda itself could easily grow to significant proportions. Rather than go down that route, it would be to the advantage of all parties to anticipate world 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 in all likelihood remain based in Uganda. The expertise and business connections of Ugandan citizens, the countrys settled business climate, its advanced infrastructure and its direct flight connections to Dubai combine to give Uganda a natural competitive advantage. There is thus no real reason to fear that fully documenting gold flows will work to Ugandas commercial disadvantage. On the contrary, it will help to secure Ugandas market access, by guaranteeing buyers that Ugandan gold exports have been certified conflict free, and have provided the requisite benefits to their countries of origin. In addition to these considerations, region-wide acceptance of the ICGLR Certificate system will bring financial advantages to Ugandan in related mineral sectors. While Uganda has benefited from neighbouring gold flows, Ugandan officials believe they have been disadvantaged by undocumented mineral flows running from their southwestern regions into neighbouring Rwanda. Given this regions 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 legal export 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-bottom competition, nations in the region can then work cooperatively to slowly increase mineral royalties region wide, while allowing minerals to flow along the trade routes dictated by natural commercial forces.

36

Figure 7: Current Uganda Gold Flows

SUDAN

UGANDA

DUBAI

Gold Exporter

Gold Buyers

Gold Exporter

Gold Buyers

Gold Exporter Artisanal Mine Boss

Gold Buyers

DRC

Regional Field Buyer Min. Mines

- Uganda customs declarations accepted as proof of legal gold importation (foreign documents not required); customs declaration can be made in Kampala (not at border) - Exporters largely allowed to declare where their gold comes from (little independent checking) - Domestic production tracked via unverified verbal declaration when gold arrives at Kampala gold trader

Miners

Gold Flows

Information Collection
37

Information Flows

Figure 8: Uganda Gold Flows with ICGLR Mineral Tracking and Data Collection
DUBAI Gold Exporter Gold Buyers

SUDAN

UGANDA

Gold Exporter

Gold Buyers

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

Regional Mines Office

Gold Exporter

Artisanal Mine Boss

Gold Buyers

Regional Field Buyer

Miners

No charge for service; office is discreet, secure Seals gold in tamper proof bag, with numbered seal; Seal travels with gold to exporter Info also recorded on form, which travels with gold; copies rest with seller, and with regional office

Min. Mines

ICGLR Collects data on outgoing and incoming mineral flows from all actors in the chain (diggers, managers, ngociants, comptoirs, reprocessors, 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

Gold Flows

Information Collection
38

Information Flows

March 2010 Shawn Blore and Ian Smillie Partnership Africa Canada 331 Cooper Street Suite 600 Ottawa, Ontario K2P 0G5 Canada info@pacweb.org

39