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Compliance Lagging on ‘Conflict Minerals’

Electronics manufacturers have a long way to go before meeting the requirements imposed by regulators for the use and production of conflict minerals, according to a new research report from industry watcher IHS Corp.

The research firm said up to 90 percent of electronic companies “have not produced the data, declarations, or documentation that will help fulfill regulatory requirements detailing the presence of such minerals in their supply chains.” IHS added those minerals — including tantalum, tungsten and gold — that are used in the production of a wide range of electronic equipment and are heavily mined in war-torn parts of Africa, with proceeds furthering the conflicts (hence the term “conflict minerals”).

US regulators have taken steps over the last two years to end the use of minerals produced illegally in places like the Congo and have succeeded in imposing strict rules on both the suppliers and end-customers of the raw materials. OEMs and component suppliers must now certify the sources of such minerals used in their equipment and offer proof that they were not patronizing illegal miners. The rules are enshrined in Section 1502 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. A final ruling on the implementation of the Dodd-Frank Act was issued by the US Securities and Exchange Commission in August.

While suppliers and their end-equipment maker customers still have almost two years to achieve full compliance, industry organizations like IHS have been busily tracking compliance levels. Since the rules have been in effect for quite a while, it had been expected that manufacturers would be further along in scrubbing their operations of these products. At the very least, they were expected to demonstrate and be able to provide documentary evidence showing a higher level of compliance.

“Large electronic original equipment manufacturers (OEM) use tens of thousands of parts that must be examined to determine their conflict mineral content,” said Rory King, director, supply chain product marketing at IHS, in the statement. “The next 19 months really is not very much time to communicate, collect, analyze, and prepare information on mineral sources across a globally diverse, multi-tier value chain, in order to determine conflict minerals content and develop reports that comply with the SEC rule.”

The IHS report represents another black eye for the industry. Leading industry associations such as the IPC lobbied the SEC and politicians to grant electronics manufacturers additional time to achieve compliance. The IHS report seems to imply manufacturers are either not too concerned about the implications of the SEC guidelines or believe they still have adequate time to comply with the requirements.

The researcher said its investigations show only 11.3 percent of the companies polled had information available on their use of conflict minerals. The group represented companies that “account for 17.1 percent of active electronic components on the market.” IHS said further:

    Utilization of conflict minerals is widespread in the electronics market, employed in all kinds of products, from cellphones to hearing aids, to pacemakers and jet engines. For example, IHS estimates that $0.15 worth of tantalum — a conflict material — was contained in every smartphone shipped when Dodd-Frank was originally signed in 2010. In 2012, this would amount to $93 million worth of tantalum in smartphones alone.

The number of companies affected by the SEC guideline on conflict minerals is immense. Up to 6,000 companies may be directly affected, with another set of companies (numbering in the hundreds of thousands) indirectly affected either as suppliers to the initial group or as support services providers. This could hurt the electronics supply chain if the SEC starts enforcement when the industry isn't prepared to demonstrate compliance, IHS said.

“IHS has been gathering information on conflict minerals for more than two years,” said Greg Wood, director, product management for IHS, in the statement. “Our conflict mineral data is not based on a survey or estimate, but rather was developed using data provided directly from companies, including environmental declarations, part descriptions and compliance documents. IHS has led the way on conflict minerals and has begun to incorporate conflict minerals documents, declarations and descriptions into our innovative solutions.”

That's the scary part. If the IHS numbers are not based on estimates and represent actual figures showing the level of industry compliance, all segments of the electronics supply chain could be in for a rough ride over the next 18 months as companies tighten compliance requirements. If OEMs — waking up to the legal jeopardy they could face from regulators — suddenly require documentation on conflict minerals from an unprepared supply base, their entire operations could grind to a halt.

While the regulatory deadline may be important, companies could also face challenges from continuing efforts to remain compliant with the conflict minerals guideline. By setting up and testing the processes for compliance now, companies can ensure their system and operations remain in constant compliance with regulatory requirements. Their public image and the bottom line could be hurt if they can't continue to maintain compliance.

30 comments on “Compliance Lagging on ‘Conflict Minerals’

  1. R.J.Matthews
    October 25, 2012

    Well some progress is being made…

    http://www.enoughproject.org/blogs/us-companies-making-strides-be-conflict-free-congo-despite-industry-lawsuit

    But not enough..

    http://www.globalwitness.org/library/gutless-companies-launch-lawsuit-avoid-coming-clean-conflict-minerals

    The reality is that the more things are delayed the more people are going to die it is that simple.

