On Tuesday, the United States Securities and Exchange Commission held a public roundtable to discuss the agency's required rulemaking for how companies are supposed to "track and report" usage of conflict minerals. (Click here for the video of the two-hour meeting.)
The SEC was given the job of rulemaking by Congress as a result of the passage of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Obama signed into law over a year ago. The provision requires companies to submit an annual report to the SEC describing how they exercised due diligence in sourcing so-called "conflict minerals," including an independent private sector audit and a description of the products manufactured that contain the conflict minerals.
"We are committed to writing an effective rule as soon as possible, and the roundtable will help us do that," said Meredith Cross, director of the SEC’s Division of Corporation Finance, in an SEC statement prior to the hearing.
Electronics was represented by a number of companies including AMD and Tyco Electronics, together with executives from Kraft Foods, Boeing, Ernst & Young, and others.
The Dodd-Frank Act defines conflict minerals as those sourced from mines in the Democratic Republic of the Congo. They include gold, columbite-tantalite (coltan), cassiterite, wolframite, or their derivates or "any other mineral determined by the Secretary of State." These minerals are sources of tantalum, tin, and tungsten, all of which are used in electronics components, along with gold. The DRC produces about 18 percent of the world's tantalum, 7 percent of its tin, and about 3 percent of its tungsten.
There's a well documented connection between the mining of these minerals and the decades-long humanitarian crisis in the Congo that's claimed some 5 million lives, according to the UN and human rights groups. Armed groups and military units illicitly tax minerals at mines and along transport routes and generally abuse and harass workers. "The minerals trade is not the root cause but one of many factors perpetuating the conflict," according to a September 2010 report by the US Government Accounting Office.
The electronics industry has known about conflict minerals for many years. I remember the tantalum capacitor boom in the early 2000s when prices were sky-high and for a while tantalum capacitors became extremely scarce. It was then that we first learned that the shortage was caused by short supply of coltan coming out of the mines in the Congo. No one was overly concerned about the conditions workers faced in the mines. They just wanted to book their order of capacitors before the price went up again.
The sentiment at the US Department of Commerce and within the electronics industry is that while Section 1502 is well intentioned, requiring a whole new reporting bureaucracy is wrong-headed because it adds cost. I'm told that even politicians and business leaders in the DRC and Rwanda are telling the US they appreciate the spirit of the Dodd-Frank Act, but they are losing business because of Section 1502.
Still, the SEC is scheduling to adopt 1502 rules regarding disclosure related to conflict minerals by the end of the year. OEMs would be wise to survey their supply chain partners and ask probing questions about the origins of the materials they use. If your company is not already making these inquiries, you should start now.
There are two other things you should be doing besides asking questions, says Tom Valliere, senior vice president at Design Chain Associates LLC (DCA) . The first is to review your "content database." That's the one you created for RoHS and REACH compliance that tells you how much of what materials are used in any particular component and part. And it's the database that you'll need to update with point-of-origin data when the time comes to comply with the SECs rules for reporting.
In addition, you should start to actively monitor developments at the SEC. He also suggests getting involved in your trade association's activities around Section 1502. Valliere believes there's a valid business case to be made for knowing where parts, materials, and raw materials such as gold and tantalum are sourced.
Think about what happened after the earthquake in Japan this past March. Parts that manufacturers had no idea were being made in Japan suddenly were in short supply, causing production lines to shut down. If they had a point-of-origin database, they could have made a quick assessment of their exposure to the risk and adjusted accordingly.
Visibility across the supply chain is murky at best. Adding another layer of information will, in the long run, prove to be a good thing for business as well as being a legal requirement.
Does tracking conflit materials mean stoping buying them? If so, this will surely help stop many trouble in "poor" emerging country. Armed groups usde to control the mojor part of the mining sites and civilians including women and children are forced to work in very dreadful conditions. That is what most electronics end users are not always aware of.
I watched the SEC roundtable. It seems the SEC has gotten much feedback to date, but that they obviously need even more to resolve affected party concerns. Still alot of uneasiness with this rule. Industry has concerns as does the investment community and the Congo.
I was glad the SEC held this roundtable before finalizing their rule. The questions they posed to participants was telling. The SEC seems unsure about many issues. What issues to cover, what to cover/exempt, what time is needed by industry to responsibly comply, etc.
My feeling is it will be at least another month before we see anything from the SEC. What will be in the final rule? I have read as much as possible on this topic but it is still unclear to me.
@Kmanchen - Yes, there's a lot of unease by all parties. Frankly, I dount we'll see the SEC meet its self-imposed deadline of December to release the rule due to the pushback from industry and others. There's not a lot of guidance being given right now - the SEC is still in 'discovery' phase of the process. As I suggested in the blog, the best strategy for companies is to monitor the situlation and stay informed. I'll be reporting more on this issue as it evolves.
