Insight: How a rebel Myanmar tin mine may up-end a global supply chain

Shenmao Technology

28/11/2016 17:31

* United Wa State Army blacklisted by U.S. over drug 
trafficking 
    * Mine run by armed group in "Wa State" is a major producer 
of tin 
    * Top smelter Yunnan Tin indirectly buys big quantities of 
Wa tin 
    * Many international companies list Yunnan Tin as a supplier 
    * Sourcing tin from mine puts firms at risk of sanctions 
breach 
 
    By Yimou Lee and Joel Schectman 
    YANGON/WASHINGTON, Nov 29 (Reuters) - From a remote corner 
of northeastern Myanmar, an insurgent army sells tin ore to 
suppliers of some of the world's largest consumer companies. 
    More than 500 companies, including leading brands such as 
smartphone maker Apple  AAPL.O , coffee giant Starbucks  SBUX.O  
and luxury jeweller Tiffany & Co  TIF.N , list among their 
suppliers Chinese-controlled firms that indirectly buy ore from 
the Man Maw mine near Myanmar's border with China, a Reuters 
examination of the supply chain found. 
    The mine is controlled by the United Wa State Army (UWSA), 
which the United States placed under sanctions for alleged 
narcotics trafficking in 2003. The seven companies extracting 
tin from the mine are all owned or controlled by Wa military and 
government leaders, Wa officials and people with close ties to 
UWSA leadership told Reuters. 
    This potentially puts companies, which also include 
industrial conglomerate General Electric  GE.N , at risk of 
violating sanctions that forbid "direct or indirect" dealings 
with blacklisted groups, according to a former and a serving 
U.S. official and lawyers with expertise in sanctions 
enforcement.  
    Several sanctions experts said the U.S. government was 
unlikely to fine companies who unwittingly used the Myanmar tin. 
Still, it may force them to shift to new suppliers, they said. 
    A Treasury Department spokeswoman said U.S. sanctions 
"generally prohibit U.S. companies from engaging in any direct 
or indirect transactions or dealings with individuals or 
entities" on a blacklist, but declined further comment on 
specific circumstances. 
    The situation illustrates the difficulties facing 
multinationals in monitoring supply chains that have grown 
increasingly complex. 
    Following a 2012 U.S. regulation, companies have spent 
billions of dollars scrutinizing whether certain minerals used 
in their products come from mines controlled by armed groups in 
Central Africa. 
    But the regulations do not require them to assess the 
origins of minerals from other conflict zones. 
    Apple, Tiffany and GE, and other companies contacted by 
Reuters, said that to fulfil those regulations they looked to an 
audit programme designed by the industry group Conflict Free 
Sourcing Initiative (CFSI). 
    A CFSI programme director said the group was "aware of tin 
exports from Myanmar to other countries and of security and 
human rights issues in Myanmar". The group said it was updating 
its audit requirements to include "a broader definition of 
conflict-affected and high-risk areas".  
    Tin supply chain expert at monitoring group Global Witness, 
Sophia Pickles, said companies must not wholly outsource due 
diligence responsibility to a scheme that has exclusively 
focused on central Africa. 
    "Companies, not schemes, bear the primary responsibility for 
ensuring that supply chains are responsible," she said. 
 
    CIVIL WAR 
    Most of the tin mined globally is used as solder in 
electronics, for making batteries and plating. 
    The Man Maw mine roiled the global tin market when huge 
quantities of high grade ore were discovered around 2013. Annual 
production is now estimated at about 33,000 tons of tin 
concentrate, more than a 10th of global output of the metal. 
 urn:newsml:reuters.com:*:nL4N1CP013 
    The mine is controlled by the UWSA, the strongest of the 
myriad armed groups that have kept Myanmar in a state of 
near-perpetual civil war for decades. Reuters visited the remote 
mine last month, the first international media organisation to 
do so. 
    Interviews with officials running the mine, UWSA leaders and 
executives at Asian tin suppliers, together with an examination 
of public disclosures of suppliers made by companies in 
regulatory filings, indicate Wa tin likely ends up in an array 
of products made by U.S. and other international companies. 
    Tin from Man Maw provides revenue critical to the survival 
of the self-proclaimed Wa State and its rulers, who have refused 
to disarm or participate in Myanmar's peace process. 
    "There are dozens of trucks carrying tin ore to China every 
morning," the head of the Wa territory foreign affairs office, 
Zhao Guo An, told Reuters. "Tin mining is the pillar of our 
economy. It's the biggest source of income." 
    While Washington has lifted most sanctions on Myanmar, some 
have been kept in place, including those aimed at the UWSA. The 
group and several of its leaders are blacklisted under the 
Kingpin Act over accusations of trafficking in heroin and 
methamphetamine. UWSA leaders deny involvement in narcotics, 
saying the accusations are a smear by political opponents. 
 urn:newsml:reuters.com:*:nL3N1CC1L5 
    Peter Kucik, a former senior sanctions advisor at the U.S. 
Treasury Department, said the findings highlighted the need for 
thorough due diligence.  
    "The facts suggest potential sanctions risk for the parties 
involved," Kucik said. 
    Two companies in Apple's supply chain, the world's No. 1 tin 
producer Yunnan Tin Co Ltd  000960.SZ  and leading Taiwan-based 
solder maker Shenmao Technology  3305.TW , told Reuters that 
some tin they bought was from the Wa mine. 
    Mandy Gan, a tin analyst from China's leading mineral 
research company, Asian Metal, and another tin expert, both of 
whom visited the UWSA mine this year, said many other Chinese 
smelting firms supplying global consumer goods makers also 
bought tin from the Man Maw mine. 
    Sanctions experts said even the indirect use of the tin 
might be considered a violation of U.S. sanctions law, which 
does not require authorities to prove intent. A U.S. government 
official involved in Myanmar policy consulted on Reuters' 
findings said the government was likely to investigate any ties 
to the UWSA. 
    Still, Washington-based sanctions attorney Erich Ferrari 
said it was unlikely the Treasury Department would initiate an 
enforcement action against companies for an issue so deep in the 
supply chain. Once the ties were publicized, however, 
authorities could impose penalties if the companies did not wind 
down the transactions and find new suppliers, he said. 
     
