The provision is intended to encourage companies to do more to make sure the tantalum, tungsten, tin, and gold in their products do not come from illegal sales of materials from mines in the Democratic Republic of Congo (DRC). Those sales are believed to be financing rebels in the country's civil war, a war in which millions have died. An anti-genocide group, the Enough Project, links the Congo violence to the use of these minerals in consumer electronics products such as cellphones, computers, and TVs.
According to a recent KPMG summary, the final rule requires a company that uses these minerals to annually disclose information about their origin. If the company knows, or has reason to believe, that the minerals may have originated in the DRC or an adjoining country, or that they may not be from scrap or recycled sources, the company is required to perform due diligence on the source and chain of custody, and to submit a report on that due diligence to the SEC.
The rule applies to public companies that trade on a major US exchange, which means it will affect almost 6,000 domestic and foreign issuers. Nonpublic companies that are part of the public company's supply chain may also be affected.
However, it appears that the SEC heeded industry lobbying to delay full implementation of the law. According to an article in Supply Chain Brain, for the next two to four years (depending on the size of the company), those subject to the rule can simply identify their products as "DRC conflict undeterminable," which relieves them of the requirement to get an independent audit of their conflict minerals reports.
A Tulane University study conducted last fall, which drew on data gathered by the Association Connecting Electronics Industries (IPC), assessed the costs of implementing the rule to be almost $8 billion, more than 100 times greater than the SEC's original estimate.
"The Tulane study underscores the need for the SEC to be conscious of the high costs of implementation," said Tony Hilvers, IPC vice president of industry programs. "The SEC must utilize all reasonable options to lessen the burden of implementation, the most important of which is a phasing-in of the regulations to allow industry the time to work with their complex global supply chains to develop traceability and compliance data."
This fall, the IPC has scheduled a series of seminars in Boston, San Francisco, and Chicago to help explain the requirements of the new rule. (For more information, contact the IPC's Fern Abrams at FernAbrams@ipc.org.)
The final SEC rule is available through this link.
I don't think employees would hurry to volunteer anyway if an electronic company wants to send them to a conflict minerals zone. That type of offer isn't so great.
I'm sure those big companies don't send a supply employee over to Ghana to deal with the mercenaries... there are probably several levels of intermediaries that make it difficult, even for the experts to trace it back to Ghana.
Bit of a pyrrhic victory for industry Tam getting so many concessions and a phase in period as it means NGO's will keep highlighting the problem and pushing for change.
They could have put the whole issue to bed by being more reasonable as plenty of other areas NGO's would like to focus more on.
Recent events in the DRC mean more of a spotlight on the conflict mineral issue anyway.
Not sure who is going to win the race for the White house but noticed Romney is being portrayed as a heartless corporate asset stripper, so would not exactly look good if one of his first actions was scrap this law.
In the end one thing i think everyone can agree on is the input and actions of supply chain professionals will be vital in the way things play out.
I agree that the law is not that onerous. The industry won a significant concession in that companies can -for the next two to four years - avoid having to get audits by simply identifying their products as "DRC conflict undeterminable." That buys them time. And that time gives industry a real chance to change or even eliminate the regulation, especially if there is new leadership in Congress and/or the White House.
The pervasive militarism, prevalent sexual violence and vast mineral wealth in the Democratic Republic of the Congo (DRC) are linked.
It was with this in mind that, on August 22, the Securities and Exchange Commission (SEC) - the body which regulates the securities industry and markets in the United States - adopted the Dodd-Frank Wall Street reform act.
The act requires public companies to disclose whether minerals used in their products originate from the DRC or any adjoining country.
The silver bullet quote. A step in the right direction
To address this, industry has started trying to regulate the trade underlying the prevalence of sexual violence in the region. The International Tin Supply Chain Initiative (ITSCI) has been working on increasing transparency in accordance with Organisation for Economic Cooperation and Development's (OECD) rulings and, according to the most recent Enough Project report, a number of companies have started to take measures limiting the use of conflict minerals.
