The first SEC filing deadline has come and gone (April –June 2014) and the answers to the question ‘Are we there yet regarding conflict minerals?’ may surprise you. Conflict minerals include gold, tantalum, tin and tungsten (3TG) identified by the U.S. government under the Dodd-Frank Act to be financing conflict in the Democratic Republic of Congo (DRC) or its neighboring countries. In December 2013 I wrote an article about conflict minerals (link here) summarizing the state of the issue at that time.
Surprise #1 As of August 2014, only 1300 companies have submitted their Conflict Minerals report. SEC had estimated that 6,000 companies should have filed, the National Association of Manufactures estimated 50 times that are involved as part of the supply chain. Obviously, there is a disconnect somewhere. It appears that most companies have determined that this regulation does not apply to them or have taken a very narrow interpretation of the regulations that eliminates them from compliance.
Surprise #2 A spade cannot be called a spade. The U.S. Court of Appeals for the D.C. Circuit struck down the labeling provision in April. The rule violates the First Amendment by requiring companies to make “misleading and stigmatizing” public statements that suggest their products might contribute to human rights abuses. Even the SEC Commissioners have come out with a statement that there should be a stay on the whole requirement until it works its way through the courts due to the burdensome cost on both the agency to provide oversight and the affected companies who must comply with a reporting requirement that no longer has a masthead. The result of this is the terms “DRC conflict free,” “DRC conflict undeterminable” or “not having been found to be DRC conflict free” are out.
Surprise #3 Identifying specific smelters and refiners and their source is the linchpin in this exercise. Technology sector leaders include Intel, HP and Apple. Apparently Apple Inc. has found that most of the smelters and refiners that ultimately supply their 3TG containing component suppliers are “DRC conflict free”. (click here for Apple Inc. Conflict Mineral Report; HP Conflict Mineral Report; Intel Conflict Mineral Report ) Of the 205 smelting and refining sources Apple has listed as part of their supply chain, 21 receiving minerals from the DRC and only 4 were yet to undergo a third-party audit to be called DRC conflict free. Also, the Conflict Free Sourcing Initiative (CFSI) has been actively qualifying smelting and refining operations as DRC conflict free and provides an updated list on their website. However, most companies filing their reports (>75%) did not report smelters as part of their supply chain. The GAO points a finger at the Commerce Department for not providing the list of smelters and refiners within the allotted time, a requirement under Dodd-Frank Law.
Why I am not surprised #4 Companies, due to nebulous guidance from the SEC, have designed their own path towards compliance. The use of a disclaimer has become a popular way to absolve themselves of inaccuracies and false statements that might come from their supply chain over which the only authority they have is that of the purse. Supply chain reporting is a challenge, as approximately half of the companies in the supply chain did not respond to requests concerning 3TG. It is interesting to note that the regulations do not require all of the cogs of the supply chain report their sourcing for 3TG, only that downstream ‘due diligence’ is observed.
Are we there yet? Depends on how you define the end goal. Understandably, human rights activists want to see more and quicker resolution to the DRC atrocities. Meanwhile, the companies forced to comply with the Act are looking at the huge and continued cost associated with coming into compliance to declare their supply chain “DRC conflict mineral free”. The 600 pound gorilla in the room remains to be whether this approach to reducing conflict and improving the human condition in the DRC will actually work. Keep an eye on the news and stay tuned next year for another update.
- 85By Rosemarie Szostak, Nerac Analyst, Originally published September, 2013 The conflict minerals—tin, tungsten, tantalum and gold - can be found in products ranging from smart phones and warheads to textiles and toothpaste. These elements are now regulated by the SEC, and US companies must be in compliance with the new regulations starting May 2014. Manufacturers…
- 55By Rosemarie Szostak, Ph.D., Nerac Analyst, Originally Published: Feb 17, 2016 Read the latest happenings and highlights from the recent Photonics West Conference hosted by SPIE - the international society for optics and photonics. Nerac analyst Rosemarie Szostak contributed to the article "Conflict mineral rules: nobel or nonsense?" on page 9 of the February 17…