    Do people really agree with the American chamber of commerce and NAM who want to let things continue to go downhill till we are looking at hundreds of thousands deaths again, just because new rules seem burdensome?

    Time has already run out….

    The latest round of fighting in eastern Congo has been triggered by a new rebellion known as the M23, which is led by indicted alleged war criminal Bosco Ntaganda and backed by theRwandan government.

    Bosco Ntaganda, a career warlord, made a fortune trading conflict minerals in the years leading up to his latest insurrection.

    According to UN investigators, the M23 has also been receiving financial support from minerals traders in Rwanda. Since April this year the fighting has displaced nearly half a million people.

    Rwanda vigorously denies the latest allegations contained in the report of a panel charged with monitoring Congo's arms embargo, which said Kabarebe has armed and given military backing to the M23 rebel movement.

    Fighting between M23 and Congo's army has displaced nearly a half million people. The Tutsi-dominated insurgency, which took up arms in April, is expanding its control over parts of North Kivu province with additional financing from Rwandan businessmen trading in smuggled Congolese minerals, the report stated Previous U.N. reports have documented lucrative smuggling rackets ferrying coltan, tin, gold and tungsten ferried across to Rwanda.

    At the height of Congo's last war in 1999, profits from eastern Congo's mineral fields contributed some $320 million to Rwanda's defence budget, U.N. experts said.

    Congo's Information Minister Lambert Mende says the pattern of war for mineral wealth has resumed, and the latest rebel campaign is an extension of a Kigali-backed “war of pillage”.

    “The (Rwandan) mafia profit to the maximum from the disorder, not paying anything to the Congolese state,” he said.

    Noel Twagiramungu, a Rwandan human rights activist who fled his country in 2004 when civil society groups came under pressure, also said money was at the root of the intervention.

    “I think we can say that Rwandan involvement in Congo minerals is a state-controlled enterprise,” he said.

    “Action this day” is the sticker that Winston Churchill would attach to documents in order to strongly communicate that he wanted something done, now.

    http://www.winston-churchill-leadership.com/trait-action.html

    http://www.mineweb.com/mineweb/view/mineweb/en/page31?oid=160337&sn=Detail&pid=31

    http://www.reuters.com/article/2012/10/19/congodemocratic-rwanda-kabarebe-idUSL5E8LJQB320121019

    http://www.defenceweb.co.za/index.php?option=com_content&view=article&id=28130:insight-ethnic-economic-interests-entangle-rwanda-in-congo&catid=54:Governance&Itemid=118

     

  2. Houngbo_Hospice
    October 25, 2012

    @R.J.Matthews – Congo leaders shoud take responsibility and cease putting the blame on others. The situation is well over their head and they have shown their inability to protect their people.

  3. R.J.Matthews
    October 26, 2012

    If it was not for the conflict mineral angle the DRC could have dealt with the conflict that's the point Hospice. The M23 rebels numbered just a few hundred in April and were surrounded by government forces but they are being sponsored by Rwanda who benefits from the instability through the conflict mineral trade and the rebels are being financed through the conflict mineral trade directly.

    The DRC are over their head with dealing with
    international supply lines funding the conflict which is alone which is why Dodd Frank is so important.

    https://www.itri.co.uk/index.php?option=com_zoo&task=item&item_id=2574&Itemid=177

    There are programs taking place within the DRC but without Dodd Frank they are likely to be undermined.

    Noticed a lot of blame the victim posts as part of the Rwandan disinformation campaign hope you understand why they are advancing those arguments.

    Rwanda should not being sponsoring a war and the international trade in conflict minerals should not be financing it, irrespective of the DRC's relative strength or weakness.

     

  4. bolaji ojo
    October 26, 2012

    What I don't understand is why more companies are not offering evidence of their move towards compliance. The implications are obvious. Either these companies just don't care or believe they still have enough time. Whatever the case may be the impression created by the IHS report is that these companies aren't taking this seriously. Or, don't get how important it is for regulators and the public?

  5. R.J.Matthews
    October 26, 2012

    The research is a bit deceptive Bolaji as more progress has been made by the biggest firms.

    The research firm said up to 90 percent of electronic companies “have not produced the data, declarations, or documentation that will help fulfill regulatory requirements detailing the presence of such minerals in their supply chains.”

