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Companies Face Reporting Requirements on Use of "Conflict Minerals"

SEC rules on conflict minerals touch the Congo

U.S. companies would be required to disclose their use of “conflict minerals” from the Democratic Republic of the Congo and adjoining countries under regulations set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

“In adopting this statute, Congress expressed its hope that the reporting requirements of the securities laws will help to curb the violence in the eastern Democratic Republic of the Congo,” said Mary L. Schapiro, chairman of the Securities and Exchange Commission, the federal agency charged with developing and enforcing the rules. Final rules were originally scheduled to be released this spring, but the SEC has delayed their release until as late as December.

These conflict minerals – tin (cassiterite), tantalum (columbite-tantalite), gold, tungsten (wolframite) and their derivatives – are essential to the production of products ranging from cell phones to jet engines.  Under the proposed rules a company would be required to disclose in its annual report and internet website whether conflict minerals are “necessary to the functionality or production of a product” and whether the materials originated in DRC countries.

The disclosure would be based on a “reasonable” inquiry, the SEC said in a press release. If the conflict minerals come from other regions, companies would report the fact and the process used in making the determination.  The Conflict Minerals Report would include, among other things, a description of the products containing minerals that are not “DRC conflict free,” the facilities used to process the conflict minerals, and the country of origin for the products. The report must also include a certified independent private sector audit. 

A global trade association known as the IPC estimates the rules would cost electronics manufacturers and suppliers a median of 1,300 staff hours and $65,000 per company in the first year for due-diligence requirements alone, plus an additionally $170,000 for tracking software, legal expenses, audits, additional staff and training.

In a statement issued on Tuesday the IPC expressed support for phasing in the new regulations over a three-year period. The interval would give companies time to set up systems to track and verify conflict-free minerals.

“Without the phase-in, a de facto ban of minerals from the DRC and adjacent countries will be the only way to provide certifiably conflict-free minerals as there are no tracing systems in place,” said the IPC, which has described the proposed reporting requirements as ineffective and impossible to authenticate.”

According to a riskmetrics blog by Meggin Thwing Eastman and Jesse Shoemaker-Hopkins, “Conflict minerals are the metal equivalent of blood diamonds; they are mined illegally in conflict zones, and revenue from their sales fuels an ongoing civil war.