Is the US "conflict minerals" act working?Published by MAC on 2014-07-03
Source: Reuters, Bloomberg
It depends where you're coming from...
The Dodd-Frank Act, implemented in the United States by the country's Securities and Exchange Commission (SEC), set a June 2nd 2014 deadline for companies to declare their involvement in the production and supply of so-called "conflict minerals".
Depending on your status and perspective, the legislation has modestly worked, partially worked - or spectacularly failed.
According to risk management firm, Source Intelligence, only 5% of firms, filing information on the origins of minerals used in their products, had identified where the materials came from.
The Canadian environmental consultancy, Caigan, agreed. It found that, of the 1,306 companies that submitted conflict-mineral reports, a whopping 94 percent had declined to describe a reasonable "due-diligence" effort:
" Most asked suppliers where they sourced their minerals but offered no evidence that they tried to verify the responses they received -- not so much as a phone call or a Google search".
For example, only 14 of these companies had contacted Indonesia's CV United Smelting Corp, although it is "one of the most widely used tin smelters in the world".
Nonetheless, two of the main NGOs, diligent in researching conflict minerals, have expressed guarded optimism that the Dodd-Frank Act is working.
"The law has triggered companies right along the supply chain to change their sourcing practices," asserts Emily Norton on behalf of UK-based Global Witness.
And Sasha Lezhev, senior policy analyst with the Enough Project in Washington DC claims that about two thirds of tin, tantalum and tungsten mines in eastern Congo had been "demilitarized".
Previous article on MAC: Despite repeated industry efforts, Court upholds important conflict minerals law
Conflict minerals law starts working despite poor industry response
By Eric Onstad
1 July 2014
A U.S. law on conflict minerals is curbing African warlords' presence around mines in Congo, campaigners say, but its full impact remains unclear, with most firms failing to pinpoint the origin of their metals by a June deadline.
Millions are estimated to have died in nearly two decades of bloodshed in eastern Democratic Republic of Congo (DRC) fueled by the minerals smuggled through Rwanda, Uganda and Burundi.
Under the Dodd-Frank financial reform law, U.S. companies must try to establish the origin of four metals often used by rebel groups in the area to finance their activities.
Only five percent of firms making filings by a June 2 deadline traced the conflict status of the minerals used in their products, said Source Intelligence, a U.S. risk management firm.
A grace period means big firms can say they were unable to get information for two years, but campaigners urged them try harder, saying the law had already helped but could do more.
"Overall we've been disappointed with the response of companies, and the lack of meaningful information on the supply chain checks and risk assessments they are doing, although a few of the reports have been strong," said Emily Norton, assistant campaigner with Global Witness in London.
The electronics sector has been the most robust at tracing the source of its minerals, Norton said, holding up chip giant Intel as a rare company that had conducted an audit.
Campaigners say the law has had a positive impact in three of the four metals it covers -- tin, tantalum and tungsten -- while gold remained a problem. Many of the minerals are used in smart phones and other electronics goods.
"The law has triggered companies right along the supply chain to change their sourcing practices," Norton said.
A new certification scheme organized by the tin industry body ITRI is being rolled out in North Kivu after earlier projects in Congo's copper-rich southeastern provinces of Katanga and South Kivu.
Sasha Lezhev, senior policy analyst with the Enough Project based in Washington DC said about two third of mines in tin, tantalum and tungsten in eastern Congo had been demilitarized.
In a report based on five months of field research, the organization said minerals not certified as "conflict free" sold for 30-60 percent less, cutting profits for the armed groups.
Some analysts say the law's impact has been overstated.
A Congolese government adviser cautioned rebel involvement was hard to track in remote areas and an academic specializing in the region said profits were still going astray.
"Dodd-Frank and the ensuing initiatives, including traceability and certification, have removed armed actors from the mines," said Christoph Vogel, a Congo researcher at the University of Zurich.
"But now we hear that army commanders are sending intermediaries to organize taxation on the sites," Vogel said.
Global Witness said last year there was still high-level military involvement in eastern Congo's gold trade and Lezhev called on jewelers and the U.S. government to counter this.
Campaigners are also urging the European Union to strengthen a conflict minerals proposal released in March, making it mandatory instead of voluntary.
Some of those advising the companies about the law say the firms find it hard to discover the origin of their supplies.
"We have clients that have literally tens of thousands of suppliers," said Michael Littenberg, a partner at New York law firm Schulte Roth & Zabel.
Another consultancy said that information was available and companies needed to be more rigorous.