The Frank-Dodd law originally came about as a result of campaigning by groups such as Human Rights Watch, the Enough Project and Global Witness, and since the passing of the law in 2010, companies with registered trading houses have officially adopted the appropriate due diligence measures.
Seems think Africa press thinks pervasive militarism prevalent sexual violence and mineral wealth are linked and that Dodd Frank while not a silver bullet is a step in the right direction.
"The law is not as pervasive as you make it out?" Oh, really? I am familiar with the Elm presentation. It is very well done and provides an excellent overview of conflict minerals.
From the presentation.
One has to be a publically traded company (not any old company)
Considered outside the supply chain minerals that have been smelted or refined outside the covered country by Jan 31 2013.
Scrap is considered DRC conflict free.
The rules only apply to issuers who are manufactures or contract to manufacture. RCOI has only to be reasonably designed and performed in good faith.
The first report is not due to May 2014.
Drc conflict undeterminable available to all issues to 2015 (2017 smaller companies). The law does not mandate public labelling, Ban DRC sourced products.
Require material substitutions or changes in supplies. No penalties the enforcement mechanism is reputational risk.
Hardily the most pervasive or punitive law to ever be passed.
The main fall out is likely to fall on the smelters which i agree will impact on a lot of the supply chain including Chinese companies.
The NGO's are not blind to the importance of looking after the miners or think that Dodd Frank on its own will solve all the problems. http://www.enoughproject.org/blogs/new-enough-report-dodd-frank-decrease-conflict-minerals-trade-congo-smuggling
The Enough Project conducted interviews with more than 100 miners in North and South Kivu, the majority of which viewed the transformation to a clean minerals trade as a way to liberate themselves from slave-like work conditions.
Over the past year, many miners in the Kivus have changed livelihood strategies to working in conflict-free mines in neighboring provinces or in the agriculture or small business sectors. These miners, however, need greater security and increased start-up capital to succeed. On the success of measures the focus on the trade has already had some successes.
estimated 65 percent decrease in profit over the past two years for armed groups in eastern Congo from their trade in the conflict minerals of tin, tantalum, and tungsten.
The report also found that this financial strain, coupled with military pressure, has attributed to a 75 percent decrease in size over the past two years of the Rwandan Hutu FDLR militia, a notorious rebel group operating in eastern Congo.
"But what's certain is that 1502 is going cost many U.S. companies money and to an extent globally weaken their competitive position."
The act is going to cost money but not anything like some of the estimates being thrown around. The companies that are going to suffer most over their competitive position are those that suffer reputational damage by not having a clean supply chain whether they are American companies or not.
"The law is not as pervasive as you make it out?" Oh, really? I am familiar with the Elm presentation. It is very well done and provides an excellent overview of conflict minerals.
Yes, the law is pervasive. It impacts almost every publicly traded company and de facto their supply chain. Please don't minimize the significant impact of this legislation on companies or marginalize the argument away. Yes, there were some concessions including recycled materials but the reporting requirements will still be a significant burden to companies.
And more importantly, what is the effectiveness of the regulations? Again from an article in Think Africa Press, September 3, 2012 entitled Sexual Violence in the DRC: What Good is the Dodd-Frank Act?: "The Dodd-Frank law originally came about as a result of campaigning by groups such as Human Rights Watch, the Enough Project and Global Witness, and since the passing of the law in 2010, companies with registered trading houses have officially adopted the appropriate due diligence measures. But the act has not been a silver bullet.
"Chinese-owned businesses are not subject to the law and do not yet follow the Frank-Dodd requirements. To fully address the issue of conflict minerals, this blind spot will have to be examined. The act has also been criticised for placing the onus on companies and thus removing responsibility from the Congolese government even though corrupt government officials and groups linked to the Congolese army (FARDC) have played a significant part in controlling mines. Greater research into the identity of individual armed groups, their national and international partners and their mode of functioning would be necessary to make the law truly effective.
