RISK MANAGEMENT FOR CONFLICT FREE SOURCING

Due diligence should aim to ensure that there is no direct or indirect support to non-state armed groups through the extraction, transport, trade, handling or export of precious metals or gem materials used by jewellery and gemstone companies. Members of the industry should take measures to evaluate their supply chains to identify any risks relating to conflict.

Direct or indirect support to non-state armed groups through the extraction, transport, trade, handling or export of precious metals or gem materials includes, but is not limited to, procuring from, making payments to or otherwise providing logistical assistance or equipment to, non-state armed groups or their affiliates who:

1. Illegally control mine or manufacturing sites or otherwise control transportation routes, points where precious metals and gem materials are traded and upstream actors in the supply chain
2. Illegally tax or extort money or precious metals and gem materials at points of access to mine or manufacturing sites, along transportation routes or at points where they are traded
3. Illegally tax or extort intermediaries, export companies or international traders.

Members of the industry can provide assurance of their risk management for “conflict-free” sourcing through certification with international standards and guidance. These include Kimberley Process certification for the risk of rebel group financing or conflict against governments for diamonds, World Diamond Council System of Warranties declarations for rough diamonds, polished diamond and jewellery set with diamonds, and LBMA Responsible Sourcing standards for precious metals.

According to the OECD, Conflict-Affected and High-Risk Areas (CAHRAs) are: “identified by the presence of armed conflict, widespread violence or other risks of harm to people. Armed conflict may take a variety of forms, such as a conflict of international or non-international character, which may involve two or more states, or may consist of wars of liberation, or insurgencies, civil wars, etc. High-risk areas may include areas of political instability or repression, institutional weakness, insecurity, collapse of civil infrastructure and widespread violence. Such areas are often characterised by widespread human rights abuses and violations of national or international law.”

Due diligence, in this context, should aim to ensure that businesses sourcing from, or operating in CAHRAs should neither tolerate nor by any means profit from, contribute to, assist with or facilitate the commission by any party of:

• Worst forms of child labour
• Forced or compulsory labour
• Torture, cruel, inhuman and degrading treatment
• War crimes or other serious violations of international humanitarian law, crimes against humanity or genocide
• Other gross human rights violations and abuses such as widespread sexual violence
• Direct or indirect support to non-state armed groups
• Risk related to the contracting of public or private security forces
• Money Laundering
• Bribery and fraudulent misrepresentation of the origin of minerals
• Non-payment of taxes, fees and royalties due to governments.

In order to identify and assess risks in the supply chain relating to conflict you should, as recommended by the OECD Guidance:

1. Complete a Red Flag Identification
   (This is a preliminary alert, warning or indicator of a potential risk, which is usually based on the geographic origin of the material and transit route of the material or to location and sourcing practices of the supplier, among other factors. A red flag does not necessarily indicate an actual risk, but the potential for risk that triggers a need for further investigation.)
2. Analyse the supply chain to identify CAHRAs
   (In order to identify the red flags listed above, you should also have a process in place to determine whether a certain country may fall under the definition of CAHRA.)
3. If the presence of red flags in the supply chain are identified, one should proceed to conduct a more in-depth risk assessment to determine whether there are risks in your supply chain.