Conflict minerals The four conflict minerals codified in the U.S. Conflict Minerals Law, are: •
Columbite-tantalite (or
coltan, the colloquial African term) is the metal ore from which the element
tantalum is extracted. Tantalum is used primarily for the production of
tantalum capacitors, particularly for applications requiring high performance, a small compact format and high reliability, from
hearing aids and
pacemakers, to
airbags,
GPS, ignition systems and anti-lock braking systems in automobiles, through to laptop computers, mobile phones, video game consoles, video cameras and digital cameras. In its carbide form, tantalum possesses significant hardness and wear resistance properties. As a result, it is used in jet engine/turbine blades, drill bits, end mills and other tools. •
Cassiterite is the chief ore needed to produce
tin, essential for the production of tin cans and the
solder on the circuit boards of electronic equipment. Tin is also commonly a component of biocides, fungicides and as tetrabutyl tin/tetraoctyl tin, an intermediate in
polyvinyl chloride (PVC) and high performance paint manufacturing. •
Wolframite is an important source of the element
tungsten. Tungsten is a very dense metal and is frequently used for this property, such as in fishing weights, dart tips and golf club heads. Like
tantalum carbide,
tungsten carbide possesses hardness and wear resistance properties and is frequently used in applications like metalworking tools, drill bits and milling. Smaller amounts are used to substitute lead in "green ammunition". Minimal amounts are used in electronic devices, including the vibration mechanism of cell phones. •
Gold is used in jewelry, investments, electronics, and dental products. It is also present in some chemical compounds used in certain semiconductor manufacturing processes. These are sometimes termed "''the 3T's and gold
", "3TG
", or even simply the "3T's''", referring to the elements of interest they contain (
tantalum,
tin,
tungsten,
gold). Under the US Conflict Minerals Law, additional minerals may be added to this list in the future. There has been a push in recent years to consider cobalt as an additional conflict mineral, as since 2019 the Congo accounts for 70% of global production. Cobalt demand has also increased 70% from 2017 to 2022 driven by lithium-ion battery demand, and “the Enough Project estimates that 60 percent of that production [in the Congo] comes from illegal mines.”
History In April 2009, Senator
Sam Brownback (R-KS) introduced the Congo Conflict Minerals Act of 2009 () to require electronics companies to verify and disclose their sources of cassiterite, wolframite, and tantalum. This legislation died in committee. However, Brownback added similar language as Section 1502 of the
Dodd–Frank Wall Street Reform and Consumer Protection Act, which passed Congress and was signed into law by President
Barack Obama on July 21, 2010. This Conflict Mineral Law was published in the
Federal Register of December 23, 2010. The
U.S. Securities and Exchange Commission (SEC) draft regulations to implement the law would have required U.S. and certain foreign companies to report and make public their use of so-called "conflict minerals" from the Democratic Republic of the Congo or adjoining countries in their products. Comments on this proposal were extended until March 2, 2011. The comments on the proposal were reviewable by the public. One report on the proposal stated the following statistics for the submitted comments: • Slightly more than 700 comment letters were submitted to SEC on the proposal; • Approximately 65% of those were form letters or basic letters from the general public supporting the rule's intent; • The remaining 35% (roughly 270) represent views of businesses, trade/industry associations, the investment/financial community, professional auditing firms, and other relevant governmental entities; and • Of those 270 comments, an estimated 200 contained substantive and/or technical comments. That report also contained what it calls a "preview of the final SEC regulations" synthesized from their detailed research and analysis of a large body of documents, reports and other information on the law, proposed regulation and the current budget/political setting facing the SEC in the current administration. The final rule went into effect 13 November 2012. The SEC rule did not go unnoticed by the international community, including entities seeking to undermine traceability efforts. A report published by a metals trading publication illustrated one DRC ore/mineral flow method that has apparently been devised to thwart detection. On July 15, 2011, the US State Department issued a statement on the subject. Section 1502(c) of the Law mandates that the
State Department work in conjunction with SEC on certain elements of conflict minerals policy development and support. On October 23, 2012, U.S. State Dept Officials asserted that ultimately, it falls on the U.S. State Dept. to determine when this rule would no longer apply. In April 2014, the United States Court of Appeals for the District of Columbia Circuit struck down Section 13(p) and Rule 13(p)-1 of the SEC Rules, deeming them in violation of the First Amendment. Following this ruling, the Court noted that there was no "First Amendment objection to any other aspect of the conflict minerals report or required disclosures". This estimate does not account for the companies who supply materials to the "issuers" (but are not themselves SEC-regulated) but who will almost certainly be required to conduct conflict minerals audits to meet the demands of those customers. Other estimates indicate that the total number of US companies likely impacted may exceed 12,000. A study of the potential impact of the regulation in early 2011 by the
IPC – Association Connecting Electronic Industries trade association. was submitted with the association's comments to the SEC. The study states that the IPC survey respondents had a median of 163 direct suppliers. Applying that number to the SEC's estimated number of impacted issuers results in the possibility of over 195,000 businesses that could be subject to some level of supply chain traceability effort.
