Sanctions and Compliance in Critical Mineral Trade

Sanctions have become a defining feature of the geopolitical landscape, and their impact on critical mineral supply chains is profound and growing. As governments impose financial restrictions, trade bans, and asset freezes in response to conflicts, human rights abuses, and strategic rivalries, the flow of essential raw materials is increasingly shaped by compliance requirements that companies must navigate with care. The intersection of sanctions policy and mineral trade creates a complex regulatory environment where a single misstep can result in severe financial penalties, reputational damage, and criminal liability.

Russian Minerals Under Western Sanctions

Russia's invasion of Ukraine in February 2022 triggered the most comprehensive sanctions campaign in modern history. While energy sanctions on Russian oil and gas attracted the most attention, Russia is also a major producer of several critical minerals: palladium, nickel, aluminum, titanium, platinum, copper, and enriched uranium. The treatment of these minerals under sanctions has been uneven, reflecting the tension between the desire to punish Russia economically and the need to avoid disrupting supply chains that Western industries depend upon.

Norilsk Nickel (Nornickel), the world's largest producer of palladium and a major producer of refined nickel and platinum, was not directly sanctioned by the United States or the European Union despite the broader sanctions regime. The decision reflected concerns that sanctioning Nornickel would send palladium and nickel prices soaring, inflicting collateral damage on the global automotive industry (palladium is essential for catalytic converters) and the stainless steel sector. However, self-sanctioning by Western companies, logistical disruptions to Russian shipping routes, and reputational concerns led many buyers to reduce their exposure to Russian mineral supply voluntarily.

The London Metal Exchange (LME) faced intense pressure regarding the status of Russian-origin metals in its warehouses. In 2023, the LME decided against an outright ban on Russian metals but introduced disclosure requirements and considered delivery restrictions. The United States and United Kingdom took a firmer step in April 2024, prohibiting the delivery of newly produced Russian aluminum, copper, and nickel to the LME and the Chicago Mercantile Exchange (CME), effectively restricting the ability of Russian producers to access Western commodity exchanges. These measures stopped short of a full import ban but significantly constrained the market for Russian metals.

Sanctions on Mining and Mineral Entities

Beyond Russia, sanctions have targeted specific mining and mineral entities in several jurisdictions. The U.S. Office of Foreign Assets Control (OFAC) has designated various entities involved in mineral extraction in sanctioned countries, including Myanmar (jade, rare earths, tin), Iran (copper, zinc, chromite), North Korea (coal, iron ore, rare earths), and Venezuela (gold). Companies that purchase minerals from these jurisdictions or from designated entities face the risk of sanctions violations, even if the transactions occur through intermediary countries.

The DRC's cobalt sector presents particular compliance challenges. While the DRC itself is not subject to comprehensive sanctions, several armed groups operating in the eastern DRC have been designated under U.S. and EU sanctions regimes. The conflict minerals provisions of the Dodd-Frank Act (Section 1502) require U.S.-listed companies to conduct due diligence on their supply chains for tin, tantalum, tungsten, and gold (the "3TG" minerals) to determine whether their purchases benefit armed groups in the DRC or adjoining countries. The EU Conflict Minerals Regulation, which took full effect in January 2021, imposes similar due diligence obligations on EU importers of 3TG minerals.

Anti-Money Laundering and Beneficial Ownership

Mineral trade is vulnerable to money laundering and sanctions evasion because of the complexity and opacity of supply chains. Raw minerals may change hands multiple times between the mine and the end user, passing through traders, blenders, and processors in multiple jurisdictions. This creates opportunities for sanctioned entities to disguise the origin of their products by mixing them with material from non-sanctioned sources or by using shell companies to obscure beneficial ownership.

Financial Action Task Force (FATF) recommendations and national anti-money laundering (AML) laws require financial institutions to conduct enhanced due diligence on customers involved in mineral trade from high-risk jurisdictions. The gold sector, in particular, has been identified as highly susceptible to AML risks, with artisanal and small-scale gold mining (ASGM) in Africa and South America frequently linked to illicit financial flows. Banks that facilitate transactions involving minerals from sanctioned or high-risk jurisdictions without adequate due diligence face regulatory action and significant fines.

Building a Compliance Framework for Mineral Supply Chains

For companies operating in critical mineral supply chains, compliance is no longer optional or peripheral. It must be integrated into procurement strategy, supplier management, and corporate governance. A robust compliance framework for mineral trade typically includes several key elements: sanctions screening of all counterparties against OFAC, EU, UK, and other relevant sanctions lists; supply chain mapping to trace materials from mine to end user; conflict minerals due diligence following OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas; regular audits and third-party assurance of supplier compliance claims; and training programs that ensure procurement teams understand the regulatory landscape and red flags.

Industry initiatives also play a growing role. The Responsible Minerals Initiative (RMI) provides tools and frameworks for supply chain due diligence, including the Responsible Minerals Assurance Process (RMAP), which audits smelters and refiners for compliance with responsible sourcing standards. The London Bullion Market Association (LBMA) and the London Platinum and Palladium Market (LPPM) maintain Good Delivery lists that include responsible sourcing criteria. Companies that participate in these programs can demonstrate to regulators and customers that their mineral supply chains meet international standards.

The Evolving Sanctions Landscape

The sanctions environment for critical minerals is likely to become more complex rather than simpler. Escalating tensions between the United States and China raise the possibility of sanctions or trade restrictions targeting Chinese mineral processing entities, which would have seismic consequences for global supply chains given China's dominant position in processing. The growing use of secondary sanctions, which penalize third-country entities that facilitate transactions with sanctioned parties, extends the compliance burden to companies far removed from the original target.

Simultaneously, ESG (Environmental, Social, and Governance) expectations from investors and consumers are converging with sanctions compliance. The EU Corporate Sustainability Due Diligence Directive, once fully implemented, will require large companies to identify and mitigate human rights and environmental risks throughout their supply chains, including mineral sourcing. This regulatory convergence means that companies must build integrated compliance and sustainability programs that address sanctions, export controls, conflict minerals regulations, and ESG standards holistically rather than in separate silos.

Navigating this environment requires sustained investment in compliance infrastructure, legal expertise, and supply chain transparency. Companies that treat compliance as a strategic capability rather than a cost center will be better positioned to maintain access to critical minerals, preserve banking relationships, and build the trust of customers and regulators in an era of geopolitical fragmentation.