Diamonds Are a War’s Best Friend. So’s Tungsten.
Question: When is a conflict mineral not officially a conflict mineral?
Answer: When it’s not a diamond and is from somewhere other than central Africa.
Yet diamonds and African minerals are not the only resources in the world used to finance mayhem. As Bloomberg Markets magazine , the Colombian Revolutionary Armed Forces (FARC) funds its insurgency against Colombia’s elected government in part with revenue from tungsten. This rare metal has entered the supply chain of parts used to make cars and electronics worldwide.
Companies such as Apple Inc. and Bayerische Motoren Werke AG have pledged to investigate. Beyond that, a new regulatory regime to block this trade -- and that of many other conflict minerals that don’t fall under existing compacts -- is needed. Even in its absence, companies that use such materials in their products would be wise to become more vigilant about the problem.
Two regulations cover conflict minerals. Buying conflict diamonds is barred by the Kimberley Process Certification Scheme, agreed to in 2003 by the major diamond-trading countries and the gem industry. And the U.S. Dodd-Frank Act requires U.S. companies whose products contain gold, tantalum, tin or tungsten from the Democratic Republic of Congo and neighboring states to disclose their efforts to trace the minerals’ provenance.
The U.S. presumably could expand the Dodd-Frank provision to cover minerals outside central Africa. A proposal to do essentially the same thing is now before the European Union. Unfortunately, there is little political support in these Western countries for establishing new rules.
Businesses resist such measures. Three American business groups challenged (unsuccessfully) the limited U.S. law in court. Instead of fighting, car and electronics makers would be wise to follow the example of the diamond industry and scrutinize their supply chains -- if only to protect their profits. After all, consumers and shareholders increasingly demand that companies use only materials produced without labor and human-rights abuses, and whose profits do not fuel warfare.
Consumers want cheap prices, but not unconditionally. After recent fires and accidents at apparel factories in Bangladesh, for instance, retailers, under pressure from protesters, to improve factory conditions there.
Shareholders, for their part, know that reputation affects revenue. For example, the American Federation of State, County and Municipal Employees Pension Plan has filed proposals with Caterpillar, Halliburton and McDonald’s asking for reports on business risks arising from labor and human rights abuses in company operations.
Many diamond sellers have learned to avoid even stones not covered by the Kimberley Process, which disallows only gems that finance groups seeking to overthrow legitimate governments. The rule was established 10 years ago, when consumers were demanding diamonds that had not been purchased from warring rebels in Sierra Leone and Angola.
Today, the rule prohibits only gems from Ivory Coast. Yet, to the most discerning customers, diamonds from the Marange fields in Zimbabwe are also unacceptable because of human-rights violations there. Consequently, companies such as Cartier and Tiffany have independently developed policies ensuring their supplies are free of Marange diamonds.
What matters isn’t what the regulations say but what consumers care about: buying a product with a reasonably clean conscience.
In other words, a conflict mineral is a conflict mineral. And it’s bad for business.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.