Given two years by U.S. regulators to determine whether their products contain minerals linked to conflicts in central Africa, many companies have responded with the same answer they had in the first place: They don’t know.
The first reports on the use of conflict minerals, made public yesterday, show companies taking advantage of a provision that allows them to say they don’t know where the metals originated. The rule, issued by the Securities and Exchange Commission in 2012, seeks to keep armed groups in the Democratic Republic of Congo from benefiting from the export of gold, tin, tungsten, or tantalum.
Global Witness, a London-based non-profit group that campaigned to get the requirement into law, said many companies failed to explain how they investigated their supply chains. While Intel Corp. (INTC) reported that its microprocessors were free of conflict minerals, many other companies reported being stymied by poor information from suppliers.
“The lack of information in most of the submissions we have seen suggests companies have not taken the necessary steps to find out what is really going on along their supply chains -– so we can’t tell if they are sourcing responsibly or not,” Sophia Pickles, a campaigner for Global Witness, said in a statement.
The SEC regulation gave companies a two-year transition period to identify conflict minerals in their supply chains and determine whether the mining financed or benefited armed groups. Mineral-rich eastern Congo has suffered almost two decades of conflict since the aftermath of Rwanda’s 1994 genocide spread across the border. PricewaterhouseCoopers LLP reported in an April survey that many companies still lagged in efforts to comply with the rule.
Companies issued the reports even as the rule has been the target of litigation by Washington trade groups, including the National Association of Manufacturers. A U.S. appellate court upheld much of the rule in April while finding that forcing companies to use the term “conflict free” would violate their free-speech rights. The SEC has appealed the order and cited the need to wait on a related lawsuit that it said could affect the conflict minerals decision.
Some companies “started late, waiting to see what the legal determination was going to be, maybe banking on the fact that this rule might have been stayed,” said Charles Harris, an audit partner at PwC based in Florham Park, New Jersey. “It took some companies a little bit of time just to figure out what their supply chain was and where they needed to start to gain the information.”
Businesses such as Texas Instruments Inc. (TXN), Oracle Corp. (ORCL), and Tesla Motors Inc. (TSLA) reported using conflict minerals but said suppliers didn’t provide them with enough information to determine where the metals originated. “Working with other companies in Silicon Valley, we commonly found that supplier data accuracy for 2013 was questionable,” Tesla reported in its report issued yesterday.
“The rule fundamentally imposes an obligation on a company where the company doesn’t really have the information it would need to comply,” said Keir Gumbs, a partner at Covington & Burling LLP who advises companies on their disclosures. “If suppliers are really unhelpful and just fail to respond in any meaningful way or with bad information, companies are just kind of stuck with that.”
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