When Leonardo DiCaprio exposed the horror of African blood diamond wars as Danny Archer in the movie Blood Diamond, audiences began to think twice about from where that rock on their finger came. However, the next time you look at that text from your friend or call your dad wishing him a happy Father’s Day on your phone, remember that “conflict minerals” come in more shapes and sizes than just diamond. In fact, rebel groups in countries like the Democratic Republic of the Congo run mines that produce minerals used in the manufacture of consumer electronics. The proceeds fund continuing strife that’s killed up to 5 million people since 1998, more than any conflict since World War II.
Congress attempted to stem the tide of U.S. dollars used to fund these conflicts by adding a provision in the Dodd-Frank Act of 2010 that required U.S. public companies to disclose if they use minerals from conflict regions in their products.
Even only a few years into the mandated reporting requirements, it seems that Congress may actually be achieving the stated goals of the Act. Market changes spurred by the Act’s mandate have helped reduce the flow of money to rebel warlords in the Congo. The Enough Project reports:
“The Dodd-Frank law and electronics industry audits have created a two-tier market for tin, tantalum, and tungsten (3Ts) from Congo and the region. Minerals that do not go through conflict-free programs now sell for 30 to 60 percent less, thus reducing profits for armed groups trying to sell them.”
This is due in no small part to the stringent reporting requirements required by the Act. For example, last year when Men’s Wearhouse acquired Jos. A. Bank Clothiers, it checked with its global suppliers to help ensure their products were not made with conflict minerals. The Company disclosed to the SEC that:
“Men’s Wearhouse, Inc. . . . created a Conflict Minerals Policy Statement . . . which supports the goal of the [Dodd-Frank] Act, namely to prevent armed groups from benefitting from the sourcing of Conflict Minerals. In furtherance of its Policy, the Company has partnered with an external third party to assist its suppliers in providing the information the Company requires to comply with the Act. The Company expects its suppliers to cooperate with the Company in its efforts to ascertain the source and origin of Conflict Minerals.”
Not everyone is happy with the program. Nate Herman, Vice President of International Trade for American Apparel and Footwear Association, says “This has caused the industry countless man-hours, countless millions to implement, for something where we have an impact on trace amounts of tin.”(Tin typically is used as coating for zippers, so the Dodd-Frank provisions actually impact more than just your iPhone.)
Speaking of iPhones, Greenpeace has praised Apple, Inc. for its reduction in the use of conflict minerals in its products and ensuring their suppliers shy away from conflict minerals too. On its Supplier Responsibility website, Apple proclaims:
“Every supplier that does business with Apple must demonstrate the highest commitment to protecting workers’ rights. . . . Our dedication to human rights even extends to using more conflict-free minerals in our products.”
And according to the Baltimore Sun, “[i]n January 2014 [Apple, Inc.] confirmed that all active, identified tantalum smelters in our supply chain were verified as conflict-free by third-party auditors.” But Apple isn’t alone in this endeavor. A 2014 PricewaterhouseCoopers survey last year found that 89% of companies have at least a single full-time employee who is responsible for ensuring compliance with the law.
However, there is a major unintended consequence of the law that worries many observers—it has also driven companies to shy away from purchasing conflict-free minerals from the Congo and surrounding countries because of the risks they could buy “tainted” minerals. In a hearing before the U.S. House of Representatives Subcommittee on Monetary Policy and Trade, it was mentioned that “[m]any [innocent miners] have seen their livelihoods eliminated as the market for legitimately mined minerals has evaporated. The consequences have been so impactful that the Congolese now refer to Section 1502 as ‘Loi Obama’ or ‘Obama’s law.’ ”
Nonetheless, despite some difficulties in identifying conflict-free mineral sources for suppliers, and telling whether or not one’s supplier is telling the truth about their conflict-free minerals, it seems to be catching on. Lina Ramos, the Chief Business Officer of Source Intelligence, a group that advises companies on how to comply with the Dodd-Frank Act, reports that “Global brands are going to demand their suppliers are producing ethically and legally. The new generation is really committed to ethical sourcing. The product isn’t enough to be functional, the product has to stand for something, it has to be something people believe in and give their loyalty to.”
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For an SEC summary of the specialized corporate disclosure mandated included in the Dodd-Frank Act, including section 1502, visit here.
It is a noble goal to seek, and if the “new generation” is really committed then that is an initial achievement, however, there is an older generation, perhaps a little cynical, wondering about the global great God – money. A commodity,now cheaper, emerging industrialising countries with billions of mouths to feed……. Power to the new generation.