A new rule requiring U.S. companies to report information about their suppliers was designed to discourage them from doing business with mines controlled by armed thugs in Africa. But the conflict-mineral filings show a startling trend happening in another continent.
Among the 1,277 U.S. companies that reported before yesterday's deadline, 68 listed the Central Bank of the DPRK in their filings with the Securities and Exchange Commission. DPRK stands for the Democratic People's Republic of Korea — as in North Korea, as in the country run by a 31-year-old dictator who had his uncle killed last year just to prove a point. The U.S. has had economic sanctions against North Korea since 1950, and the United Nations maintains sanctions of its own to deter further development of nuclear weapons there.
Claigan Environmental, a corporate-compliance firm, compiled the data showing dozens of companies listing North Korea's central bank as a supplier and shared its findings with Bloomberg. International Business Machines and Hewlett-Packard were among those reporting that North Korea was in their supply chain.
"In January, upon learning that the Central Bank of DPRK may be used by a small number of HP suppliers, we took immediate action to launch investigations," said Michael Thacker, a spokesman for HP. "To date, the information we have received indicates no minerals obtained from Central Bank of DPRK were included in HP products."
IBM's filing said North Korea processed gold that may be used in its products. Douglas Shelton, a spokesman for the company, declined to comment, saying only that IBM expects suppliers to "procure minerals from responsible sources."
Gold is commonly used in consumer electronics because it's a high-quality conductor for connecting components such as SIM cards in mobile phones. Minerals covered by the rule, as mandated by the Dodd-Frank Wall Street reform law, are gold, tantalum, tin and tungsten. They're all mined in the war-torn Democratic Republic of Congo, where human-rights violations sparked an international backlash and prompted U.S. government reform.
"It's the first time that consumers are able to look under the hood and see whether there was slavery or not in their products," said Sasha Lezhnev, a senior policy analyst for the Enough Project in Washington, a nonprofit focused on ending genocide. "Some companies have done next to nothing, and now we know that. We do have a rule, and companies have reported. That's an important first step."
In addition to reporting whether they use conflict minerals from the DRC, companies were also required to disclose what they’ve done to identify the use of those minerals in their products. Only 1.9 percent of companies conducted proper due diligence as specified by the SEC, according to Bruce Calder, a vice president of consulting services at Claigan.
Considering this is the first go-around for mandated reporting on conflict minerals, many companies didn't know what they were doing, Calder said. Almost 40 percent of filings were "missing one or more mandatory items," he said, suggesting those companies "did not understand the requirements to such a significant degree that their conflict minerals report was meaningless."
Many companies took advantage of a two-year window allowing them to tell the SEC they don't know whether they have conflict minerals in their products. The biggest exceptions are Intel and Apple, which have been at the forefront of investigating and reporting on their supply chains, according to Calder. HP has also been known as a leader in this space, but the surprise from North Korea shows just how difficult it is to get a full picture into the supply chain.