Is Your Supply Chain Conflict Mineral Free? 80% of Companies Say They Don’t Know

conflict mineral

A large number of US companies are struggling to determine if their supply chains contain conflict minerals, those sourced from or connected to violent militia groups in the Democratic Republic of the Congo and surrounding countries. While reporting on conflict minerals in the supply chain is required by federal law, the task of making this determination is also costing companies millions of dollars and man hours each year, a new report has shown.

Section 1502 of the Dodd-Frank Act mandates that publicly traded companies report conflict mineral information in annual reports, but new research by Tulane University and compliance software and services firm Assent Compliance showed more than 80% of companies could not actually identify whether or not their products contained conflict minerals in 2014.

This uncertainty was acceptable during a 2-year phase-in period after the Dodd-Frank Act was adopted in 2010. But as the SEC now requires companies to be more specific, many of the firms are coming up short. Companies are also hiring outside firms to do the digging necessary to determine if conflict tin, tungsten, gold or tantalum exists in their supply chains, adding another cost for companies. The new report showed firms spent about 6 million hours and  $709 million last year to comply with conflict mineral report requirements.

Some Big Names Succeed, But Most Fall Short of Compliance

Tin, tungsten, gold and tantalum are used in a wide variety of products sold in the US – from jewelry to auto parts to smartphones. Bloomberg reported that Microsoft, Apple and Intel were among the large technology companies with the highest compliance scores in 2014. In order to gather all necessary information to make its determination, Intel said it actually sent 90 employees to mineral smelters around the globe last year. Apple warned suppliers in 2014 that they would need to audit the minerals they were providing the company by the end of the year or else Apple would not longer work with them.

However, these large companies seem to be the exception among the 1,262 companies filing compliance reports with the SEC last year, 77% of which are manufacturers. Less than 24% of companies were able to reach “full compliance” of the law in 2014, the new report shows. About 66% failed to report where there metals originated and 43% of companies failed to explain how they conducted due diligence to reach compliance. Another 9% used language in their SEC filings that did not specify if their supply chains used these conflict metals.

Other companies with high compliance scores in 2014 include:

  • Blackberry
  • Goodyear Tire
  • Citrix
  • Verizon
  • Cree
  • General Electric

Companies with the lowest compliance scores include:

  • Federal Signal Corp.
  • Lifeloc Technologies
  • Westport Innovations
  • Misonix Inc.
  • Moog Inc.
  • Party City Holdings

Spend Matters and MetalMiner Weigh In

Conflict minerals and the Dodd-Frank Act is something we have covered extensively in recent years here on Spend Matters and our sister site, MetalMiner. To help companies comply with the Dodd-Frank requirements, in May 2013, MetalMiner issued a Conflict Minerals Guide, which continues to be a useful tool.

Thomas Kase, vice president of research here at Spend Matters, has also offered tips for companies on how to prepare their supply chains for compliance. A few suggestions he wrote about include:

  • Companies should gather conflict mineral disclosure and contractual signoffs from vendors and store this information in a vendor management tool, which in turn should be broadly accessible to both the supplier (to ensure accuracy) and internal users to drive awareness
  • Employ product, component and ingredient-based analysis to your supply chain, which will later help determine supply sources
  • Any analysis needs to go deep into the product build as well as be tied to vendor assessments as even minute or trace amounts of conflict minerals require disclosure - the regulations don’t have a content floor

Today, Thomas thinks the conflict mineral regulation is “disastrous as it is counterproductive.” It actually hurts the African countries that produce tin, tungsten, gold and tantalum because companies may simply decide to pull out of the region completely to avoid any possibility of a conflict mineral ending up in their supply chain. This, Thomas told me, deprives the locals in those African countries from work and income, driving more into poverty.

Research has proved this is actually the case. In November 2014, The Washington Post reported that interviews with African miners, community leaders, Congolese officials and activist showed miners and their families actually fell deeper into poverty following the implementation of the Dodd-Frank Act. And, earlier this year, Foreign Policy magazine reported one of the biggest myths that surrounds Section 1502 of the act is that the legislation is counteracting the armed rebel groups in Congo that control and rely on the mines. The article stated:

“Many Congolese mines, in fact, are not controlled or affected by armed groups”… and research shows “that mines controlled by armed actors actually constitute  ‘a small number’... the relationship between mining and conflict is not nearly as clear-cut as many Dodd-Frank backers say. Nonetheless, the anti-conflict-minerals campaign has focused intensely on this link.”

What Companies Think of the Dodd-Frank Requirement

According to the new Tulane/Assent report, the criticisms from companies that filed conflict mineral reports with the SEC last year include:

  • The law imposes significant cost burdens, making it more difficult to compete in their industries
  • The law is unlikely to make a large impact on stopping conflict in the Democratic Republic of the Congo
  • The law is inconsistent with historical US securities laws and the SEC should not be acting as a “regulator of social responsibility”

So what’s the solution? Thomas said, “Section 1502, if not the entire act, needs to be deleted. Just get rid of it.”

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