SEC Conflict Minerals Rule Is an Important Milestone, but International Action is Critical

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Today, the U.S. Securities and Exchange Commission (SEC) put in place new requirements for publicly traded companies to disclose whether they source listed minerals from the Democratic Republic of the Congo (DRC) or adjoining countries.  Known in short-hand as the conflict-minerals rule, the requirements cover companies across the economic spectrum.  

First, let me be clear:  Any mining activities that fuel conflict are unacceptable, and the tech sector will continue to work with the international community to ensure transparency and responsible practices within global supply chains.  High-tech was the only sector that supported federal action on this challenge, and tech-sector champions are taking proactive, voluntary steps to better monitor and audit their supply chains, and ensure the integrity of their production processes.  These industry-led efforts, which involve leading NGOs as well as companies from the mining and processing sector, are helping to drive towards a more comprehensive solution that promotes responsible minerals sourcing.

This is no small feat.  Raw minerals sourced from the developing world often move through numerous other countries before they are initially processed in foreign smelters.  From there, they enter global commodities markets and travel through complex supply chains that often span countries and continents before they are included in a finished product. 

Importantly, the SEC made two changes – both promoted by ITI – from its original proposal that will result in more effective and meaningful implementation of the requirements.  First, the SEC included a temporary “conflict indeterminable” status for the first two years of the disclosure and reporting requirements (four years for smaller businesses).  A company that properly performs a reasonable “country of origin” inquiry but is nonetheless unable to determine the source of raw minerals used in its supply chain can use this designation rather than be forced to describe its products as “not DRC conflict free.”  ITI had proposed that the SEC recognize a temporary “indeterminate origin” period to prevent companies acting in good faith from having their products disadvantaged in the marketplace.

Second, the final rule modified a provision from the proposed SEC  rule (December 2010) that would have required companies to file a full conflict minerals report for materials derived from scrap or recycled sources.  The recycling of metals, in addition to being a legitimate activity in itself, is one that ought to be encouraged as it leads to more efficient use of the world’s resources and limits demand for the mining of raw ore.  As recently as last week, ITI and other manufacturing industry associations counseled the SEC that “the imposition of overly burdensome regulations on recycled and scrap materials would discourage their reuse, likely leading to increasing disposal and abandonment of scrap metals and concurrent increases in demand for raw ores” from conflict countries.  We also noted that it would be impossible for a company to ever determine the source of refined metals that had already been used in commerce and were now being recycled.  The SEC today approved the alternative approach for reclaimed metals included in its December 2010 proposal and strongly supported by ITI.

The tech sector appreciates the motivation behind the Dodd-Frank provision and today’s SEC action.  We share the deep concern for the lives that have been lost and those that continue to be jeopardized by civil war in the DRC and elsewhere.  The violence is abhorrent and needs to end.  While the release of the conflict-minerals rule is a milestone in the effort, it cannot on its own replace the results to be gained through a robust, coordinated international effort that addresses the underlying causes of conflict in Central Africa.  A broader solution to the violence and despair in the region must come from the combined diplomatic, political, and economic commitment of the global community.

 

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