The SEC met in Washington yesterday to try and formulate its final rules on Section 1502 of the Dodd-Frank Act. A range of panelists were invited, including representation from UK NGO – Global Witness, civil society and industry. Notably absent – Congolese representatives.
Yesterday’s roundtable discussion brought together these representatives to discuss the complexities of global supply chains and how the precious minerals in the eastern DRC are continuing to fuel the conflict. Human Rights advocates are in strong support of the legislation, citing a direct link between the demand for minerals that go in to our IPhones, BlackBerry’s, mobiles and laptops, and the human rights abuses in the DRC.
Many in industry are not the biggest fans of the Act, for two main reasons: cost and complexity.
Cost – industry estimates the cost of implementing the Act to be between $9-$16 billion, whereas the SEC has estimated a more conservative figure of $71 million. The cost of getting their suppliers and manufacturers to probe their suppliers and manufacturers will be passed on to consumers. Due diligence reporting for companies has pushed up the price of Congolese minerals, resulting in less demand and thus a de facto embargo of Congolese minerals has been the result. Thousands who rely on mining for their livelihoods have been put out of work.
Complexity – minerals change hands multiple times on their route from mine to market and are found in millions of parts that are embedded in millions of products to be sold all over the world. Critics say that it is virtually impossible to trace each mineral back to its point of extraction because once minerals reach the smelting process they are mixed with materials from all around the world. Some products contain such tiny amounts of minerals that it is extremely difficult to trace – so how tiny is too tiny?
A representative at the roundtable from Kraft Foods claimed she had been hyperventilating at the thought of reporting on conflict minerals. Her company uses tin to make biscuit tins and with over 100,000 suppliers making over 40,000 products – the complexity of the task is quite overwhelming.
Industry representatives have asked the SEC to give them more time, stating that it would be impossible to be able to talk to each and every one of their suppliers to find out what mineral comes from where in time for reporting beginning in the next financial year. Others believe that a phased-in approach and more flexibility in the proposed rules will put less pressure on suppliers further down the supply chain to comply with mineral reporting. Companies shoul begin reporting and then continue to improve over time.
Other questions have been raised over whether the provisions on reporting conflict minerals should be increased to include niobium – a mineral that resembles tantalum, and is used in stainless steel alloys for nuclear reactors, jet engines, cutting tools and pipelines. Niobium is also found in the DRC and its adjoining countries.
There is also the issue of 91 tonnes of untagged minerals that were seized in Rwanda between March and September this year. Minerals that were mined before September 2010 are not up to today’s standards due to new certification standards initiatives and because the exact origin of minerals cannot be determined. Untagged minerals are sitting in bags not being used, the issue is what to do with them? Rwanda has announced that it will send 70 tonnes back to the DRC and is in the process of identifying the origins of the other 21 tonnes. Could these minerals not be sold at a cheaper rate and the money given to fund community projects to help victims of violence? Who would administer that?
Another important question has been raised – what is the EU doing about conflict minerals? Should the EU create an equivalent to Dodd-Frank? Is there any need? The EU should take the weaknesses of the American legislation and formulate a new and improved legislation that will nurture, facilitate and support governance structures in the DRC. A technical solution on its own will not solve the conflict. The EU should look to strengthen and facilitate governance structures in the DRC that will complement industry regulation. Strengthening the socio-economic developments of mining communities should also be a priority of the EU.
What is clear is that industry cannot end this conflict on its own by reporting on whether conflict minerals are used in its processes. Strengthening the governance structures in the DRC in order for the Congolese government to establish control over mining areas is essential. Although trying to exert influence over an area the size of the UK where corruption, extortion and violence are part of everyday life is enough to cause any policy maker to hyperventilate. Yet the alternative is to do nothing.
Yes there is much wrong with Dodd-Frank, but it is a start. And it is there to be improved. We will continue to wait with baited breath to see what the SEC come up with….
