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See No Evil, Speak No Evil

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See No Evil, Speak No Evil resource matters SEE NO EVIL, SPEAK NO EVIL Poorly managed corruption risks in the cobalt supply chain Acronyms 3 Executive summary 4 S See No Evil, Speak No Evil – Poorly managed corruption 6 risks in the cobalt supply chain A selective approach to cobalt supply chain 8 U due diligence Due diligence for child labor in 8 artisanal mining M Corruption, much less in sight 8 Case study : Glencore, the world’s lead cobalt producer 9 M Methodology 10 Normative analysis 10 Analysis of corporate practices 10 A Which due diligence is required towards suppliers that 12 may be associated with corrupt practices? R What does the law say? 12 Indirect corruption and complicity 12 Concealment 13 Y Preventive measures 13 What do international standards and guidelines say? 14 What do the companies themselves say? 17 Corruption risk due diligence put to the test : 18 the Glencore case Identification of the cobalt supply chain 18 A considerable effort to map the 18 cobalt chain ... but some reluctance to confirm the presence 19 of Glencore Identification of the risks of corruption : see no evil, speak no evil 20 Very limited risk management measures 22 Conclusion 24 Recommendations 25 Strengthen the normative framework 25 Better identify the supply chain 25 Better identify and manage the risks of corruption 25 Limit the risk of Glencore payments to an entity sanctioned for bribery 26 Appendix A - Glencore and Gertler : Ten Years of 28 Controversial Links Appendix B – Estimate of payments Glencore subsidiaries 29 owed to Gertler a!liates in 2018 Appendix C – Glencore comments 30 Notes 31 SEE NO EVIL, SPEAK NO EVIL 1 About us resource matters Resource Matters is a Brussels-based non-profit organisation that aims to better understand and overcome economic poverty in countries otherwise rich in natural resources. It has particular expertise in mining and hydropower investments in the Democratic Republic of Congo. In partnership with the Sciences Po Law School Clinic Program on Corporate social responsibility and Innovation (RISE, or Responsabilité et Innovation Sociale des Entreprises) is a platform for reflection, cross- learning and exchanges between students, law professors, lawyers, and corporate actors. It focuses on social responsibility and innovative practices developed by companies and other organisations. 2 Acromyms AFA French Anti-Corruption Agency BE Belgium CATL Contemporary Amperex Technology CCCMC China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters CN China DE Germany DLH Dalhoff, Larsen and Horneman ENRC Eurasian Natural Resources Corporation ERG Eurasian Resources Group ESTMA Extractive Sector Transparency Measures Act FI Finland FR France GB Great Britain IDH Human Development Index IN India IRMA Initiative for Responsible Mining Assurance ITIE Extractive Industries Transparency Initiative JP Japan KCC Kamoto Copper Company KR South Korea LME London Metal Exchange NEVS National Electric Vehicle Sweden NO Norway OECD Organisation for Economic Cooperation and Development RCI Responsible Cobalt Initiative RMI Responsible Minerals Initiative SE Sweden SU Switzerland UNICEF United Nations Child Fund US United States SEE NO EVIL, SPEAK NO EVIL 3 Executive summary Producers of electric vehicles and electronics Despite US sanctions, Glencore has continued face a daunting challenge: how does one ethical- paying royalties to a Gertler-affiliated entity, af- ly source cobalt, a key mineral for rechargeable ter this entity risked losing its mines in Congo if batteries, when the world’s largest producer it stopped doing so. Resource Matters estimates of this material, Swiss multinational Glencore, the royalties owed to Gertler amounted to at least makes extremely risky payments to a company $ US 74 million in 2018. The company has not dis- sanctioned for corruption? The present study re- closed how much was effectively paid. veals that most major battery, car and electronics makers do not know how to handle this problem These sanctions and investigations have direct in their supply chain, and recommends a series of consequences for companies that purchase di- steps to minimize the risk. rectly or indirectly from Glencore. The setting for this report is that of the Democra- From a legal point of view, the companies Glen- tic Republic of Congo, one of the poorest coun- core sells copper and cobalt to could be exposed tries in the world, and one that owns half of the to certain risks of complicity or concealment, de- world’s cobalt reserves. Due to its two massive pending on the jurisdictions they are based in, mining projects in Congo, Glencore is as a key if they fail to manage the risk arising from these player in the global cobalt market. In 2018, Glen- royalties payments. Indeed, a key element of core’s Congolese subsidiaries produced more such offenses is the client company’s knowledge than a third of the world’s cobalt production. of potential acts of corruption perpetrated by its direct suppliers. This position has not been earned without contro- versy. For