Applicability in general Under the law, companies have to submit an annual conflict minerals report to the SEC if: • (a) they are required to file reports with the SEC under the Exchange Act of 1934 • (b) conflict minerals are
necessary to the functionality or production of a product that they manufacture or contract to be manufactured. That statement contains two separate – but critical concepts: the purpose of the conflict mineral in the product/process, and the control that the company exerts over the manufacturing process/specifications. A company would be deemed to contract an item to be manufactured if it: • Exerts any influence over the manufacturing process; or, • Offers a generic product under its own brand name or a separate brand name (regardless of whether the company has any influence over the manufacturing process) and the company contracted to have the product manufactured specifically for itself. This language implied that some retailers who are not manufacturers might be subject to the audit and disclosure requirements. "Contracting to manufacture" a product requires some actual influence over the manufacturing of process that product, a determination based on facts and circumstances. A company is not to be deemed to have influence over the manufacturing process if it merely: • Affixes its brand, marks, logo, or label to a generic product manufactured by a third party. • Services, maintains, or repairs a product manufactured by a third party. • Specifies or negotiates contractual terms with a manufacturer that do not directly relate to the manufacturing of the product. The proposed regulations attempted to clarify that tools used in assembly and manufacturing will not trigger the law. The intent was to cover minerals/metals in the final product only. Nothing specifically addresses intermediate chemical processes that use chemicals that contain conflict minerals. Additionally, neither the law nor the proposed regulation established a
de minimis quantity or other form of materiality threshold that would preclude the applicability of the auditing/reporting requirements.
Supply chain traceability auditing The law mandates the use of an "independent private sector auditor" to conduct the audits. SEC has proposed two different standards for the audits: the "reasonable inquiry" and the "
due diligence". Should the final rule include this structure, the reasonable inquiry would be the first step to determine if the company can on its own, using reasonable efforts and trustworthy information, make a reliable determination as to the source/origin of its tin, tantalum, tungsten and/or gold. Where companies are unable to make such a determination for any reason, they would then be required to take the next step of the "due diligence", which is the independent private sector audit. The statute specified that the audits be "conducted in accordance with standards established by the
Comptroller General of the United States, in accordance with rules promulgated by the Commission". This means that the same auditing standards that apply to other SEC auditing requirements will apply to conflict minerals audits Because of this language, SEC will have little discretion to allow companies to issue self-generated statements or certifications to satisfy the law. Third party audits for conflict minerals supply chain traceability began in summer 2010 under the Electronic Industry Citizenship Coalition (EICC), a US-based electronics manufacturing trade association. Under this program, EICC selected three audit firms to conduct the actual audits, with two of the three participating in the pilot audits in 2010. After concluding the pilot, one of the two firms involved in 2010 withdrew from the program specifically in response to the SEC's proposal and to reduce potential legal risks to the audited entities. Neither the law nor the proposed regulations provide guidance on what will be considered an acceptable audit scope or process, preferring to allow companies the flexibility meeting the requirement in a manner that is responsive to their own individual business and supply chain. At the same time, the law contains a provision that preserves the government's rights to deem any report, audit or other due diligence processes as being unreliable, and in such cases, the report shall not satisfy the requirements of the regulations, further emphasizing the need for such audits to conform to established SEC auditing standards. Comments on the proposed regulation pointed out that, should SEC not specify an applicable audit standard, it cannot also be silent or ambiguous on the auditor standards as well, or the commission will violate the plain language of the Law mandating "standards established by the Comptroller General of the United States". It is generally expected that SEC will provide specificity on both the audit standard and the auditor standard. SEC's proposal attempted to clarify its position on auditor requirements. The OECD's guidance is gaining much momentum as "the" standard within US policy. However, a 2011 critical analysis of the standard in comparison to existing US auditing standards under SEC highlighted a number of significant inconsistencies and conflict with relevant US standards. Companies subject to the US law who implement the OECD guidance without regard for the SEC auditing standards may face legal
compliance risks.
Reporting and disclosure Companies subject to the SEC reporting requirement would be required to disclose whether the minerals used in their products originated in the DRC or adjoining countries (as defined above). The law mandates that this reporting be submitted/made available annually. Many comments to the proposed regulation asked SEC to clarify whether the report must be "furnished"—meaning it is made available to SEC but not directly incorporated within the company's formal financial report—or "submitted"—meaning the report is directly incorporated into the financial report. • "DRC Conflict Free" • "Not DRC Conflict Free" • "DRC Conflict Undeterminable" thus, if it is determined that none of the minerals originated in the DRC or adjoining countries, the report must include a statement to that effect and provide an explanation of the country of origin analysis that was used to arrive at the ultimate conclusion. On the other hand, if conflict minerals originating in the DRC or adjoining countries were used (or if it is not possible to determine the country of origin of the conflict minerals used), companies would be required to state as such in the annual report. In either case, companies would also be required to make this information public by posting their annual conflict minerals report on their websites, and providing the SEC with the internet addresses where the reports may be found. Further, the proposed regulations would require companies to maintain records relating to the country of origin of conflict minerals used in their products. The "DRC Conflict Undeterminable" option can be utilised for a temporary period only, which is four years for a "smaller reporting company", and otherwise two years. Many impacted companies were hoping for clarification regarding filing requirements, from the
United States Court of Appeals for the District of Columbia Circuit from a lawsuit filed by the
National Association of Manufacturers. The appellate court's ruling left the necessary conflict minerals reporting requirements largely intact and it has been suggested that impacted companies should review the SEC's Division of Corporation Finance's response to the court's ruling which provides guidance regarding the effect of the appellate court's ruling. On August 18, 2015, the divided D.C. Circuit Court again held the SEC's conflict materials rule violates the
First Amendment. Senior Circuit Judge
A. Raymond Randolph, joined by Senior Circuit Judge
David B. Sentelle, weighed if the required disclosures were effective and uncontroversial. Citing news reports and a Congressional hearing, the court decided the policy was ineffective. The court next found the required label was controversial because it "is a metaphor that conveys moral responsibility for the Congo war". The effect has been to halt legitimate mining ventures that provided livelihoods for people, reducing the Congo's legal exports of tantalum by 90%. An investigation by the U.S.
Government Accountability Office (GAO) found that most companies were unable to determine the source of their conflict minerals. Technology manufacturers criticized a law which required them to label a product as not "DRC Conflict Free" as
compelled speech, and in violation of the
First Amendment. == Conflict minerals regulation in the EU ==