    SUPPLY CHAIN 
    The chain connecting some of the world's best known brands 
with a mine in one the most inaccessible corners of Southeast 
Asia has many links. ((For a GRAPHIC, click on: http://tmsnrt.rs/2giJmcq)) 
    One key intermediary is state-owned Yunnan Cultural Industry 
International (YCII), based in Yunnan, southwestern China, which 
said in a statement on its website that it enjoys "a long-term, 
stable strategic partnership" with the UWSA statelet. 
    YCII declined several interview requests.  
    YCII is, in turn, a major supplier of tin to the world's top 
producer, Yunnan Tin, also based in Yunnan. 
    Yunnan Tin supplies many companies, including big contract 
manufacturers such as Foxconn Technology Co  2354.TW  and, 
indirectly, Pegatron Corp  4938.TW , whose clients include 
Apple. It also supplies major solder makers such as Shenmao 
Technology, also a supplier to Pegatron. 
    "Myanmar is not considered a conflict-affected area by 
CFSI...As long as smelters present a certified sourcing 
document, that's acceptable for us," said Tim Lin, an executive 
overseeing sourcing at Taiwan-based Shenmao, who said about a 
quarter of its supply of the metal came from Yunnan Tin. 
    In the last two years, Yunnan Tin has also shipped more than 
12,000 tons of metal to the United States, according to shipment 
data from U.S.-based trade tracking company Panjiva. 
    More than 500 publicly traded companies in the United States 
say their suppliers use tin from Yunnan Tin or Yuntinic 
Resources, its San Mateo, California-based division, according 
to a review of the supply chain disclosures consumer companies 
make to the U.S. Securities and Exchange Commission. 
    Two members of Yunnan Tin's board, vice chairwoman Yang 
Yimin and secretary and vice general manager Pan Wenhao, 
confirmed in interviews that a "portion" of the company's tin 
came from the UWSA-operated mine. 
    "We certainly buy tin indirectly from Myanmar," Pan told 
Reuters. "We don't specifically pay attention to where they 
source their materials from." 
    Yunnan Tin mixes the Wa tin with metal from mines in central 
and southwestern China, said Pan, before processing it into 
products such as tin paste. 
    That means it is impossible to say for certain which 
shipments from the company contain Wa tin, but Pan estimated 
Yunnan Tin's purchases from the mine account for about a third 
of its total annual tin consumption, or at least 16,500 tons. 
    Apple said in a statement it worked with suppliers to help 
them meet stringent standards, "and those who are ultimately 
unable or unwilling to comply are removed from our supply 
chain". 
    "While we have no evidence of illegal tin from Myanmar in 
our products, we'll continue to investigate, address any issues 
we find and do all we can to raise standards and protect human 
rights," it said. 
    Foxconn said it "enforced stringent supplier management 
requirements in accordance with international and local conflict 
minerals legislation and has proactively communicated these 
requirements to our suppliers". 
    It added that less than 1 percent of its tin was procured 
from Yunnan Tin, all of which was used in products for a 
"single, non-U.S.-based customer".     
    Pegatron Corp said it carried out "annual due diligence on 
suppliers and encourage them to source from validated 
conflict-free supply chains". 
    "Pegatron will continue working with customers and 
international organizations to investigate and source minerals 
responsibly," the company added. 
     
    FROM JEWELLERY TO APPLIANCES 
    Companies that sell consumer products in the United States 
are required by the Dodd-Frank Act to publish their suppliers of 
tin and other minerals.  urn:newsml:reuters.com:*:nL4N1DQ37M 
    Among the companies listing Yunnan Tin, Tiffany said one of 
its suppliers had indirectly sourced a "very small amount of 
tin" from the Chinese smelter for use in silver solder for 
jewellery and hollowware. 
    The company added that, as Yunnan Tin was certified as 
conflict-free by the CFSI, "use of this smelter by our vendors 
is consistent with our Conflict Minerals Policy". 
    Starbucks said small amounts of Yunnan Tin metal, sourced 
from second or third party suppliers, went into the ovens in its 
coffee shops.  
    The company had received no information indicating it was 
using minerals from Myanmar, a spokeswoman said, but was pushing 
suppliers for more detailed sourcing disclosures. 
    A GE spokesman said the company strived to use ethical 
sourcing in its mineral supply chain, adding it had "noted the 
concerns raised by Reuters and will address them through our 
internal process and with our external partners". 
    A spokeswoman from discount retailer Target  TGT.N  said in 
a statement it was "committed to responsible business conduct". 
    "We take these allegations very seriously, and we are 
looking into this," the statement said. 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
GRAPHIC-How tin from rebel Myanmar mine enters the global supply 
chain    http://tmsnrt.rs/2giJmcq 
FACTBOX-Responses from companies who's suppliers use Man Maw tin 
    urn:newsml:reuters.com:*:nL4N1DQ37M 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 (Additional reporting by Antoni Slodkowski in Yangon, JR Wu in 
Taipei, Jussi Rosendahl in Helsinki and Helena Soderpalm in 
Stockholm, Paul Carsten in Beijing and Sijia Zhang in Hong Kong; 
Editing by Alex Richardson) 
 ((antoni.slodkowski@thomsonreuters.net;)) 
 
Keywords: MYANMAR TIN/