Extremely violent civil wars in the Democratic Republic of the Congo (DRC) have resulted in millions of deaths, sexual violence and continuing human rights abuses. The northern and eastern regions of the DRC also happen to contain mines rich in minerals used in the production of electronics, communications and aerospace products. It is here that armed groups tax, control, and/or steal from the mines and smuggle valuable minerals out of this region of Africa to finance their ongoing conflicts. Many times the minerals are sent to Asia for refinement where they are smelted and mixed with legitimately-sourced minerals, making the origin of the minerals more difficult to trace.
The conflict minerals, often referred to as “gold and the 3Ts”, defined by Section 1502 of the Dodd-Frank Act are gold, cassiterite, columbite-tantalite and wolframite and their derivatives.
which is commonly used to coat wiring, in chemical compounds during the semiconductor manufacturing process and aerospace equipment.
) from which tantalum is derived for use in rigid materials, capacitors and other corrosion-resistant applications.
is an ore from which tin is extracted used in plating and solder.
from which tungsten is extracted and commonly used in vibrating devices, metal wires, electrodes and electronic components.
US Government’s Response
In response to this humanitarian crisis, the United States Congress enacted Section 1502 of the Dodd-Frank Act on July 21, 2010. The intent of the legislation is to mandate public disclosure for companies using certain mineral resources from the DRC and neighboring countries, thus discouraging them from further sourcing these commodities from this conflict region (Democratic Republic of the Congo (DRC), South Sudan, Uganda, Rwanda, Burundi, Tanzania, Zambia, Angola, Congo Republic and the Central African Republic).
SEC regulations implementing Section 1502 went into effect on November 13, 2012. These regulations require publically traded companies to report annually to the SEC on the source(s) of conflict minerals for products they manufacture or contract to be manufactured.
According to the SEC, companies required to file SEC Form SD are:
"The final rule applies to a company that uses minerals including tantalum, tin, gold or tungsten if:
- The company files reports with the SEC under the Exchange Act [of 1934].
- The minerals are ‘necessary to the functionality or production’ of a product manufactured or contracted to be manufactured by the company."
It should be noted that according to the SEC Factsheet:
"A company is considered to be “contracting to manufacture” a product if it has some actual influence over the manufacturing of that product. This determination is based on facts and circumstances, taking into account the degree of influence a company exercises over the product’s manufacturing.
A company is not be deemed to have influence over the manufacturing if it merely:
Affixes its brand, marks, logo, or label to a generic product manufactured by a third party.
The requirements apply equally to domestic and foreign issuers."
- 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 regulations do not ban or prohibit the purchase or use of conflict minerals nor are there any penalties for their use and do not require companies to find alternate sources of supply, rather they encourage ethical sourcing.
According to PwC, “retailers are not required to report on products they simply buy and resell” and ,”the SEC clarified that it does not consider an issuer that only services, maintains, or repairs a product containing conflict minerals to be a ‘manufacturer’ for purposes of this rule.”
Read the Dodd-Frank Act of 2010: https://www.sec.gov/about/laws/wallstreetreform-cpa.pdf
SEC Regulation amending the Securities and Exchange Act of 1934 Section 13(p): http://www.sec.gov/rules/final/2012/34-67716.pdf
Read the SEC Fact Sheet: http://www.sec.gov/News/Article/Detail/Article/1365171562058
PwC’s Conflict minerals: Frequently asked questions: http://www.pwc.com/us/en/audit-assurance-services/conflict-minerals-faqs.jhtml
Learn more about conflict minerals in the DRC: http://www.raisehopeforcongo.org/content/conflict-minerals
Ernst & Young’s brochure on conflict minerals: http://www.ey.com/Publication/vwLUAssets/EY_CnflictMinerals/$FILE/EY_ConflictMinerals.pdf