The SEC's Conflict Minerals rule impacts two types of companies:

  • If your products contains tin, tantalum, tungsten, and/or gold (the "3TGs") and your company is publicly held on a U.S. stock exchange (i.e. considered an "issuer" under the Exchange Act and files with the Securities and Exchange Commission, or SEC), then you're impacted directly.
  • If you sell products or materials that contain 3TGs to an "issuer" that then uses them in their products, the SEC's Conflict Minerals Rule probably affects you as well, albeit indirectly.

I will address some of the issues I've seen, some new issues, some progress, and provide some advice in this article.

The Lawsuit

First of all, there's the lawsuit. Last October, NAM, the American Chamber of Commerce, and the Business Roundtable filed suit against the SEC on Oct. 19, 2012 in Court of Appeals. Claims included

  • Inadequate economic analysis
  • No de minimis level defined
  • Compels speech in violation of the First Amendment

The suit was thrown out earlier this spring due to having been filed in the wrong venue. It was re-filed in the District Court of Washington, DC, but soon was rejected again. An appeal was submitted in August. NAM's first filing was made on September 11 and the SEC's reply is due by November 13.

De Minimis

One of the claims in this lawsuit is, to me, more interesting and potentially impactful than the others, that of no deminimis. This means there is no minimum concentration limit requirements for any of the 3TGs; even if a single atom of gold exists in your product – and that atom is necessary to its functionality or production – then you must discern the source of that atom back to, at least, the smelter, if not the mine that produced it. That's a tall order.

Experts generally agree that the lawsuit will have no impact on the upcoming May 31, 2014 deadline, so manufacturers hopeful of being able to avoid effort because of it should rethink their approach.

Sourcing from the DRC

Another issue is that some OEMs are contractually obligating their suppliers to not source any of their 3TGs from the DRC or other covered countries. While this may have the desired effect of choking off this source of funding to the rebel troops supported by 3TG mining activities, it also punishes legitimate mines in the DRC and region. This stance appears to have been driven by a desire to reduce the manufacturers' workloads, as any evidence of sources in the DRC and covered countries requires the issuer to perform due diligence and provide a Conflict Minerals Report.

However, the potential risk of this approach is significant. The true intent of the Dodd-Frank act, and the SEC's rule, is not to end the sourcing of 3TGs in the region altogether, but rather to end sourcing that funds rebel troops. The goal, as described by the non-governmental organization (NGO) The Enough Project, is to "create a legal trade that benefits the people of Congo and the region." Eliminating that trade altogether will do more harm than good.

This is a nuance, but an important one. Ultimately, manufacturers will publish their policies and disclose whether any of the 3TGs used in their products originated in the DRC or covered countries and support armed rebel groups. Customers, competitors, and NGOs and SRIs (Sustainable and Responsible Investors) will be reviewing and comparing these, and this is where the real impact of the SEC's rule will come into play. The SEC rule's primary enforcement mechanism is "name and shame"; public scrutiny and assessment of reported results. Those companies choosing to not source at all from the DRC risk "shaming" from NGOs like Resolv (which runs The Enough Project) and SRIs like the Responsible Sourcing Network. By focusing on minimizing potential reporting duties and internal workload, manufacturers taking this approach risk bad publicity, damage to their brands, and investor angst.

Examples of an enlightened approach can be seen from TriQuint Semiconductor, AVX, and KEMET (which claims to be "the world's largest user of tantalum"). TriQuint's Conflict Minerals Policy statement states "TriQuint has not banned all Conflict Minerals from the DRC and adjoining countries – just those mineral sources that are being used to fund armed conflict." AVX's states "AVX recognized that a de facto embargo of DRC and Central African ore would create widespread hardship for the locals whose livelihood depends on the mines." And KEMET, in their Conflict-Free Socially Sustainable Tantalum eBook, says "Rather than avoid the DRC altogether, as was suggested by some parties, KEMET saw an opportunity to develop a comprehensive and sustainable solution to sourcing conflict-free tantalum ore from the DRC."

Holding firm to such contractual terms means you will be removing companies like these from your Approved Supplier List, because they are not going to change their approach; is this really what you want to do?

