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Due Diligence

Due Diligence Guidance

for Responsible Mineral Supply Chains

Due Diligence
Guidance

for Responsible Mineral Supply Chains

Due diligence and responsibilities in the mineral supply chain

The mining, trans­port, and trade of mineral resources can fuel growth and employ­ment, generate income, and promote local devel­op­ment. At the same time, mineral supply chain can be linked to serious human rights abuses (e.g. child labour, forced labour), money laun­dering, bribery, and funding for terrorism or armed groups. The OECD Due Diligence Guidance was devel­oped to help compa­nies avoid contributing to conflict, serious human rights impacts and finan­cial crime through their oper­a­tions or mineral sourcing prac­tices.

How should you carry out due diligence?

Implement a risk-based approach

Companies should imple­ment a risk-based approach to perform adequate due dili­gence. Activities asso­ci­ated with higher risks will require more inten­sive due-diligence and moni­toring activ­i­ties.

Adopt a progressive approach

Due dili­gence is an ongoing process of gradual improve­ments. Companies should encourage change by engaging construc­tively with suppliers, including informal actors.

Make good faith efforts

Companies are expected to take reason­able steps and make good faith efforts to carry out due dili­gence in their supply chains. They are not expected to achieve full compli­ance with the Guidance overnight.

Mitigate risks — but don’t embargo high-risk areas

Due dili­gence helps compa­nies operate in or source from high-risk areas in need of respon­sible invest­ment and trade. Except in the most harmful circum­stances, compa­nies should use their leverage with suppliers to improve condi­tions on the ground.

The OECD’s five-step framework

The Guidance provides detailed recom­men­da­tions to help compa­nies meet respon­sible sourcing expec­ta­tions. The five-step, risk-based due dili­gence process is rele­vant to all compa­nies in the mineral supply chain that produce or use minerals from conflict-affected or high-risk areas. It applies to all minerals and is global in scope.

Step_1-single

1

Establish strong management systems

Adopt due-diligence poli­cies and build internal capacity to imple­ment them. Engage with suppliers and busi­ness part­ners. Develop internal controls and trans­parency over the mineral supply chain, collect data, and set up griev­ance mech­a­nisms.

Step_2-single

2

Identify, assess, and prioritise risks

Review infor­ma­tion on the supply chain to iden­tify any red flags that would trigger enhanced due dili­gence. Delve deeper and map the factual circum­stances of the red-flagged oper­a­tions, supply chains, and busi­ness part­ners. Prioritise risks as set out in Annex II of the Guidance (see risks below).

Step_3-single

3

Manage risks

Report risk assess­ment find­ings to senior manage­ment and improve internal systems of control and over­sight. Only disen­gage from suppliers asso­ci­ated with the most harmful impacts. In all other cases, take steps to increase leverage, either indi­vid­u­ally or collab­o­ra­tively, to prevent or miti­gate risks. Build internal and business-partner capacity.

Step_4-single

4

Audit control points

Carry out inde­pen­dent third-party audits to verify that due-diligence prac­tices have been imple­mented prop­erly at key “control points” (refiners and smelters for tin, tung­sten, tantalum and gold, for example) in the supply chain. Auditors should gather find­ings and recom­mend specific improve­ments to existing processes.

Step_5-single

5

Communicate and report on due diligence

Publicly report on supply chain due dili­gence poli­cies and prac­tices including by publishing the supply chain risk assess­ment and manage­ment plan, with due regard to busi­ness confi­den­tiality and other compet­i­tive concerns. Respond to stake­holder ques­tions, concerns, and sugges­tions.

Mineral supply chains explained

Below is a simpli­fied illus­tra­tion of the supply chain from start to finish. In reality, mineral supply chains are more complex, with over­lap­ping and inter­con­nected rela­tion­ships and multiple inter­me­di­aries between each stage. Still, everyone in the supply chain has a role to play in performing due dili­gence. Where do you fit in?

Click to learn more about a link in the chain. Click again to return to the main graphic.

Below is a simpli­fied illus­tra­tion of the supply chain from start to finish. In reality, mineral supply chains are more complex, with over­lap­ping and inter­con­nected rela­tion­ships and multiple inter­me­di­aries between each stage. Still, everyone in the supply chain has a role to play in performing due dili­gence. Where do you fit in?

