Dozens of Companies Report North Korea Gold Used In Their Supply Chain
As companies scrambled to meet a deadline to report whether their suppliers used minerals from mines controlled by armed groups in the Congo region, they stumbled on something even more troubling: many of their products may contain North Korean gold.
As reported by Joel Schectman in the WSJ, Dozens of companies disclosed over the last week that their suppliers use gold refined by North Korea’s central bank. These companies include Hewlett-Packard Co., Ralph Lauren Corp., International Business Machines Corp., Rockwell Automation Corp. and Williams Sonoma Inc.
IBM, for example, disclosed that the North Korean gold was used to make its memory storage systems.
U.S. sanctions law bars importing materials from North Korea, even if it comes from deep within a supply chain and is in a completely different form by the time it reaches the end user, sanctions experts said. “It’s a problem, even if the raw materials are coming very indirectly through suppliers,” said Alexandra Lopez-Casero, an attorney at Nixon Peabody LPP, who specializes in sanctions.
North Korea’s central bank provides currency for the regime and refines gold for export. Until 2006, the bank refined gold bars that were certified by the London Bullion Market Association, a gold marketplace, according to public records. The bank’s refinery continues to produce gold, said Bruce Calder, vice president of Claigan Environmental Inc. a supply compliance consulting firm that tracks suppliers.
Many of the companies apparently uncovered the North Korean connection for the first time as they searched their supply chain for so-called “conflict minerals.” A provision of the Dodd-Frank Act compelled companies to question their suppliers and disclose by Monday whether gold, tungsten, tantalum or tin used in their products came from mines controlled by armed groups in the war-torn Congo region.
An H-P spokeswoman said that it learned that “a small number” of its suppliers may have used the North Korean refiner as it rooted into its supply chain in January. As part of its disclosure, H-P listed every refiner its suppliers used, rather than attempting to determine which facilities made metal that ultimately went into H-P products.
But after its suppliers reported they may be using the North Korean facility, the company began an investigation, which so far, “indicates no minerals obtained from Central Bank of DPRK were included in HP products,” the spokeswoman said.
In an emailed statement an IBM spokesman said the company expects its suppliers to follow conflict mineral guidelines and “procure minerals from responsible sources.”
Williams-Sonoma and Ralph Lauren did not comment before publication time.
How did so many companies end up reporting North Korean gold in their supply chain, a possible sanctions violation? Many may not have realized that the list they were getting from their suppliers contained a North Korean facility because of an error in the template they distributed.
To query their suppliers, companies relied on a template created by the non-profit Conflict Free Sourcing Initiative. An error on an earlier version of the template mistakenly listed the Central Bank of DPR [Democratic People’s Republic] of Korea, as being located in South Korea, said Julie Schindall a spokeswoman for the initiative. When suppliers entered the smelter code, South Korea was listed by default. The North Korean smelter was removed from the latest version of the template, said Ms. Schindall. “But whether or not suppliers in China are still using this smelter would be impossible for us to know,” she said.
Noting that its filing listed the Central Bank of DPR of Korea as being in South Korea, a Rockwell Automation spokesman said, “It seems like everyone was just working off the same piece of paper,” declining to comment further.
Michael Littenberg, an attorney who deals with conflict mineral disclosures, said around 20 corporate clients have discovered North Korean gold was used by their suppliers. Unlike IBM or Williams-Sonoma, additional investigation allowed clients to avoid disclosing the smelter by determining that North Korean gold didn’t it make it into their products. “I think it reveals there is still a long way to go in understanding supply chains,” Mr. Littenberg.
The companies disclosed in recent financial filings – first spotted by Foreign Policy – that some of their suppliers sourced gold from the “Central Bank of the DPR of Korea”, according to filings with the US Securities and Exchange Commission.
The companies made these filings in response to a new reporting rule aimed at uncovering the links between stuff mined in troubled Central Africa and products sold or manufactured by US-listed companies.
Companies have been forced to list their known smelters and refiners in accordance with Section 13(p) of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which makes organizations disclose annually whether any of the minerals they use in production come from the Democratic Republic of the Congo or an adjoining country.
North Korea no longer makes gold bars, a spokeswoman for the Conflict-Free Sourcing Initiative, Julie Schnindall, told Foreign Policy, so the “DPR of Korea”–stamped bars could have been circulating for years.
