The use of conflict materials may soon come with a set of rules. There is a small nugget of conflict materials regulation tucked away in the Dodd-Frank Wall Street Reform Act. Section 1502 of the act introduces the Conflict Materials Law. It requires publicly traded US companies to disclose the sources of certain minerals in their products to determine if they originated in the Democratic Republic of the Congo.
The conflict materials include cassiterite (a source for tin), wolframite (a source for tungsten), coltan (a source for tantalum), and gold. These materials are extracted from the eastern Congo and passed through a variety of intermediaries before being purchased by multinational electronics companies. These minerals are essential in the manufacture of a variety of devices, including smartphones, laptops, tablets, and mobile music players.
Mining of materials for electronics in the Congo is notorious for human rights abuses.
(Photo courtesy of New School Thoughts on Africa.)
The Securities and Exchange Commission, of all entities, has the responsibility to define reporting and due diligence procedures for conflict materials. Manufacturers will be required to obtain an audit performed by an independent third party to verify whether any of the materials in their products originated in the Congo.
On October 18, the SEC will meet in an attempt to finalize the conflict materials regulations. Though it has not issued formal regulations, many large OEMs have started the process within their supply chains to determine the origin of the materials in their products. Most countries frown on the use of conflict materials, but the US law is the first to lay down regulations.
The Congo is under scrutiny for its mining conditions because the country is engaged in armed conflict and human rights abuses. Profits from the sale of conflict materials are helping to finance the Second Congo War. Control of the mines has also become a focus of violence.
The area involved in the mining of conflict materials stretches outside the Congo itself. “It’s the Congo and surrounding or bordering territories,” Larry Yen, president of GreenSoft Technology Inc., told Design News. His South Pasadena, Calif., company helps manufacturers manage environmental compliance.
The conflict materials can be obtained outside the Congo and its surrounding areas, but the Congo produces more than 50 percent of many of these materials, Yen said. “The US government wants to find a way to stop the financial support of the groups that are doing bad things to the human race. Obama is asking companies to disclose whether they are using materials from that area.”
One thing surprisingly absent from the regulations is any suggested consequence for using materials from the Congo. “The SEC has not said anything about penalties yet,” Steve Schonebaum, director of sales and marketing at GreenSoft, told Design News. Disclosure itself may be a form of punishment. “The SEC is meeting because they are getting a lot of pressure from companies saying this disclosure is hard to provide. Companies want to know what is acceptable due diligence? That is what’s being hammered out by the SEC right now.”
Many of the large OEMs are not waiting for the SEC to dispense rules for disclosure. “We are already doing work for customers,” said Schonebaum. “This is already trickling down the supply chain. OEMs are asking their suppliers.”
The catch in the disclosure is that it’s pretty much on the honor system. If your supplier says there are no materials in the component from the Congo, how is anyone to know? “It makes us a little uncomfortable, because it’s hard to obtain verifiable data. How can you tell there if the materials are from a Congo mine?”
It’s still a mystery what will come out of the Oct. 18 meeting. Required audits are almost certain. What’s unknown is the extent of those audits.
“It is not certain where conflict materials regulations will ultimately go,” Tom Valliere, senior vice president at Design Chain Associates, told Deisgn News. “There are some powerful forces against using materials from the Congo, but the regulations have some inherent problems, such as the issue of tracking origin information in the supply chain.”
Tracking data down the supply chain could spread to other abuses, as well, such as counterfeit parts. The mood may be right for additional government regulations. “For many reasons other than conflict minerals -- counterfeiting, disaster recovery -– the time is ripe to have some serious discussions about tracking origin information in the supply chain,” said Valliere.