The squabble over conflict minerals just won't go away. Congress passed a law that it thought would end the problem, and it turned the implementation over to the Securities and Exchange Commission. But the staid agency seems to have gotten itself entangled in a situation with more twists and turns than the US tax code.
President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law in July 2010, and the SEC planned to release its regulations on the act's conflict mineral provision before the end of 2011. Late last year, the agency moved the goal again. This gave electronics manufacturers another break in their long fight to ensure they can comply with the legislation. The guidelines are still under review and will be issued in the next six months — if everyone can agree on the terms and conditions.
Until it outlines and publishes the regulations, the SEC cannot enforce compliance with the conflict mineral provision. In effect, this might mean companies don't have to comply fully with the law. Or does it? I believe the delay in publishing the guidelines doesn't quite excuse manufacturers from obeying the intent of the law. In fact, anecdotal evidence provided by the IPC, a trade group for the electronics interconnect industry, indicate many suppliers have simply avoided buying raw materials from the war-torn parts of Africa referred to in the act.
The IPC is thrilled with the delay, because it believes the Dodd-Frank provision puts an unfair and onerous burden on component manufacturers and OEMs to prove that the raw materials of their products were not sourced from war-plagued areas where children have been used or are being used for mining. In an email to me, an IPC spokesperson further explained what the delay means for its members:
This means that companies whose fiscal year is the calendar year should have an additional year before having to report on their use of conflict minerals than they would have had the SEC issued the regulation in December. Of course, we hope that the SEC will include the measures we proposed like an interim indeterminate origin category and a phased implementation, among others, in its final regulation. The efforts of IPC, its Members, and industry colleagues have had an impact in helping the SEC and Congress understand the practical difficulties presented in the SEC's initial draft.
The IPC says it isn't trying to stop the implementation of Dodd-Frank as it applies to conflict minerals. Instead, it wants the SEC to consider the obstacles in complying with a law that puts the onus of proving the “cleanness” of raw materials heavily on manufacturers, as well as the potential impact on the communities where the minerals are being mined. The spokesperson said many of the mines that were operating legitimately are being closed, while the warlords targeted by the act continue to evade its long arms by scrubbing the materials mined in territories under their control.
The law is obviously imperfect, but the conditions it aims to end — slavery-like mining of metals bound for the electronics market, and using the proceeds to fund civil wars in places like the Congo — are appalling to many in the Western world. The cause has often been championed by human rights organizations concerned about criminal activity at the mines. For these organizations, any steps to end the proliferation of these mines are worth supporting.
Others have argued that Dodd-Frank threw the baby out with the bathwater. Mines operated by local citizens, many of whom have no connection with the warlords, have been hurt by the legislation. Rather than engaging in potentially fruitless efforts to ascertain the source of raw materials from these war-torn countries, many electronics manufacturers have simply refused to buy components from these countries. For OEMs and component suppliers, trying to prove these materials were sourced legally can be expensive and can easily degenerate into a public relations fiasco.
Will the SEC regulations, when finally adopted, help manufacturers sort out these thorny issues? I doubt it. By the time the regulations are proclaimed, more electronics manufacturers will have decided to stay completely out of the fray. The human rights organizations will have moved on to another front-burner issue. Legitimate miners will be out of business, and the warlords will have perfected the act of buying safe passage for their illicit products.
Dodd-Frank meant well, but winning this battle depends more on having stable, law-abiding governments in these contaminated mining zones.