    If you added up the market cap(size) of the firms that are taking action and compared them to the firms that are dragging their feet you would get a different picture so it is not a totally hopeless struggle.

    http://www.raisehopeforcongo.org/companyrankings

    The bigger firms are probably not anymore ethical than the smaller firms it is just they have a lot more to lose image wise.

    Another reason is the whole thing has dragged on so long people will leave it to the last minute. It is a bit like Christmas it seems to start just after Halloween nowadays but you still get masses of people doing their shopping at the last minute.

    Do not see the solution as pushing Christmas back to August!

     

  6. Anna Young
    October 27, 2012

    R.J. Matthews, I hope you are right that the companies are just getting a late start. If that's the case (and these are responsible companies) then there shouldn't be any reasons to be worried. If the research is also not accurately showing what's already been done and what is being done, then that's even much better. Your analogy comparing this with Christmas is also great. Hopefully, shopping late will be as rewarding as the bargain early shoppers get.

  7. Anna Young
    October 27, 2012

    Bolaji, There's another possible explanation. Perhaps these companies don't just want to talk with IHS. Maybe they are in contact with regulators and believe this is more than enough. I mean, how much value is it to them to talk with analysts.

  8. Anna Young
    October 27, 2012

    You brought up a valid point. We know what Western companies should be doing and we have some idea of what exactly they are doing because of information from companies like IHS. What is the govenment of the Congo doing, does it agree it should halt the mining of conflict minerals in the ways the West find disturbing, does it have the means to police its territory and the ability to do it?

  9. R.J.Matthews
    October 28, 2012

    There are several other reasons as well Anna some firms will site on the sidelines till any legal challenge is cleared and others might be hoping that Romney (if he gets in) will trash any regulations that can be portrayed as anti business.

    This is a bit naive as the issue will not go away unless it is dealt with and if it is not dealt with it will just move more and more into the spotlight as recent events in the DRC demonstrate. Also if activists cannot get enough action at a national level they are more likely to switch their focus onto individual companies that are dragging their feet on the issue.

    The reason this has largely not happened before is that NGO would rather work with the electronic manufacturers and anyone else who can help unlike the American Chamber of commerce and some others who just try to block any progress.

    I do not care personally who leads the way small companies, big companies, democrats, republicans, the tech industry or the jewellery industry. It would be nice to see a bit more leadership though.

    Think you will see a lot more action in the DRC itself, as the longer present conflict goes on, the more political fallout there will be, especially if the conflict gets worse threatening to bring the DRC government down or a wider war.

     

  10. Houngbo_Hospice
    October 28, 2012

    @R.J.Matthews

    “Rwanda should not being sponsoring a war and the international trade in conflict minerals should not be financing it, irrespective of the DRC's relative strength or weakness.”

    That`s right. If Dodd Frank can help prevent financing the warmongers in the DRC, it is fine. But I have the impression that the country's problems have more to do with bad governance than the failure to police the trade of the minerals. 

  11. Houngbo_Hospice
    October 28, 2012

    @Anna Young,

    “What is the govenment of the Congo doing”

    Very good question. I believe that the regulations should also be accompanied by a profound reform in governance.

  12. Anna Young
    October 29, 2012

    You are right. The antidote for bad governance is for the international community to get involved but we've seen with the example of Somalia that this doesn't always work out. It would be a nightmare in the case of the Congo. So, we are left with the tinkering of Dodd-Frank.

  13. Anna Young
    October 29, 2012

    Who's going to take the lead in instituting the reform you suggest? The government of the Congo has a civil war on its hands and may not even care about the reforms you suggest.

  14. R.J.Matthews
    October 29, 2012

    Anna Young/Hospice Houngo think politicians minds are suddenly concentrated when it is their future at stake so you can certainly bet they care now!

    Agree that many DRC institutions are not that strong and certainly they cannot handle the international problem of the conflict mineral trade on their own.

    The reality is that reforms in general governance in the DRC are going to take years if not longer and anyway can happen at the same time as reforms elsewhere.

    Even if the DRC was a better functioning society it might still struggle, if you look at the drug trade plenty of better governed countries have trouble dealing with it and it takes multinational cooperation to make sure the problem is not even worse.

    In the same way people should not buy drugs that will go to finance terrorists and criminal gangs there should be the same concerns about conflict minerals.

