In recent years, governments worldwide have adopted new rules aimed at making supply chains more sustainable and transparent. From the United States to Europe, these initiatives respond to growing public concern about the role of global trade in environmental destruction, human rights abuses, and the financing of armed conflicts. Their shared ambition is to ensure that goods consumed in developed economies are not tied to harmful practices abroad. For researchers and policymakers, the challenge is not only to design such rules, but also to understand what their impact is, how companies adapt to them, and which loopholes may undermine their effectiveness.
In Europe, the discussion is now at a crossroads. At EU level, the Corporate Sustainability Due Diligence Directive (CSDDD) is being revised under the Omnibus I proposal, with options to limit obligations to tier-1 suppliers and reduce reporting frequency. In Germany, the Federal Cabinet recently proposed a draft reform of the Lieferkettengesetz (Supply Chain Act) that would ease reporting requirements and sanction violations only in “serious cases,” citing the need to reduce bureaucracy. Both developments illustrate a growing political momentum to scale back obligations, amid worries about compliance costs and effectiveness.
At the EU Tax Observatory, our work on illicit financial flows and global transparency provides a unique lens on these discussions. A new working paper by Ninon Moreau-Kastler, summarized in this policy note, provides a rare empirical case to assess what such design choices mean in practice: the Dodd-Frank Act Conflict Mineral Rule (2010). This law required all US-listed companies to conduct due diligence to ensure that gold and tin, tantalum, and tungsten (3T) in their products were not financing rebel armed groups in the Democratic Republic of the Congo (DRC) and neighbouring countries.
The evidence is striking. Following its adoption, exports of 3T from the region fell by 76% across most trading partners, showing that due diligence rules – even if applied only to downstream firms in one country – can reshape sourcing practices far upstream and across borders. However, one fourth (around 24%) of this decrease can be attributed to diversion of trade to opaque intermediary jurisdictions, or “legal havens,” which re-exported minerals to countries hosting US suppliers, revealing how loopholes can undermine enforcement. Compliance costs, while significant at the start, proved manageable and risk-dependent, averaging €30,000-€70,000 per year once traceability systems were established. Finally, disclosures under the rule uncovered more than a thousand smelters and refiners worldwide — compared to only around 180 identified before — providing unprecedented transparency into global chokepoints in metal processing.
Building on these findings, this policy note distils lessons that are highly relevant for current due diligence and transparency debates: (1) due diligence can meaningfully alter corporate sourcing choices; (2) circumvention through legal havens poses a significant threat to effectiveness; and (3) the costs of compliance are limited and frontloaded, while the transparency benefits are substantial and enduring.