Posted by Senior Director, Juliette Terzieff:
Despite the recent departure of a main stakeholder from the Kimberley Process—a standard-setting multistakeholder effort to curb the trade in blood diamonds—similar efforts continue to gain traction on the issue of conflict minerals. The European Union is considering action after the U.S. passed legislation to curb the trade, while the private sector and activist stakeholders simultaneously seek ways to sever the connections between mineral trade, warfare and human rights abuses.
But what happens when implementation of legislation and certification schemes at the local levels is stymied by a lack of infrastructure, corruption and political interests? What is to keep multinational corporations from turning to alternative sourcing to avoid the pitfalls of a lack of local capacity? How do these efforts affect local populations and development? And how long do various stakeholders stay engaged in a process when progress is limited?
Almost a decade after the Kimberley Process came into being to curb the trade in diamonds sold to support deadly conflict, stakeholders are still grappling with such questions. Global Witness, which helped drive the creation of the KP, withdrew from the process in December 2011 in frustration over chronic corruption and the continued ability of human rights abusers to bring their product to market through the KP.
As efforts to stem the flow of conflict minerals move towards systemic shifts in the way the trade is managed, the challenges of the KP may seem all too familiar.
Some American companies like Apple, Inc. are looking to stop the sourcing of any minerals from the Democratic Republic of Congo (DRC) in order to prevent conflict minerals from reaching its products—the opposite effect U.S. legislators intended with the Dodd-Frank Act. As much as 90 percent of the previous level of DRC exports have ceased as multinationals back away for to avoid running afoul of pending reporting rule associated with the Act. Hewlett-Packard, Inc. has also joined Apple, Inc. in stopping the flow of potential conflict minerals from reaching its products.
The Dodd-Frank Act, which came into being July 2010, requires the Securities and Exchange Commission (SEC) to force companies to report all minerals, such as tin, gold, and tungsten, used in their products—cell phones, computers, GPS systems—and where those minerals come from, even trace amounts, to prove such minerals were derived from a “conflict free” area of the DRC. Legislators hoped this would pressure DRC rebel groups and other combatants that profit from the trade but has shaken up the international mineral markets.
“If you go from compliance on through, this starts to set up not only nightmare scenarios, but also costly scenarios that make it difficult for companies to ensure an adequate supply of raw materials,” Tom Quaadman, Vice President of the Chamber of Commerce’s Center for Capital Markets Competitiveness, said.
AT&T has criticized the Dodd-Frank as too broad and raising concerns the new requirements “could trip up companies who contract with manufacturers and have little, if any, control or knowledge about the origins of minor amounts of minerals that end up in their products.”
The United Nation’s (UN) Group of Experts stated in a report that the situation has helped further entrench corruption and made the situation worse by leaving many DRC exporters “bereft of their main, or only customers, and therefore incomes.”
In late December 2011, a UN report confirmed that the “crackdown” on conflict minerals has pushed “trade deeper into the hands of criminals and smugglers “including former rebel officials who are now in the Congolese army. The report warns, “(It) appears to have increased the need for fraudulent operators to seek or accept military assistance in their mineral smuggling operations” and suggests a rise in the smuggling of conflict minerals into Rwanda because Rwanda’s reported production is much higher than what industry analysts deem realistically possible.
Several groups, companies and attorneys “have urged the SEC to phase in the new rules over time to help make it easier to comply,” as well as “narrow the scope of the rule” so the corporation won’t have to “track trace amounts of minerals.” However, human rights groups oppose a “phase-in” period and state that the “SEC needs to follow the Dodd-Frank mandate and implement the rule without delay.” Since the rule is a legal requirement, the SEC can’t stray from its intent.
Amol Mehra, coordinator of the International Corporate Accountability Roundtable, said, “Businesses should be held accountable for human rights issues, and investors find these concerns to be material in that they, at the end of the day, affect companies’ image and bottom line. All companies need to do…is simply tell us what is in their products.”
The challenges facing efforts to remove conflict minerals from the global supply chains of major multinationals are significant but doing nothing is simply no longer an option—and that is a point that stakeholders from across the spectrum continue to agree upon.