     

  15. Houngbo_Hospice
    October 29, 2012

    @R.J.Matthews

    I can see you are a very wise and objective person. You are right when you said that the international community should unite to fight criminal activities, but we should not forget that the task may be much easier if social justice is first enforced in unsable regions.

  16. Houngbo_Hospice
    October 29, 2012

    @Anna Young,

    The government of the Congo has a civil war on its hands and may not even care about the reforms you suggest.

    Then the priority here is how to put an end to the civil war. But apparently, this will not happen … tomorrow.

  17. R.J.Matthews
    October 29, 2012

    Came across an article that might interest you Hospice Houngbo. Some efforts are taking place but the money from the conflict mineral trade seems to make every other problem worse making it too easy to turn to the gun to settle disagreements.

    http://www.voanews.com/content/drc_revises_land_policy/1534278.html

    GOMA – Farmers organizations have been meeting in the eastern Democratic Republic of Congo to discuss changes to the country's land law, which is being revised. Experts say the current law, mainly dating from colonial times, is out of date and failing to prevent conflict. The land problems are acute in the country's North Kivu province…

     

  18. Houngbo_Hospice
    October 29, 2012

    @R.J.Matthews,

    Thanks for the article. It is true that many laws need to be revised in the country including the laws governing land ownership. It is sad to hear that “it is difficult for local people to find anywhere to grow their crops” when we know that DRC possesses very vast areas that are yet to be exploited.  

  19. R.J.Matthews
    October 29, 2012

    Agree Hospice Houngbo the DRC should be a very rich country there is plenty of potential outside the mineral sector, the DRC should be able to feed most of Africa and supply all of it with electricity.

    Something that is often missed by critics of a crack down on the mineral trade.

    http://www.tradeinvestafrica.com/news/310850.htm
    “DRC has 120 million hectares of fertile land out of which only 2% are currently cultivated. The agreement is part of the government's efforts to improve food security,”said Prof. Buabua

    http://www.anapi.org/en/spip.php?article607
    Over 120 million ha of arable and fertile land conducive to agriculture are concentrated in DRC. The weather allows a wide scale spread of agricultural activities throughout the year.

    http://www.newera.com.na/articles/45337/DRC-targets–Namibian-farmers

    The DRC government requested Namibian farmers to farm on vast swathes of unoccupied arable land available in that country and to engage in both crop production and animal husbandry to benefit both countries and to improve food security.

    http://www.mbendi.com/indy/powr/af/zr/p0005.htm

    Although the DRC has 60 percent of Africa's hydroelectric potential, only 7 percent of the country's population has access to electricity. Lack of local demand has led the DRC to export to SINELAC, Angola, Burundi, the Congo, Rwanda, Zambia and Zimbabwe.

    In 2001, electricity production was 5.243 billion kWh, of which 3.839 billion kWh was consumed and 1.097 billion kWh was exported.

    The DRC has the potential to produce 150,000 megawatts of power, approximately three times Africa's present consumption.

    The Congo river is the most magnificent wealth of the country. Second only to the Amazon river in terms of water volume, it stretches a distance of almost 4,300 kilometres. For electricity production as well as water, the potential of the Congo river remains largely unused.

     

  20. Houngbo_Hospice
    October 29, 2012

    @R.J.Matthews,

    “Although the DRC has 60 percent of Africa's hydroelectric potential, only 7 percent of the country's population has access to electricity.”

    That's a real concern. The leadership is “probably” living in opulence while the majority of the population is living in poverty and want – . What do we call that? I can't help thinking that most of the concolese people problems are caused by bad leadership and the lack of vision. Soun like “the beautiful ones are not yet born”.  

    Thanks for all the interesting references.

  21. Anna Young
    October 31, 2012

    R.J Matthews & Hospice, you're correct and I agree DRC reforms will not be an overnight task.

  22. R.J.Matthews
    October 31, 2012

    Government reforms are always slow Anna Young, with the right incentive and a little over sight the private sector will almost always be more efficient in bringing in change.

    Which is why the Dodd Frank conflict minerals rules are so important along with the cooperation of the private sector with them.

    If companies are not efficiently run they will be wiped out by their competition but whoever you vote for, the government always gets in Lol.

    Western government have dreadfully neglected Africa and the DRC especially, where it comes to focusing on problems and opportunities.

    Strategically the DRC is to minerals what Saudi Arabia is to oil and economically the DRC could be another Brazil or India with its potential mineral, Hydroelectric and agricultural wealth.