When you’re ready, continue scrolling down.

Risks covered in the Guidance

All actors in the mineral supply chain can be at risk of contributing to adverse impacts of the mineral trade — regard­less of their posi­tion in the supply chain. Due dili­gence helps compa­nies iden­tify whether their supply chains are risky and priori­tise the most severe risks asso­ci­ated with sourcing minerals from high-risk areas:

🚨 Serious human rights abuses
Serious human rights abuses include all forms of torture or cruel, inhuman, or degrading treat­ment (e.g. beat­ings, threats, or rape). Any form of forced or compul­sory labour falls into this cate­gory, as do the worst forms of child labour, such as any work that exposes chil­dren to hazardous substances or forces them to use dangerous machinery, work deep under­ground or below water, or carry heavy loads. Other gross human rights viola­tions and abuses include wide­spread sexual violence, war crimes, or other serious viola­tions of inter­na­tional human­i­tarian law, crimes against humanity (e.g. mass execu­tions, depor­ta­tions, or the use of child soldiers), or geno­cide.
🚨 Support to armed groups
‘Providing direct or indi­rect support’ to non-state armed groups or to public or private secu­rity forces means procuring minerals from or providing payment or logis­tical assis­tance to armed groups or affil­i­ates that ille­gally control or extort money or minerals at mine sites, along trans­porta­tion routes, or at trading hubs. Armed groups may benefit from ille­gally control­ling mine access, over­seeing extrac­tion, extorting inter­me­di­aries, or holding bene­fi­cial or other owner­ship inter­ests in upstream compa­nies or mines.
⚠ Security contracting
Public or private secu­rity forces contracted in the supply chain may be asso­ci­ated with serious human rights abuses, in their inter­ac­tions with vulner­able groups, local commu­ni­ties, human rights defenders and local labour leaders.  Companies should observe the Voluntary Principles on Security and Human Rights, avoid risks asso­ciate with their engage­ment with local commu­ni­ties on secu­rity issues, use of exces­sive force, and/or use of inap­pro­priate force on protected popu­la­tions.
⚠ Bribery and fraud
Bribery or fraud occurs when supply chain actors offer, promise, give, or demand a bribe or other undue advan­tage to obtain or retain busi­ness or any other improper advan­tage, such as securing mine site conces­sions, to facil­i­tate smug­gling, or to fraud­u­lently misrep­re­sent the origin of a mineral. Bribes can take the form of money or other pecu­niary advan­tages (e.g. member­ship in an exclu­sive club or the promise of a schol­ar­ship for a child) or non-pecuniary advan­tages (e.g. favourable publicity).
⚠ Money laun­dering
Money laun­dering is the process by which crim­i­nals disguise the illegal origin of the proceeds of crim­inal conduct by making such proceeds appear to have derived from a legit­i­mate source. Money laun­dering in the mineral supply chain occurs when minerals purchased using the proceeds of crime are then rein­tro­duced into the market. It also occurs when minerals are used as an alter­na­tive currency in illicit trans­ac­tions, such as purchases of weapons or drugs. Trade-based money laun­dering involves tech­niques like over- and under-invoicing, phantom ship­ping, and multiple invoicing.
⚠ Non-payment of dues
Tax evasion is gener­ally defined as an illegal attempt to avoid paying a tax imposed by law. In the mining sector, tax evasion and the non-payment of other fees and royal­ties due to the govern­ment is often facil­i­tated by transfer pricing and fraud, for example through over- or under-valuing the prices of minerals or other goods or services, or misrep­re­sen­ta­tion of the origin of goods. It can also be facil­i­tated by other prac­tices, including smug­gling and bribery.

