Use of ‘Conflict Minerals’ Gets More Scrutiny From U.S.
By EDWARD WYATT , March 19, 2012
WASHINGTON — An iPhone can do a lot
of things. But can it arm Congolese rebels?
That is the question
being debated by a battalion of lobbyists from electronics makers, mining companies
and international aid organizations that has descended on the Securities
and Exchange Commission in recent months seeking to influence the
drafting of a Dodd-Frank regulation that has nothing to do with the financial crisis.
(DO- seriously? It could
have something to do with financial crisis. The use of conflict mineral affect
reputation; the reputational risk is among the information investors are
interested in having access to; financial crisis in part resulted from a lack
of information that helps investors assess the business-associated risk )
Tacked onto the end of
that encyclopedic digest of financial reform is an
odd provision. It requires publicly traded companies whose
products use certain minerals commonly mined in strife-torn areas of Central
Africa to report to shareholders and the S.E.C. whether their mineral supply
comes from the Democratic Republic of Congo.
The measure is aimed
at cutting off the brutal militia groups that have often taken over the mining
and sale of so-called conflict minerals to finance their military aims. Just
about every company affected by the law says they support it, but many business
groups have also been pushing aggressively to put wiggle room in the
restrictions, calling for lengthy phase-in periods, exemptions for minimal use
of the minerals and loose definitions of what types of uses are covered.
Nearly every consumer
product that includes electronic parts uses a derivative of one of the four minerals:
columbite-tantalite, which when refined is used in palm-size cellphones and
giant turbines; cassiterite, an important source of the tin used in coffee cans
and circuit boards; wolframite, used to produce tungsten for light bulbs and
machine tools; and gold, commonly used as an electronic conductor (and, of
course, jewelry).
Given their broad application, the minerals have been a
primary target of humanitarian groups concerned about genocide, sexual
violence, child soldiers and other issues that have been common outgrowths of
conflicts in Central Africa.
“We don’t think you
need to have people being killed in order to have these metals in our
cellphones,” said Corinna Gilfillan, who heads the United States office of
Global Witness, which has worked on the issue for several years.
But manufacturers
question the effectiveness — not to mention the practicality and expense — of
tracing every scrap of refined metal back to its original hole in the ground.
“The challenge is that
conflict minerals are a symptom,” said Rick Goss, vice president for
environment and sustainability at the Information Technology Industry Council,
a trade group. “The entrenched powers in these countries have plenty of other
means to raise money. Simply cutting off one source of
revenue to a warlord or military rulers is not going to stop the genocide.”
The Dodd-Frank law on
conflict minerals is already having an effect in Eastern Congo, damping or
halting production at many mines even before the disclosure regulations for
companies are in place.
“It is causing, I
would say, a sort of embargo on traders and diggers in Eastern Congo,” Serge
Tshamala, an official at the Embassy of the Democratic Republic of Congo. “The
longer it takes the S.E.C. to come up with guidelines, the worse it is for our
people.” Mr. Tshamala and other Congo government officials met with the agency’s
staff members in June, urging them to speed completion of the regulations.
The agency is moving
slowly, however. The Dodd-Frank law set an April 2011 deadline for
completion of the rules.
After proposing
regulations in December 2010, the agency took comments for 30 days,
and received so many suggestions that it extended the period by a month.
After missing the
April deadline, the agency in October conducted a roundtable for its
commissioners to hear directly from manufacturers, mining companies, advocacy
groups and institutional investors. This month, Mary L. Schapiro, the agency’s
chairwoman, said the agency hoped to complete the process “in the next
couple of months.”
The commission already
has decided to include a phase-in period to allow companies time to build
networks to trace their mineral supply. But an exemption for use of trace
amounts of the metals is unlikely, Ms. Shapiro said.
As Bennett Freeman, a
senior vice president for sustainability research and policy at Calvert
Investments put it during the roundtable last year, a very small amount of gold
is used as a conductor in a cellphone, “but when one takes into account the
fact that there were 1.6 billion cellphones sold globally last year, that adds
up to be a very significant volume of that particular metal.”
Still undecided — and
the subject of more than 100 meetings between lobbyists and S.E.C. officials
since the rule was proposed — is just how the commission will decide who is
covered by the conflict minerals requirement. The law says that the minerals
must be “necessary to the functionality or production of a product manufactured
by” a company.
Simple as it seems,
that definition gives rise to a tangle of questions. Is mining “manufacturing”?
Is a coffee can made with tin “necessary to the functionality” of the coffee
being sold?
The hair-splitting
answers to those questions will be the basis on which the law could be
challenged in court, and it is that prospect that accounts for much of the
agency’s deliberate progress in fashioning the rules.
Administrative law
requires an agency like the S.E.C. to conduct a cost-benefit analysis of rules.
Last year, a federal appeals court cited insufficient cost-benefit research in striking down one of the agency’s new regulations, and S.E.C.
insiders say that decision has the agency operating in perpetual fear of a
repeat occurrence.
DO- Business
Roundtable v. SEC, 647 F. 3d 1144 (D.C. Cir. 2011)
There is little
agreement on what it will cost companies to comply. The agency estimates
companies will have to spend $71 million to comply with its regulations. The National Association
of Manufacturers estimates the regulations will cost $9 billion to $16
billion.
Whatever the answer,
part of the burden would fall on a given company’s supply chain — companies,
that is, that are very likely not to be covered by the regulation’s reporting
requirements, which cover only publicly traded companies.
Irma Villarreal, chief
securities counsel for Kraft Foods, said during the S.E.C. roundtable that
Kraft produced 40,000 distinct products and used 100,000 suppliers, creating a
Herculean task of auditing supply chains for conflict minerals.
Nonprofit groups that
support the new regulation say a growing number of companies — Intel, Motorola
and Hewlett-Packard among them, according to the Enough Project, a
nongovernmental organization that works against genocide and crimes against
humanity — have already made significant steps to inspect and adjust their
supply lines to avoid tainted sources of conflict minerals.
“Our hope,” said
Darren Fenwick, a senior manager of government affairs for the Enough Project,
“is that the rule is strong enough that companies in industries that aren’t doing
anything will start to feel the pressure in their supply chains.”