Of the 1,306 companies that filed reports, only 14 of them contacted Indonesia's CV United Smelting Corp, one of the most widely used tin smelters in the world, said Canadian environmental consultancy Claigan, which specializes in conflict minerals.
"Very few companies showed any due diligence," Bruce Calder, vice president of consulting services at Claigan, said in a presentation.
When the conflict minerals law was first passed, there were fears that it would lead to companies boycotting the region's minerals, and some firms initially moved in that direction, but that is less of a problem now, Littenberg said.
"Most companies have figured out that isn't the right approach and the NGOs (non-governmental organizations) have also been pretty vocal that they don't want to see companies boycotting the region," he said.
The law was watered down by a court ruling after industry groups challenged it, but an appeal has been launched by the Securities and Exchange Commission (SEC) which is in charge of enforcing it.
Analysts say it has had little impact in some neighboring areas, such as Central African Republic on the DRC's northern border, where the short-lived rule by Seleka rebels last year triggered an internal political and religious conflict which has required the intervention of French and African peacekeepers.
"Once in power the movement asserted control of lucrative trafficking networks (gold, diamond and ivory). Their systematic looting destroyed what was already a phantom state," said a report in June by Brussels-based International Crisis Group.
(Additional reporting by Peter Jones in Kinshasa,; Pascal Fletcher in Johannesburg and David Lewis in Dakar; editing by Veronica Brown and Philippa Fletcher)
Blood Money and Conflict Minerals
2 July 2014
The world's insatiable demand for everything from smartphones to jewelry to cars is feeding the bloody war in eastern Congo, where tin, tantalum, tungsten and gold are mined for use in manufacturing. Last year, exports of these minerals from central Africa generated at least $2.1 billion -- much of which went to rebels and government soldiers.
Four years ago, Congress responded with a sensible provision of the Dodd-Frank Act that requires U.S.-regulated manufacturers whose products may contain conflict minerals to investigate the matter and report, publicly, to the Securities and Exchange Commission. This transparency is meant to motivate the companies to get conflict minerals out of their supply chains and avoid the wrath of socially conscious consumers and shareholders.
So far, though, companies are widely flouting the law. The first conflict-mineral reports were due June 2, and only 6 percent met an acceptable standard for compliance, according to a review by Claigan, an environmental compliance consultancy.
Now, this is only the first year, and some companies may have been confused by an eleventh-hour Court of Appeals ruling that modified the law's reporting requirements. Some noncompliance would have been understandable. But not this much. Manufacturers apparently need to be nudged awake to the harm their reliance on conflict minerals causes. The SEC will have to make an example of the worst offenders.
The 18-year-old war in the Democratic Republic of Congo, featuring child soldiers and mass rape, has been the deadliest since World War II, having claimed an estimated 5.4 million lives. While depriving the competing factions of mineral funds wouldn't end the conflict, it would make it harder for them to rearm and pay their fighters, which would mean fewer deaths and atrocities.
That should be motivation enough for U.S. companies to root out conflict minerals. The law adds a bit more, without pushing too hard. Companies aren't forbidden from using conflict minerals; they only have to divulge what minerals they are using and what steps they have taken to find out.
Of about 1,000 companies that submitted conflict-mineral reports, 94 percent declined to describe a reasonable due-diligence effort, according to Claigan. Most asked suppliers where they sourced their minerals but offered no evidence that they tried to verify the responses they received -- not so much as a phone call or a Google search.
The companies should see that more diligent efforts would serve their own self-interests. Any manufacturer that turns a blind eye to tainted minerals in its SEC filing -- a permanent record -- risks consumer outrage and, should shareholders lose money in a related price decline, lawsuits.
A handful of companies have shown that significant strides can be taken -- without boycotting the Democratic Republic of Congo and thus harming its economy. Intel Corp., for one, announced in January that all its microprocessors are free of conflict minerals. Royal Philips Electronics NV, Motorola Solutions Inc., Research in Motion Corp. and Nokia Oyj are participating in closed-pipe programs in the DRC in which a defined set of conflict-free enterprises cooperate in a supply chain. The Conflict-Free Smelter Program, a technology industry initiative, has certified 85 of the estimated 500 smelters in the world.
To ensure greater transparency in next year's filings, the SEC should investigate companies whose reports were especially unsatisfactory and levy fines -- as the agency is empowered to do -- that are large enough to deter future noncompliance. Customers can then find out how companies have shirked a minimal responsibility to help end the sale of conflict minerals.