Risks covered in the Guidance

All actors in the mineral supply chain can be at risk of contributing to adverse impacts of the mineral trade — regard­less of their posi­tion in the supply chain. Due dili­gence helps compa­nies iden­tify whether their supply chains are risky and priori­tise the most severe risks asso­ci­ated with sourcing minerals from high-risk areas:

🚨 Serious human rights abuses
Serious human rights abuses include all forms of torture or cruel, inhuman, or degrading treat­ment (e.g. beat­ings, threats, or rape). Any form of forced or compul­sory labour falls into this cate­gory, as do the worst forms of child labour, such as any work that exposes chil­dren to hazardous substances or forces them to use dangerous machinery, work deep under­ground or below water, or carry heavy loads. Other gross human rights viola­tions and abuses include wide­spread sexual violence, war crimes, or other serious viola­tions of inter­na­tional human­i­tarian law, crimes against humanity (e.g. mass execu­tions, depor­ta­tions, or the use of child soldiers), or geno­cide.
🚨 Support to armed groups
‘Providing direct or indi­rect support’ to non-state armed groups or to public or private secu­rity forces means procuring minerals from or providing payment or logis­tical assis­tance to armed groups or affil­i­ates that ille­gally control or extort money or minerals at mine sites, along trans­porta­tion routes, or at trading hubs. Armed groups may benefit from ille­gally control­ling mine access, over­seeing extrac­tion, extorting inter­me­di­aries, or holding bene­fi­cial or other owner­ship inter­ests in upstream compa­nies or mines.
⚠ Security contracting
Public or private secu­rity forces contracted in the supply chain may be asso­ci­ated with serious human rights abuses, in their inter­ac­tions with vulner­able groups, local commu­ni­ties, human rights defenders and local labour leaders.  Companies should observe the Voluntary Principles on Security and Human Rights, avoid risks asso­ciate with their engage­ment with local commu­ni­ties on secu­rity issues, use of exces­sive force, and/or use of inap­pro­priate force on protected popu­la­tions.
⚠ Bribery and fraud
Bribery or fraud occurs when supply chain actors offer, promise, give, or demand a bribe or other undue advan­tage to obtain or retain busi­ness or any other improper advan­tage, such as securing mine site conces­sions, to facil­i­tate smug­gling, or to fraud­u­lently misrep­re­sent the origin of a mineral. Bribes can take the form of money or other pecu­niary advan­tages (e.g. member­ship in an exclu­sive club or the promise of a schol­ar­ship for a child) or non-pecuniary advan­tages (e.g. favourable publicity).
⚠ Money laun­dering
Money laun­dering is the process by which crim­i­nals disguise the illegal origin of the proceeds of crim­inal conduct by making such proceeds appear to have derived from a legit­i­mate source. Money laun­dering in the mineral supply chain occurs when minerals purchased using the proceeds of crime are then rein­tro­duced into the market. It also occurs when minerals are used as an alter­na­tive currency in illicit trans­ac­tions, such as purchases of weapons or drugs. Trade-based money laun­dering involves tech­niques like over- and under-invoicing, phantom ship­ping, and multiple invoicing.
⚠ Non-payment of dues
Tax evasion is gener­ally defined as an illegal attempt to avoid paying a tax imposed by law. In the mining sector, tax evasion and the non-payment of other fees and royal­ties due to the govern­ment is often facil­i­tated by transfer pricing and fraud, for example through over- or under-valuing the prices of minerals or other goods or services, or misrep­re­sen­ta­tion of the origin of goods. It can also be facil­i­tated by other prac­tices, including smug­gling and bribery.

A summary of supply chain due diligence

Upstream

  • Establish trace­ability or chain of custody to mine of origin
  • For red flagged supply chains, under­take on-the-ground assess­ments of mines, producers, and traders for conflict, serious abuses, bribery, tax evasion, fraud, money laun­dering
  • Collaborative engage­ment with local govern­ment, CSOs, local busi­ness to prevent and miti­gate impacts, monitor
  • Report publicly on due dili­gence efforts

Downstream

  • Identify ‘choke points’ in supply chain (e.g. metal smelter or refiners)
  • Collect infor­ma­tion on their upstream due dili­gence (e.g. both through indi­vidual efforts and industry auditing)
  • Use collec­tive industry leverage to encourage improve­ment of upstream due dili­gence
  • Report publicly on due dili­gence efforts

How does the five-step framework apply to you?

To learn more, click on a section and flip through the prac­tical steps.

How does the five-step framework apply to you?

To learn more, click on a section and flip through the prac­tical steps.

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