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June 26, 2014 at 09:20 PM
The island of Jersey, long known as one of the go-to places for high-level finance for both international corporations and the ultra-high-net-worth, has recently made headlines over alleged failures to take action against the purveyors of “blood gold.”
Investors with no ties to Jersey and no direct investment in gold still might want to follow the dispute, because so-called conflict minerals could take a toll on their portfolios as compliance scrutiny intensifies on the regulations governing such investments.
Gold is just one of a group of natural assets whose role in financing violent conflicts has made them hazardous investments in more ways than one. Other conflict minerals—including casserite, which yields tin; wolframite, which yields tungsten; and coltan, which yields tantalum—are mined in areas of political unrest and used by warlords to finance war and violent intimidation.
Tin, tungsten, tantalum and gold—known collectively as 3TG—are used in the manufacturing of a wide variety of products. The SEC’s Conflict Minerals rule requires public companies that manufacture or contract for manufacture of products to report annually on whether those products contain any 3TG and what the sources for those materials are. The end goal, of course, is to keep financing from reaching the perpetrators of atrocities in the Democratic Republic of Congo (DRC), and the central African countries that adjoin it: Angola, Burundi, Central African Republic, the Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda and Zambia. Companies were required to file their initial reports by June 2.
The 2006 film Blood Diamond, which starred Leonardo DiCaprio, illustrated the role diamonds—often another conflict investment—played in financing the Sierra Leone civil war. The Kimberley Process Certification Scheme (KPCS), adopted in 2003, is supposed to prevent blood diamonds from coming onto the market and contributing their considerable value to ongoing conflicts, but there is ongoing debate about how effective the strategy is.
But back to Jersey, which made headlines a couple of years ago. Threatened crackdowns on loopholes that allow protection of both corporate and private assets against taxation caused it to threaten to break its ties with the U.K. Jersey is what is known as a “peculiar possession” of the British Crown, accountable directly to the Queen, and has its own parliament, legal system and treasury. While it’s treated as part of the European Union and is included in many U.K. international agreements, it’s had its own constitutional rights since 1204. And while it is quick to point out that it has signed on to a number of international agreements regarding the sharing of financial information, its business is still the care and preservation of vast fortunes.
Allegations that Jersey regulators, and the island’s police as well, have failed to take action against a company selling gold tied to a rebel militia group in the DRC have renewed public scrutiny on how the island makes its money. The controversy has also pushed conflict investments back into the spotlight.
Hussar Ltd., a Swiss company that is nominally owned by Jersey company Osiris Trustees Limited, is being investigated by Swiss authorities on charges that it sourced gold it provided to Switzerland-based gold refiner Argor-Heraeus SA during 2004–2005 from middlemen in the DRC connected to rebel militia.
Argor-Heraeus has denied the charges and Jersey’s Financial Services Commission has said that Hussar was not a regulated financial company. However, the Conflict Awareness Project (CAP) has said that it provided evidence to the Jersey authorities that was sufficient for the Swiss to launch an investigation, but no action was taken in Jersey.