"Other criticisms address the virtual embargo on minerals from the region that has followed the act, the gradual closing down of mines, and the loss of work for countless Congolese workmen and local communities."
Let's be honest, the NGOs tend to minimize the cost of 1502 and maximize its positive impact on the DRC. They have to; either that or be party to the starvation of a group of people (artisanal miners) through this legislation. That wouldn't look good, now would it?
The jury is still out on the effectiveness of this regulation. But what's certain is that 1502 is going cost many U.S. companies money and to an extent globally weaken their competitive position.
Hilvan was ready to give you some credit over the fact the discussion is not just about money but then you went and had a catalogue of errors in your post!
The new law is not as pervasive as you make out and industry gained a whole slew of concessions.
Rather than make a long post even longer think you might find this helpful in better understanding the new rules and when and where they come into operation.
Industries progress on this issue has been held back by the delay in bringing and confirming Dodd Frank, unsurprisingly some companies have been waiting on the sidelines to see the shape of the final rules and whether the new rules would come in at all.
The early adopters can now benefit by having a level playing field and knowing the work they have put in has not been wasted.
With the smelter program this is especially true as not all smelters have signed up no doubt they were waiting to see how things would turn out as well with the ones with the worst record hoping that the whole issue would just go away.
Not all issues can be solved with just sending the in the marines or gunboat diplomacy and industry should have been focusing more on this issue a decade ago then more progress would have been made.
The article is a reprint from 24 of February and so is a bit out of date hence no mention of the present rebellion.
Other bits hardily support scraping Dodd Frank. On the other hand, many sources, including the UN Group of Experts, report that the move away from conflict mining has denied armed groups and criminal networks within the FARDC one of their key sources of income.
Although the introduction of due diligence practices has had unintended consequences for the mining communities, they have succeeding in what they were set up to do, namely to stem the flow in conflict minerals and deny armed groups the chance to exploit natural resources. Multi-faceted strategies
In the future, the changes in the artisanal sector fostered by due diligence guidelines and the Dodd-Frank Act are likely to remain, and the exploitation of minerals by armed groups will most likely continue to decline...
With the benefit of hindsight article did rather get it wrong as well over the CNDP.
An alternative avenue for such groups to maintain power, for example, presented itself during the recent National Assembly elections.
The Institute of War and Peace reported the use of intimidation of voters by former combatants and members of the National Congress for the Defence of the People (CNDP), a Kivu-based militia implicated in human rights abuses and trade of conflict minerals.
Obtaining political power by getting candidates into the National Assembly, it is thought, can enable groups like the CNDP to be less reliant on artisanal mining.
The implementation of due diligence practices must therefore not be the only response to the security situation in the eastern DRC.
CNDP and Bosco Ntaganda got a lot of concessions but they are still wedded to the conflict mineral trade along with Rwanda.
On artisanal mining generally the miners are largely pro the new rules as they are getting tired of being robbed killed or "taxed" of a lot of their earnings.
The present conflict in the Kivu's shows the consequences of allowing conflict mineral kingpins and the trade to prosper.
The solutions for Hope project covers artisanal mining collectives and has just got another boost.
The plan like the tagging is roll it out in ever increasing numbers and so clean up the trade and avoid companies avoiding the DRC.
Eventually with a cleaner trade the DRC is likely to gain an investment boom into is mining sector generally. Which over the long term outweighs temporary disruptions in the artisanal mining trade.
@hilvan: well said. A number of consultancies we work with emphasize unintended consequences in many aspects of the supply chain. Another classic example is REACH: for every chemical that is banned, another chemical will take its place. How are we to know at this point whether the substitute chemical is better or worse than the original? There is a body of research that points to lead, mercury and other materials being bad for people and the environment. There is not a lot of research on the substances that replace them (with the possible exception of lead-free solders--lots of stuff on that.) But to your point: we can run this stuff through academic models, but until it is tested in the "real world" costs are just an estimate.
