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The Good and the Bad Jewelry News of 2014

Three Lessons Learned From Dodd-Frank

Greg K.

Scholars understand that there’s a close link between the presence of natural resources, such diamonds and gold, and tragic civil wars. As the economist Paul Krugman has written in his New York Times column, one of the best predictors of war “is the availability of lootable resources like diamonds.”

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What people are still figuring out is how to break that link. One under-appreciated fact is that current approaches are still relatively new and experimental. The Kimberley Process, the international certification scheme for diamonds, was launched  in 2003. A global campaign to combat the flow of conflict minerals from the Democratic Republic of Congo is also still young. It was largely spurred by Section 1502 of the Dodd-Frank financial law, passed by Congress in 2010.

Because these initiatives haven’t been around forever, it’s important to analyze them and make corrections as needed. We’ve often criticized the Kimberley Process for failing to keep banned blood diamonds out of the diamond supply and for certifying (and therefore legitimizing) diamonds mined in unethical conditions. We’ve been a stronger supporter of the campaign to stop the sale of conflict minerals from Congo, where a civil war has claimed more than 5 million lives. Still, even with conflict minerals, we think it’s important to periodically take note of what’s worked and what hasn’t. Here are three lessons we’ve learned:

Lesson #1: It’s a good idea to focus on corporate transparency.

Section 1502 of the Dodd-Frank financial law, the centerpiece of the campaign against conflict minerals, takes a different approach than the Kimberley Process, which depends too heavily on governments to keep conflict diamonds out of their territory. Rather than relying on governments, which may lack capacity or will, Section 1502 simply asks corporations to disclose how they source their minerals. The act of requiring disclosure gives corporations an incentive to choose minerals from responsible sources. Although it is the U.S. government that requires those disclosures, it is businesses that are the primary actors and responders.

This business-centered strategy has been remarkably effective.  Due to corporate actions, the value that Congolese warlords receive from selling tin, tantalum, and tungsten (the so-called “3T” minerals) has plummeted 30 to 60 percent, according to a report by the Enough Project, an NGO. It’s thus become much harder for warlords to profit from the sale of those minerals. The experience of Dodd-Frank makes a strong case for placing businesses at the forefront of efforts to break the link between natural resources and war.

Lesson #2: Plan for adverse economic consequences.

One of the main criticisms of the campaign against conflict minerals is that it has put Congolese miners out of work. Some companies, unable to find sources of conflict free minerals from within Congo, have decided not to buy any minerals from the region. This has created unintended consequences. Thousands of artisanal miners who had nothing to do with the conflict can no longer make a living as miners.

There is some evidence that this problem may be fixing itself. Many of these miners have found other work, according to a survey by the Enough Project. Most people, however, would agree that a major effort should be made to create sources of traceable minerals from within Congo that are also conflict free. In this regard, there has been some good progress. Earlier this year, the Enough Project found that 16 mines in eastern Congo were producing traceable conflict free minerals. Still, progress has not been quick enough. Far more organizational and financial resources are needed to limit the negative economic effects.

Lesson #3: Don’t count on the jewelry industry to move quickly.

The tech industry has responded in a big way to the challenge posed by conflict minerals. Intel is now able to guarantee that all its computer chips are conflict free. Motorola has been instrumental in creating conflict free sources of tungsten, an electronics component, from Congo.

By comparison, the jewelry industry’s response has been sluggish. Given the probability that most gold exported from Congo is used to make jewelry, the jewelry industry should really be taking a leadership role. But more than four years after the passage of Dodd-Frank, there’s just one industrial gold mine in eastern Congo producing conflict free gold and zero certified artisanal gold mines. (All 16 of the conflict free mines identified by the Enough Project produce 3T minerals.) In addition, jewelers haven’t taken strong enough action to avoid buying conflict gold. It’s still way too easy for Congolese warlords to profit from the gold trade. Although some jewelry retailers have gotten involved, the industry could be doing more.

Some advocates may have assumed that the jewelry industry, due to experience with conflict diamonds, would have led the charge against conflict gold. But remember that this is the same industry whose public line has long been the misleading claim that conflict diamonds make up less than one percent of the diamond supply. The purpose of this statistic is to convince the public that conflict diamonds aren’t a major problem anymore. Industry leaders may have even convinced themselves. What percentage of the global gold supply is from war-torn parts of Congo? Less than one percent. It’s not surprising, therefore, that the jewelry industry has not treated conflict gold as an urgent problem either.

Final Thoughts

Section 1502 of the Dodd-Frank financial law is working. But it’s important to fix what hasn’t worked. We also think that now is the time for retailers to commit to the goal of determining the origins of all the gems and minerals in their products. When that happens, global supply chains will become more transparent and conflict free gems and minerals will be easier to identify.

COMMENTS

Rhonda Says:
January 2nd, 2015 at 9:25 pm

Thank you so much for your information on your gems and diamonds. I became aware visiting relatives over seas looking for a birthstone for my sister. No one is aware of synthetic gems or conflict free gems and minerals. Maybe our jewelry stores should post signs for promotion as well as awareness. Thank you again and I have enjoyed the ease and variety or your website.

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