New rule forces businesses to trace their supply chains.
- By Jamila TrindleJamila Trindle is a senior reporter who covers finance, economics and business where they intersect with national security and foreign policy. Her beat spans everything from the economic underpinnings of conflict to sanctions, corruption and terror finance. Before coming to Foreign Policy magazine, Jamila reported for the Wall Street Journal’s Washington bureau, covering financial regulation and economics. She has also worked as a foreign correspondent in China, Indonesia and Turkey as a freelancer for NPR, Marketplace, The Guardian and others. She moved back to the U.S. to cover the post-crisis economy for PBS in 2009.
A broad swath of companies including IBM, Hewlett-Packard, and Ralph Lauren revealed in new financial filings that some of their products include gold from North Korea.
A new rule aimed at making companies reveal connections to mines in war-torn African countries has turned up a link to another despotic regime: the Democratic People’s Republic of Korea.
The "Central Bank of the DPR of Korea" is listed among dozens of smelters and refiners used by U.S. companies. Tractor-maker Deere & Co., hunting outfitter Cabela’s, kitchen store Williams-Sonoma, and GPS-maker Garmin also listed North Korea. The companies did not immediately respond to requests for comment.
Sanctions against North Korea bar U.S. companies from doing business with Pyongyang, but it’s unlikely that any of the companies have direct dealings with North Korean companies. New reporting requirements force companies to trace the minerals in their products back through several layers of their supply chains.
North Korea expert Marcus Noland with the Peterson Institute for International Economics said there may be a simple explanation. American companies buy a lot of parts from Chinese companies, which, in turn, do business with North Korea.
"If you trace the supply chain back, some of these minerals are coming from North Korea," said Noland. China accounts for 90 percent of North Korea’s trade, he added.
Companies that use gold, tin, and other minerals that could be sourced from the Democratic Republic of the Congo had to file disclosures with the Securities and Exchange Commission Monday. The minerals are used in everything from jewelry to aerospace equipment and found in everything from light bulbs and cellphones to tin cans. Mining groups, jewelers’ associations, and trade groups for makers of cars, semiconductors, and medical devices all weighed in on the rule while the SEC was writing it.
Advocates for the provision argued that trade in gold, tin, and other minerals from the DRC supports armed groups that terrorize, rape, and kill civilians. The provision was written into the 2010 financial reform law, most of which aimed to fix regulations after the 2008 financial crisis. To implement the provision, the SEC issued a rule requiring U.S. public companies to annually disclose the origins of the minerals used in their products. Three trade groups — the National Association of Manufacturers, the Chamber of Commerce, and the Business Roundtable — challenged the rule and notched a partial victory. A federal appeals court ruled in April that companies don’t have to declare whether their minerals are "conflict free," but they do have to investigate their supply chains and make that information public via the SEC.
Julie Schindall, a spokeswoman for the Conflict-Free Sourcing Initiative, which developed a minerals-disclosure template for companies to use, said the connection to North Korea could be very far removed.
Gold bars are like dollar bills, rapidly changing hands after the refiner mints and stamps them. And North Korea’s central bank no longer produces gold bars, according to Schindall. Companies ended up with gold bars stamped with "DPR of Korea" that could have been in circulation for years.
How the companies got North Korean gold is unclear because the disclosure law only applies to the Democratic Republic of the Congo and its neighbors.
"If you got your gold from a terrible war-torn place, but it’s not DRC, then you can declare it ‘conflict-free,’" Schindall said.