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.
When İ read about such regulations, sanctions and limitations, İ feel either some people live in a bubble or they simply prefer to take the easiest action to look like they are addressing a particular problem effectively. İf there is a war in a country and it needs financing, this can and will be done in a number of ways. Limiting the purchase of minerals is like scratching the tip of an iceberg.
Take İran for example. All UN and NATO countries are forbidden to carry out cash transactions with İran as far as İ am aware and yet İran does not seem to run out of money. This is because rather than paying for İranian imports in cash, some countries simply export gold instead and the problem is solved. As the saying goes "where there is a will, there is always a way".
Which drew on data gathered by the Association of connecting electronics industries last fall. Things have moved on a lot since then and industry has had many concessions to lessen the potential cost. Even before that the Tulane study looked way to high.
We have previously estimated that compliance to dodd-frank1502 will cost companies an average of 0.03% of revenue in the first year (reducing by 50% in each of the following two subsequent years) with the highest possible industry cost of $800m. Since that estimate, we have seen more efficiency from industry and our previous numbers are now a substantial over estimate.
The key reasons for differences between claigan's projections and other projections
provided to these are:
a) Claigan's cost estimates are based on real programs being implemented
b)Contrary to other cost models submitted to the sec, we assume that only those products that have conflict minerals' intentionally added' will be reported on. This will exclude common materials where conflict minerals naturally occur, like steel.
c)Sec staff has indicated the conflict free smelter program would meet the due diligence requirements of dodd-frank 1502, and claigan assumes that also.
d)Claigan assumes the third-party audit requirements in the sec rule wil lnot require companies to send third party auditors to their suppliers or to the drc–this was congress's intent.
Notice claigan was very accurate over its guesses over how things were going to play out.
Some organizations of course have had a incentive in the past to exaggerate the costs of implementation and there is still the possibility of the chamber of commerce to play thisgametosinkthenewrules.
Think generally though business is being persuaded.
But the story is not that simple. To complicate matters, the sec has been increasingly targeted in rule making by industry and business groups, including the US chamber of commerce.
The chamber has also indicated that other dodd-frank regulations are within their cross-hairs, including conflict minerals regulations.
As owners of companies, investors should be alarmed by the attacks being levelled by the chamber of commerce and other industry groups against regulators. http://www.foxbusiness.com/markets/2012/08/27/conflict-minerals-shame-game-will-it-work/
"in theory, [consumers] are not going to want to buy products of warlords that are killing and raping people," she said."if that's the premise we're going on,the ruling makes sense."
Time to stop fighting the regulations and work on making them work.
While the final rule is not perfect, it moves the conversation forward. The rule gets companies that use conflict minerals to report,and gives actors that care about this issue and want to invest in congo, like intel, motorola, kemet and hp, the terms by which to operate.The enough project will continue to laud companies working to eliminate the trade in conflict minerals,and bring to the attention of the sec and the public companies who are not.
Such rules might work better if those that should know better did not break them Cryptoman.
The conflict mineral trade in this case is having a massive effect with a leader of a rebellionin the Drc having made a fortune through the trade and getting support from a country that is also making a lot of money fromthe trade.
Old as time the problem of countries being exploited for their natural resources, all the way from the ancient civilisations conquering counties to get slaves to Japan with its greater east asia co-prosperity sphere(during the second world war)and Saddams invasion of kuwait.
Just because it is hard tototally eliminate a problem does not make it right to do nothing to diminish it.
Recently I was aware about a tensile strength issue related to a component in the automotive industry, after some investigation the company find out their supplier was sourcing the raw material ( including a blend of some minerals ) from what they call a mini mill supplier, wich means their source from either third world countries in Africa and moreover recicle material.
Minerals have becamo a conflict, mainly for the core element for speakers, which raised it's price up to 400% in the last year.
Interesting bit here on recycling there should not be any reasonable excuse for suppliers to push the price up significantly especially by 600 percent!
Industrial metal prices generally have reduced a lot due to the economic downturnone of the few metals to go up is gold so unless the element is largely gold think the price rise is a bit extortionate.
Funny how so many of the regulations that business decries end up yielding bottom-line benefits. We saw the same phenomenon in the wake of new security measures mandated after 9/11. The much-maligned 24-hour rule for filing vessel manifests with u.s. customs and border protection ended up giving importers better information on the status of their shipments. Similarly, sec's conflict minerals rule could equip manufacturers with deeper intelligence about thei rsupplychains, while boosting their brand reputation with consumers.
Complaints about regulatory burdens and overbearing government not withstanding, there needn't be a conflict between good business and a dedication to human rights.
The $8 billion mentioned in this article was the figure I was casting for in Douglas' REACH article as well. $8 billion is the estimated cost to the electronics industry to comply with Dodd-Frank, which, as you point out, simply requires due diligence and not compliance.
The "origin undetermined" assessment is merely a loophole for companies that can't or won't change their supply chain. Brilliant!
$8-billion is the estimated cost just for due-dilligence? You could BUY the DRC for less than $8-billion! With an average monthly household income of around $20 I-mean, really, let the U.N. broker an offer.
Q: Is there an estimate for the cost of compliance?
Once industry collectively blows $8-billion on due-dilligence (that almost certainly won't achieve the wishful results) I can imagine compliance legi$lation won't be far behind.
The eight billion guesstimate was inaccurate and wrong at the time and now looks even more wrong now Barbara, after several concessions to keep the costs down including the origin undetermined one. (see my first post).
The phase in period is wrong as well considering how long this saga has been dragging on already. It was certain sections of industry and the American chamber of commerce that pushed for it and others measures that mean the rules are not going to be as strong as they should have been. To many cases where the choice was saving lives or saving money and saving money won the day in my view.
The Sec was in a difficult position though and trying to get a balance of compromise between keeping the cost down and keeping the opposing views happy with the threat of legal action hanging over them if they got it wrong.
No argument that no one is totally happy with the result but i guess that old saying about politics being the art of the possible is true. Hence
http://www.globalwitness.org/library/us-securities-and-exchange-commission-votes-landmark-rules On the other hand.
The intent of Section 1502 of Dodd-Frank (and thus of SEC) was not to mandate penalties for sourcing minerals from mines controlled by armed groups in conflict-afflicted regions. Instead it relies on the adverse reputational effect of such disclosure. Reputable companies would want to avoid having their name associated with armed conflict, human rights violations, slavery and rape.
Effectively from day one unscrupulous and corrupt companies could ignore Dodd Frank but they run the risk of massive reputational damage and pariah status. That has not really changed.
Industry has been increasingly won over by the argument for Dodd-Frank though and this is likely to increase as the benefits become more obvious and the costs are shown to be have been exaggerated by some.
The main benefit being that a lot of good will be done and lives saved.
The $8 billion is a number some genius pulled out of a hat for the industry. Can anyone truly say they can accurately assess the cost of compliance to the industry?
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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