Blood Money and Conflict Minerals
The world's insatiable demand for everything from smartphones to jewelry to cars is feeding the bloody war in eastern Congo, where tin, tantalum, tungsten and gold are mined for use in manufacturing. Last year, exports of these minerals from central Africa generated at least $2.1 billion -- much of which went to rebels and government soldiers.
Four years ago, Congress responded with a sensible provision of the Dodd-Frank Act that requires U.S.-regulated manufacturers whose products may contain conflict minerals to investigate the matter and report, publicly, to the Securities and Exchange Commission. This transparency is meant to motivate the companies to get conflict minerals out of their supply chains and avoid the wrath of socially conscious consumers and shareholders.
So far, though, companies are widely flouting the law. The first conflict-mineral reports were due June 2, and only 6 percent met an acceptable standard for compliance, according to a review by Claigan, an environmental compliance consultancy.
Now, this is only the first year, and some companies may have been confused by an eleventh-hour Court of Appeals ruling that modified the law's reporting requirements. Some noncompliance would have been understandable. But not this much. Manufacturers apparently need to be nudged awake to the harm their reliance on conflict minerals causes. The SEC will have to make an example of the worst offenders.
The 18-year-old war in the Democratic Republic of Congo, featuring child soldiers and mass rape, has been the deadliest since World War II, having claimed an estimated 5.4 million lives. While depriving the competing factions of mineral funds wouldn't end the conflict, it would make it harder for them to rearm and pay their fighters, which would mean fewer deaths and atrocities.
That should be motivation enough for U.S. companies to root out conflict minerals. The law adds a bit more, without pushing too hard. Companies aren't forbidden from using conflict minerals; they only have to divulge what minerals they are using and what steps they have taken to find out.
Of about 1,000 companies that submitted conflict-mineral reports, 94 percent declined to describe a reasonable due-diligence effort, according to Claigan. Most asked suppliers where they sourced their minerals but offered no evidence that they tried to verify the responses they received -- not so much as a phone call or a Google search.
The companies should see that more diligent efforts would serve their own self-interests. Any manufacturer that turns a blind eye to tainted minerals in its SEC filing -- a permanent record -- risks consumer outrage and, should shareholders lose money in a related price decline, lawsuits.
A handful of companies have shown that significant strides can be taken -- without boycotting the Democratic Republic of Congo and thus harming its economy. Intel Corp., for one, announced in January that all its microprocessors are free of conflict minerals. Royal Philips Electronics NV, Motorola Solutions Inc., Research in Motion Corp. and Nokia Oyj are participating in closed-pipe programs in the DRC in which a defined set of conflict-free enterprises cooperate in a supply chain. The Conflict-Free Smelter Program, a technology industry initiative, has certified 85 of the estimated 500 smelters in the world.
To ensure greater transparency in next year's filings, the SEC should investigate companies whose reports were especially unsatisfactory and levy fines -- as the agency is empowered to do -- that are large enough to deter future noncompliance. Customers can then find out how companies have shirked a minimal responsibility to help end the sale of conflict minerals.
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