Ok, so we have industry and academia conduct a study on conflict minerals. Through their research, they have assigned a dollar figure to the impact of the regulations and they are wrong because ... the numbers just don't sound right?
Think about the scope of Section 1502 of the Dodd-Frank Act. Every publicly traded company will have to report and this requirement flows down into every industry's supply chain every year.
But this discussion is about money and it shouldn't be. The issues in the Democratic Republic of the Congo are complex and passing a law like Dodd-Frank isn't going to magically change this tragic issue. What we now have collectively done is to force the business community to address an issue that the U.N. has tried to solve beginning in 1999 when they deployed troops to the DRC.
Voluntarily the electronics industry was making great strides to bag and tag minerals and create an audit program for smelters. Now, the law, as many of us feared, has created unintended consequences. From a September 11th article in Think Africa Press: "Unemployment and the drop in artisanal mining production need to be addressed by the DRC government and the international community. Aside from the obvious humanitarian problems posed by poverty, there is a danger that miners unable to support their families with legitimate mining activities may turn to less lawful means of income. Likewise, armed groups and criminal networks involved in mining may turn to other sources of income ranging from illegal logging to poaching, and continue to prey on local populations."
But let's not forget too about other countries in the Great Lakes Region of Africa which are also impacted by Section 1502.
Section 1502 created a whole new ball game in the DRC. It's now a costly program whatever dollar figure you assign with a whole host of unintended consequences.
We work with companies across industries on Conflict Minerals program management, cost management, and compliance assistance for over two hundred small, medium and large companies.
I would like to start by saying we have never seen such widespread early adoption of a transparency law.
In ten years of working in restricted material compliance, including global regulations such as Europe's hazardous substance law, its restricted chemicals law, and California's toxins and safe drinking water law, I have never seen so many companies becoming compliant before the final rules have come out.
I think in many ways we are far past the issue of can it be done and is it costly - it can be done and at lower-than-publicized cost.
If there was not any real incentive to comply you would have not had these companies getting on board.
Barbara on the IPC leadership they have hardly been neutral by their own admission but even they admitted that they got most of what they wanted.
http://www.ipc.org/ContentPage.aspx?pageid=IPC-Advocacy-Helps-Shape-Final-SEC-Conflict-Minerals-Regulation Following years of advocacy, IPC and its members are relieved that the conflict minerals rule approved by the U.S. Securities and Exchange Commission (SEC) today includes all of the key provisions for which the organization has been lobbying.
On buying the operations outright sounds a bit like the solutions for hope program http://solutions-network.org/site-solutionsforhope/ which is a good idea.
However would not be that easy for the international community to take over all the DRC mines bar some kind of international intervention on the scale of Iraq or Afghanistan. The size of Congo, 2,345,408 square kilometres (905,567 sq mi), is slightly greater than the combined areas of Spain, France, Germany, Sweden, and Norway.
The country already has a massive UN presence as well which is struggling. At the moment you have money being poured in on one side by the conflict mineral trade that is stirring up trouble and on the other massive amounts to finance the UN to try to contain that trouble which is madness.
Investment in the formal mining sector has been held back by corruption and the problems Dodd Frank is there to help fight.
On the compliance side i would think a lot of work will be done by the smelters as that is the natural pinch point in the supply chain. http://www.enoughproject.org/blogs/tin-tungsten-gold-smelters-time-go-conflict-free
Think the recent hacking by anonymous (though i think they went after the wrong targets and the actions were a bit counter productive) shows that some companies would be naive if they think they can carry on dodging the new rules indefinitely without being highlighted.
The NGO's that have been pushing for Dodd Frank have masses of information anyway on the companies and others that have been involved in the trade and are sure to keep the pressure on.
Qualcomm has launched a big push to spread its cellular technology, and thus increase its royalty income, not to mention chip sales, beyond mobile phones.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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