a decade, Glencore has maintained a Beyond these legal risks, companies are expec- close business relationship with Dan Gertler, a ted to set up a system of due diligence with re- notorious Israeli businessman. Very close to for- gards to their suppliers, in particular under the mer President Kabila, several organizations and OECD Guide on the responsible sourcing of mi- judicial authorities suspect him of potentially cor- nerals from high-risk areas like Congo. According rupt practices. In December 2017, the US admi- to these standards, corruption is one of the risks nistration sanctioned Mr. Gertler and dozens of to be assessed. his companies for corruption under the Global Magnitsky Law. Mid 2018, the US Department of Resource Matters and Sciences Po Paris has iden- Justice opened an investigation into Glencore’s tified 14 large companies as probable Glencore activities in Congo, Venezuela, and Nigeria to customers and carried out a survey to evaluate scrutinize its compliance with the Foreign Corrupt how these companies manage the corruption risk Practices Act. Both Gertler and Glencore have associated with payments to a sanctioned entity. strongly denied all the corruption allegations. These include Apple, BMW, CATL, Daimler, Eco- pro, GEM, LG Chem, NEVS, Peugeot SA, Renault, Umicore, Samsung SDI, Volkswagen and Volvo Cars. The results, at best, are mixed. 4 The majority of the 14 have incorporated a risk We think that cobalt buyers will only truly contri- management system into their supply chains. In bute to Congo’s macro-economic development if addition, the companies have made significant they help ensure that the proceeds of its mining efforts over the past three years to map their co- boom benefit the Congolese population rather balt chains. However, when it comes to identifying than a few controversial individuals. To that ef- real risks, these same companies have paid very fect, Resource Matters recommends that com- little attention to corruption in the industrial sec- panies sourcing directly or indirectly cobalt from tor. So far, the debate on cobalt supply chains has Glencore largely focused on human rights violations in ar- should join forces and request of the company, tisanal mining sites, particularly concerning child preferably collectively, a number of practical safe- labor. guards to limit as much as possible the risk of cor- ruption and embezzlement. Our research reveals that only a third of the 14 companies are prepared to admit that that Glen- Such measures include an audit of payments core is part of their supply chain, and that the Glencore has made to Gertler-affiliated entities links between Glencore and Gertler pose a risk. so as to ensure that they have not been used for illicit purposes, as well as strict compliance with Therefore, it is not surprising that the number of transparency rules, both through the Extractive measures these companies have taken to ma- Industries Transparency Initiative in Congo, and nage this risk is very limited. Only two of the firms through compliance with transparency regula- contacted have raised the issue of corruption tions Glencore and its subsidiaries are subject to with the supplier. The two did not pursue the mat- in Canada and the United Kingdom. ter any further, however, on the grounds that the supplier reassured them that the allegations were wrong and that it has not been convicted in court. Only one of the company’s that responded indi- cated that it would conduct an audit from Glen- core. The results of this audit, however, are not yet available. SEE NO EVIL, SPEAK NO EVIL 5 Poorly managed corruption dans la risks in the cobalt supply chain Crossroads in Beijing where electric cars Yet corruption is rarely the subject of public de- crisscross without noise or smelly smoke; electric bate among major cobalt consumers. Despite the scooters that invade the sidewalks of American media controversies affecting several of the wor- and European cities : this is the mobility of the ld’s largest cobalt producers, industrial producers future, the result of a growing awareness that the are increasingly seen as «clean”, in contrast with threats of climate change require less polluting the artisanal sector, branded as the source of all travel options.1 The automotive sector is gradually evils. veering “EV”, promising the production of many more electric vehicles over the next few years.2 Intrigued by this lack of public debate on indus- trial producers and corruption, Resource Mat- One of the keys to this automobile transition is ters has requested the support of the Social cobalt, a mineral that is essential for rechargeable Responsibility and Innovation Program (RISE) of batteries that keep these new vehicles going. Ac- Sciences Po Law School’s Clinic around a central cording to the latest available statistics, almost research question: to which extent are corruption two-thirds of the world’s production in 2018 came risks taken into account in due diligence efforts of from a single country : the Democratic Republic major cobalt buyers of cobalt? The team sought of Congo (« Congo »).
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