Our Congo-based company works with Congolese tribes to help them export without a dime going to conflict groups. Dodd-Frank has been disastrous for them.
I challenge the supporters to take a poll of those they are supposedly trying to protect. The response would tell them that, while Dodd-Frank was well-meaning, it is an unmitigated disaster in practice. COCABI, COMIMPA and COMIDER represent 20,000 miners in the conflict area.They all say they’ve never even been contacted.
There are six regions from which Dodd-Frank minerals are mined, and only one of them has ever had anything to do with conflict. Dodd-Frank has put them all out of business before it is even enacted.The World Bank says it has negatively affected 10 million Congolese.
I was in Tanzania last week to help a chief export his coltan using a visible, well-documented process that ensures not a dime goes to conflict. His people will go hungry because the smelters, citing Dodd-Frank, have vanished. The chief is devastated, as are the millions who find their meager livelihoods destroyed by this over-reaching act.
The issue with Dodd-Frank is that it is a nuclear option that demonizes minerals instead of criminals.It’s no different than burning down every house in town to stop a burglar from stealing, who will simply steal from somewhere else.Ludicrous.
Dodd-Frank has burned down the entire mining industry in the Congo in hopes that their scorched earth policy will catch a militia group in its path.They are willing to take down every innocent man, woman, and child who live off mining. Such massive collateral damage is not acceptable under any circumstance.
Remove mining from the equation and the militia will exact its pound of flesh from the locals by other means. This should be handled by targeting militias, not mining. Dodd-Frank takes the route of universal collateral damage, which, before the bill is enacted, has already destroyed the livelihoods of the innocents who depend on it.
@chuckblakeman. Thank you for the post. I've heard second-hand about the economic calamity that Dodd-Frank is causing in the Congo but you add valuable first-hand insight. The ciriticism of Dodd-Frank has been that it's a blunt intrument and you confirm this. The SEC is in a very tough position here between the legal requirement to introduce a rule and the pushback from NGOs, and business and political associations. I'll be reporting on developments as they unfold.
You forgotten to mention the working condision there. Also i Didnt get it, what you trying to say, stop let the things as it is, let us to continue in the same way ?
SEC is scheduling to adopt 1502 rules regarding disclosure related to conflict minerals by the end of the year.
@Bruce, what if the companies fail to disclose the data ? What action will be taken against them ? And how will SEC react if company disclosure says that it has used conflict minerals ?
@tirlipur good questions. When I spoke to the SEC the other day, the focus was on when the SEC would be introducing the set of rules that will govern the reporting. We didsn't discuss penalties for not reporting. I'll check back witth the SEC and update the blog with their response. Stay tuned.
It is interesting to see how after decades of deadly conflict in the DRC, that the government leaders (including Rwanda) would complain that they are losing money with this new law taking place. Granted there are times that we stick our proverbial noses into places it shouldn't be, but it makes you wonder what will ever change when the country’s own politicians would rather have the money instead of stability and human decency.
The tin industry, under the auspicies of the ITRI based in Belgium, has developed and tested a tracking system from mine to smelter. It's been shown to be 75 percent effective and needs to be taken seriously since it could be a partial solution. For an indepth look at conflict minerals in the Congo, see the book, Consuming the Congo: War and Conflict Minerals in the World's Deadliest Place (Lawrence Hill Books).
@Peter E You’re referring to the International Tin Research Institute’s standard. It's ironic that ITRI is based in Belgium considering the role that country played in exploiting the Congo. Here's another book recommendation: King Leopold’s Ghost, by Adam Hochschild.
Sorry, the ITRI is based in England, St. Albans to be precise. According to Canada's Globe and Mail, an organization called Partnership Africa Canada, received $1.6 million to develop yet another tag-and-bag tracking system, which the ITRI already devleoped and tested. It seems activists are more interested in talking about the problem than solving it. Once solved, then the spotlight and donations shifts elsewhere.
adding this extra layer of process could certainly result in increase of prices which again effectively will make the usa companies lesser competetive against the other companies in asia.
Intention of process is good. But in the end, how much effective it is to help those poor people to whom we try to protect. It is very intricate task and they must work very closely with those less fortunate countries.
@nemos. My statement wasn't a value judgement. It was an observation about the state of the industry in 2000. There was a disconnect between buying tantilum capacitors and the human rights violations taking place in the DRC. No one was making the connection. Now the industry knows a bit more about the connection. But not the consumer. As far as I can tell, the consumer is still pretty much clueless.
"Parts that manufacturers had no idea were being made in Japan suddenly were in short supply, causing production lines to shut down. If they had a point-of-origin database, they could have made a quick assessment of their exposure to the risk and adjusted accordingly."
This is true example of why better documentation is necessary. The extensive documentation can add some cost to the overall supply chain cost but any shortsupply due to natural or man-made disasters can be easily detected and the necessary actions can be taken quickly.
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