    The Chinese seem to realize this with their deal making in the DRC but seems the west has been very slow to absorb the fact that events in the DRC can simply not be ignored.

     

  23. Houngbo_Hospice
    October 31, 2012

    @R.J.Matthews,

    “Which is why the Dodd Frank conflict minerals rules are so important along with the cooperation of the private sector with them.”

    We hope Dodd Frank will be the panacea to the DRC conflict minerals problems. But what if Dodd Frank fails? Do we have any backup solution?

  24. R.J.Matthews
    October 31, 2012

    http://solutions-network.org/site-solutionsforhope/

    Hospice Houngbo would say the solution for Hope has a good chance of changing things it utilizes a closed-pipe supply line and working with artisanal miners, smelters and manufacturers. It was planned to roll it out more widely but progress has been slowed by the present conflict in the Kivu's. The faster Dodd Frank is brought in the more backing it is likely to attract from industry.

    After that the conflict free smelter program could have a major impact as it is a pinch point in the supply of conflict minerals but it needs more smelters to sign up and if Dodd Frank is scrapped or delayed that means there would be less incentive for smelters to do so.

    No way of getting around the fact that any delay in Dodd Frank is bad and if it was scrapped it would be a disaster leaving it up to individual firms what actions to take over the problem of conflict minerals.

     

  25. bolaji ojo
    October 31, 2012

    R.J. Matthews, Do you see this topic being put to rest anytime soon and what will it take to get us there?

  26. R.J.Matthews
    October 31, 2012

    Ok Bolaji Ojo will give the topic a rest till it comes up again i cannot help being a last word freak Lol.

  27. bolaji ojo
    October 31, 2012

    R.J. Matthews, I think you misunderstood me. That was really an important question and I wanted your opinion on what it will take for the industry to put this subject behind it and whether that will eventually happen or whether it is something we'll continue to see in the news. I asked because it is obviously an important subject and EBN readers seem to be very interested in it. What should the industry do to avoid getting a nasty reputation?

  28. bolaji ojo
    October 31, 2012

    Reform the DRC? That's a longer term project that can be done only by the people of the DRC with the help of the international community. There are too many things in the country that political leaders need to pay attention to at the moment and the subject of the Conflict Minerals may not even be a priority forthem. At least, it doesn't seem like that at the moment.

  29. R.J.Matthews
    November 1, 2012

    Apologies Bolaji i did misunderstand you. The first step is the scrapping of the U.S. Chamber of Commerce and the National Manufacturers Association Lawsuit challenging SEC rules on conflict minerals. As long as this goes on it will prolong the issue being in the headlines and postpone solutions to the problem.

    Nothing is really gained by this lawsuit as every kind of concession was already squeezed out to get the bill passed, and win the Sec vote, so there is no room for further concessions.

    If the lawsuit was won by thus US chamber of commerce the push would then probably be for laws that are a lot harsher as lot of activist and NGO's think too much has been given away and some think there should be some kind of punishment apart from the tarnishing of reputations of firms a and individuals.

    Only winners at the moment are the lawyers.

    Tech firms could easily improve their reputation by less fence sitting and making it clear that the NMA and the U.S Chamber of commerce does not represent their views in this case. If enough of them put the pressure on, the lawsuit will be dropped, the length of time the chamber of commerce and the NMA waited and the timing of the lawsuit at the same time as all eyes were on the presidential race, suggest to me that they may well be a bit ashamed about the action anyway.

    If and when the Dodd Frank is no longer endangered it would be simple for electronics industry to be the good guys. They have a head start on other sectors of industry on their level of knowledge of the issues and have some of the best if not the best supply chain professionals.
    A massive part of it is a supply chain problem and this is where the kind of people who post here can really have an impact.

    No point in me listing all the ways as you all have a lot more idea than me about problems in a supply chain and how to tackle them.

    Once NGO's governments and the electronic sector are working together the pressure will shift onto other targets anyway.
    http://www.theepochtimes.com/n2/world/gold-not-minerals-fueling-congo-conflict-307474.html

    Gold has become a much bigger factor with the rise in its price once enough progress has been made by the tech firms the NGO's will obviously move their focus onto the jeweller,y gold and smelter sectors along with other parts of the supply chain.

    Give it a year or two and some of the people here could be lecturing people in other industrial sectors on how to solve the conflict mineral problem like the Tech sector!

     

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