‘Conflict minerals' law shines spotlight on electronics supply chain

New regulations will require companies to trace path of certain materials from mine to consumer.

By Tam Harbert, Contributing editor -- EDN, September 13, 2010

A new law requiring companies to disclose whether their products contain any one of four "conflict minerals" from the Democratic Republic of Congo (DRC) or surrounding countries has executives throughout the electronics supply chain trying to figure out how they can comply.

Cited by the United Nations as the worst global genocide since World War II, the civil war in Congo has killed an estimated 5.5 million people. Particularly brutal is the sexual violence against hundreds of thousands of women and children. Experts believe that armed rebels finance their terror through the illegal sale of tantalum, tungsten, tin, and gold from mines in the area. The Enough Project, an anti-genocide group, directly links Congo violence to the use of these minerals in consumer electronics products such as cell phones, computers and TVs, and has launched a campaign to pressure the makers of these products to eliminate their use of conflict minerals.

The US legislation is aimed at encouraging companies to do more to make sure minerals in their products do not come from this illegal activity. Tucked into the Dodd Frank Wall Street Reform and Consumer Protection Act passed by Congress this summer, the provision requires public companies that trade on a major US exchange to determine whether any one of the four minerals are used in their products. If they are, then the company is required to determine and disclose in a report filed with US Securities & Exchange Commission (SEC) whether any of those minerals originated in the DRC or a neighboring country.

If the minerals did come from that area, then the company must include in that report a description of "the measures taken ... to exercise due diligence on the source and chain of custody of such minerals," as well as the company's efforts to determine exactly where the minerals came from, down to the exact mine if possible. Because there are legitimate mines in Congo that many poor people depend on for a subsistence income, the trick is to continue sourcing from that area while avoiding sourcing from the illegal mines, noted Rick Goss, vice president of environment and sustainability at the Information Technology Industry Council (ITIC) in Washington, DC.

The law will affect companies throughout the electronics supply chain, said Tom Valliere, senior vice president of Design Chain Associates LLC, a supply chain consultancy. "These are the building blocks of electronics. Tin has multiple uses in every electronic component that I can think of," he said. "We're talking about a huge exposure here."

The legislation sets no penalty for sourcing conflict minerals. But by requiring companies to disclose this information, it will expose companies' supply chain policies and practices to scrutiny, especially by human rights organizations.

Exactly how this will all work depends on the regulations that the law directs the SEC to write. Industry watchers expect the SEC to put out proposed regulations for public commend by the end of 2010. Final regs are due by mid-April 2011. Companies will be expected to issue reports starting the first fiscal year after the SEC issues the regulations.

Determining whether conflict minerals are in products is a herculean task. An OEM can trace its components back to certain manufacturers, and those manufacturers may even be able to trace its mineral suppliers back to particular smelters. But there the trail goes cold. That's because smelters typically get a particular mineral - such as tantalum - from a variety of sources, including recycled materials, and mix everything together. At that point, it's impossible to determine where all the minerals that went into that metal came from.  "It's from everywhere and nowhere all at once," said Goss. "There is no single source."

Even so, the ITIC supports the legislation. "It's substantially similar to a proposal we put on the table months ago in terms of public disclosure," said Goss.

The industry is making a bit of progress in terms of tracking tantalum, of which the electronics industry is the major user. The Extractives work group of the Electronic Industry Citizenship Coalition (EICC) and the Global eSustainability Initiative (GeSI) is developing an auditing program for tantalum smelters. The group has developed specific protocols, and plans to use third parties to audit the smelters later this year, according to Wendy Dittmer, a spokeswoman for the EICC. Limited summaries of the audit findings and a list of smelters that pass the audit will be posted on the EICC Web site starting next year, she said.

ITIC members will then be able to require their component suppliers to source only from those smelters that passed the audit, said Goss.  

The sooner electronics companies can take substantial action, the better, because human rights groups intend to keep a spotlight on this issue. The Enough Project is currently surveying 21 major consumer electronics companies to find out what each is doing on the issue. The Project plans to use this information to rank the companies in terms of their pro-activity and publish that list on its Web site this November, said Sasha Lezhnev, executive director of Grassroots Reconciliation Group and a consultant to the Enough Project.

Lezhnev said the electronics industry has been more "progressive" on this issue than many other industries, noting that tech companies have been working on the problem for a couple of years. He called on the electronics industry to continue to play a leadership role in several ways: by providing constructive comments when the SEC issues proposed regulations,  by devising smelter audit programs for other minerals,  and by working with governments and other groups to help design a program in Congo that would certify legitimate sources of minerals. The ITIC is participating in an "in-region sourcing initiative" being developed by the UK-based International Tin Research Industry, said Goss.

But it's an incredibly difficult task. Rebels are becoming more sophisticated, Goss noted. Rather than running the mines themselves, for example, they have started setting up roadblocks to extract fees as minerals are shipped from legitimately operated mines. The minerals may have the proper paperwork, but these fees still contribute to funding the conflict. "It's not like the rebels hand over a receipt after they've held you up at gunpoint."

 
Resources

 

The Dodd Frank Wall Street Reform and Consumer Protection Act (the Congo provision starts on page 838)

Enough Project YouTube video on conflict minerals

Enough Project spoof of Mac-PC ads

EICC statement on conflict minerals

"The Congo, minerals, and the electronics industry," a blog post by Gary Nevison, director of legislation and environmental affairs at Newark and Farnell