You're Not Alone

A number of entities and systems have been, and continue to be, developed in order to provide both support and guidance to manufacturers that must report.

  • First, of course, is the EICC/GeSI partnership. The Conflict-Free Sourcing Initiative provides manufacturers with both a reporting template which is the de facto standard for reporting, even in non-electronic supply chains, and the Conflict-Free Smelter program, which identifies and certifies smelters that source exclusively from conflict-free mines.
  • ITRI and the tin industry have finally certified the first few tin smelters.
  • The government of the DRC has also finally launched its regional certificates on the origins of minerals project.
  • Motorola Solutions, AVX, and a number of other manufacturers recently released the Evaluation Report for their Solutions for Hope initiative, which validates the AVX pipeline for tantalum.
  • The SEC even issued its first FAQ on the topic a few months ago, located here.

Conflict Minerals Around the World

Anyone who has been around the supply chain for a while knows how vast and expansive, how oblique and unknowable, and how tenuous and transient it can be. Recently it came to light that wolframite (the source of tungsten) mining in another region far from the DRC, Columbia, in South America, supports the leftist Revolutionary Armed Forces of Colombia, or FARC, rebels (yes, this battle is still going on). A recent video story from Bloomberg provides disturbing evidence of this.

But this should come as no surprise. Nor should it come as a surprise when, at some point in the future, the definition of Conflict Minerals expands to include other important materials besides the 3TGs. In fact, the DRC is a significant source of copper, cobalt and diamonds; however they come from a different region of the DRC far from those involved in the rebellion .

European Union's Conflict Minerals Proposal

According to Dynda Thomas of Squire Sanders, who has been following developments in the Conflict Minerals sphere for a long time (and produces an excellent blog on the topic), EU Commissioner for Trade, Karel De Gucht, spoke at a Public Hearing of the Committee on Development in Brussels on their plans for a Conflict Minerals proposal. They will be producing a proposal targeted for release by the end of October that will take some cues from the SEC rule while trying to avoid some of the problems it has and has created. Among other things, according to the article they will

  • focus on effectiveness, reduction of side-effects, and coordination with other initiatives
  • create incentives for companies to work with primary mineral producers in conflict regions
  • hope to avoid some of the unintended consequences of the conflict minerals efforts, like the creation of de facto embargos of certain conflict regions (see above on contracts)
  • not limit their proposal to one region but they will (see above on Columbia)
  • limit it to the currently defined 3TGs


So keep in mind, as you're working on your Conflict Minerals strategy, that developing a general approach to supply chain risk in this area should not be limited to just the DRC and 3TGs. It can happen anywhere, is indeed happening elsewhere, and regulatory requirements (and perhaps customer requirements) do not have to harmonize with the SEC's rule. Governments and NGOs are telling manufacturing industries, in so many words, to take more comprehensive responsibility for their supply chains and their products. Incorporating environmental and social risk assessments, mitigation strategies, and requirements in supply chain design and new product development is growing in complexity, breath, and depth.

Mike Kirschner

Mike Kirschner

Mike Kirschner is a product environmental compliance and performance expert who provides advice and expertise to manufacturers in a variety of industries. His primary areas of focus include EU RoHS, the impact of EU's REACH regulation on article manufacturers, California’s Safer Consumer Products regulation, and performance standards like IEEE-1680.x for electronics. Mike helps manufacturers define, implement and troubleshoot internal management systems that result in compliant products, and assesses and monitors environmental regulations around the world on their behalf.

He contributed two chapters to the Governance, Risk, and Compliance Handbook, published by Wiley in 2008, and is featured in the critically acclaimed book, Exposed: The Toxic Chemistry of Everyday Products and What's at Stake for American Power. In 2009 he was appointed to the California EPA Department of Toxic Substance Control's Green Ribbon Science Panel. Prior to joining ENVIRON, Mike founded product lifecycle and environmental consultancy Design Chain Associates, LLC (DCA), where he serves as president. Before founding DCA in 2001, Mike spent 20 years in engineering and engineering management roles within the electronics industry with manufacturers including Intel and Compaq. He holds a BS in electrical engineering from Worcester Polytechnic Institute.

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