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Keeping Conflict Minerals Out of Your Supply Chain

Feb. 22, 2019
How conflict minerals from the Democratic Republic of Congo are impacting the electronics supply chain, and what buyers can do about it.

Encompassing the metals tantalum, tin, tungsten, and gold that are the derivatives of the minerals cassiterite, columbite-tantalite, and wolframite, respectively, conflict minerals are extracted from different locations around the world, including the Democratic Republic of Congo (DRC). If the income derived from the trading of these minerals is used to finance armed conflict in the DRC and surrounding countries, then those minerals are classified as “conflict minerals.”

According to supplier information and supply chain management consultancy Achilles, the troops and militias use significant profits, derived from the mines, to further their own agendas and to perpetuate war though the purchase of weapons. “Furthermore, they are responsible for some of the worst atrocities against mankind and gross violations of human rights, including rape, murder, and child labor,” the firm points out. “Civilians from local mining communities are forced to take part in this illegal mining trade.”

Why Buyers Should Care

Of particular relevance for electronics buyers, the focus on conflict minerals grew in 2012 when the SEC issued its final rule on corporate conflict minerals. Stemming from a requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act dealing with the sourcing of certain minerals from the DRC, the law requires publicly-traded companies to disclose annually whether or not they have used tantalum, tin, tungsten, and gold mined from the DRC.

In an interview electronic components distributor Newark element14, SourceToday reported that members of the electronics supply chain would have to make “extensive inquiries and report back to the SEC and their customers on the presence and origin of any conflict minerals present in the products they are selling.” And while the rule only applies to publicly-traded companies, the requirements are impacting the entire electronics supply chain.

According to Bloomberg BNA, as of June 2018 approximately 1,100 companies had submitted to the SEC reports on their sourcing of these conflict minerals. In the meantime, the SEC is reviewing its rule in light of a court decision that struck down part of it amid pushback from the National Association of Manufacturers and other industry groups. These groups didn’t want companies to be forced to say whether or not minerals in their mobile phones, jewelry, and other products have been linked to conflict and human-rights abuses in the DRC and neighboring countries, Bloomberg reports.

How to Detect and Deal with Conflict Minerals

According to the SEC, the corporate conflict mineral 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.
  • The minerals are “necessary to the functionality or production” of a product manufactured or contracted to be manufactured by the company.

The final rule requires a company to provide the disclosure on a new form to be filed with the SEC (Form SD). A company is considered to be “contracting to manufacture” a product if it has some actual influence over the manufacturing of that product. For example, a company is not 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.
  • 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.

Under the final SEC rule, a company that uses any of the designated minerals is required to conduct a reasonable “country of origin” inquiry that must be performed in good faith and be reasonably designed to determine whether any of its minerals originated in the covered countries or are from scrap or recycled sources.

If the inquiry determines either of the following to be true…

  • The company knows that the minerals did not originate in the covered countries, or are from scrap or recycled sources.
  • The company has no reason to believe that the minerals may have originated in the covered countries or may not be from scrap or recycled sources.

…then the company must disclose its determination, provide a brief description of the inquiry it undertook, and the results of the inquiry on Form SD.

The company also is required to make its description publicly available on its website and provide that site’s URL on the Form SD.

If the inquiry otherwise determines both of the following to be true…

  • The company knows or has reason to believe that the minerals may have originated in the covered countries.
  • The company knows or has reason to believe that the minerals may not be from scrap or recycled sources.

…then the company must undertake “due diligence” on the source and chain of custody of its conflict minerals and file a Conflict Minerals Report as an exhibit to the Form SD. The firm is required to make publicly available the Conflict Minerals Report on its website and provide that site’s URL on Form SD.

Blockchain: New Way to Fight Back?

In January, Ford Motor Company, Huayou Cobalt, IBM, LG Chem, and RCS Global announced they would start using blockchain technology to trace and validate ethically-sourced minerals. Cobalt is in high demand for its use in lithium-ion batteries, which power a wide range of products such as laptops, mobile devices, and electric vehicles. That demand is expected to multiply eightfold by 2026 owing to the mineral’s use in electric vehicles and consumer devices, IBM noted in its press release. (The typical electric car battery requires up to 20 lb. of cobalt while the standard laptop requires around one ounce of the mineral.)

Now underway, the blockchain pilot seeks to demonstrate how materials in the supply chain are responsibly produced, traded, and processed. Cobalt produced at Huayou’s industrial mine site in the DRC will be traced through the supply chain as it travels from mine and smelter to LG Chem’s cathode plant and battery plant in South Korea, and finally into a U.S. Ford plant, IBM explains.

From there, an immutable audit trail will be created on the blockchain, which will include corresponding data to provide evidence of the cobalt production from mine to end manufacturer. According to IBM, the project will determine whether an open, industry-wide blockchain platform is possible for tracing and validating a range of minerals used in consumer products.

“With the growing demand for cobalt, this group has come together with clear objectives to illustrate how blockchain can be used for greater assurance around social responsibility in the mining supply chain,” said IBM’s Manish Chawla in a press release. “The initial work by these organizations will be used as a precedent for the rest of the industry to be further extended to help ensure transparency around the minerals going into our consumer goods.”

About the Author

Bridget McCrea | Contributing Writer | Supply Chain Connect

Bridget McCrea is a freelance writer who covers business and technology for various publications.

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