In the aftermath of the Great Recession, the election of Barack Obama brought in a wave of populist support for Wall Street reform. With a democratic majority in Congress, the resulting Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was hailed as a huge step to reigning in the abuses that led to the 2007 financial crisis. Dodd-Frank, as it is commonly called, set out to put in many much-needed financial reforms, including the creation of the Consumer Protection Agency.
The act also wanted to make sure your cellphone didn’t fund a civil war.
A little discussed provision, Section 1502, requires that the Security and Exchange Commission establish disclosure requirements for companies relating to conflict materials originating from the Democratic Republic of Congo. If the words “conflict” and “Congo” sound familiar, it may be because this is the same region which was the source of so-called conflict diamonds in the 1990s.
This time, however, we’re not talking about a girl’s best friend.
The four materials covered under the conflict materials clause in Dodd-Frank are tin, gold, tantalum, and tungsten. These materials are much more ubiquitous and exist in everything from airplanes to every electronic device used to make our lives easier. The illegal mining and selling of these resources has been linked to the death of more than 5 million Congolese in a war that began long before the introduction of the iPhone.
In the late 1990s, a brutal civil war was raging in Sierra Leone. The war came to the world’s attention when it was discovered that nearly 4 percent of the world’s diamond production came from there and other conflict regions including Angola and the Democratic Republic of Congo. These “blood diamonds” were used to finance rebels fighting against the recognized governments of the countries. Warlords would force citizens into slavery, using them to mine the diamonds that they would smuggle into the global market. In response, governments in 74 countries, the UN, and the diamond industry created the Kimberley Process Certification Scheme that imposed requirements on producers to certify their diamonds as conflict free.
Today, the diamond industry claims that 99 percent of diamonds come from conflict free sources.
As the illegal diamond trade all but ended, the Democratic Republic of Congo was already involved in smuggling the much sought after materials needed to feed the global consumer electronic market. Warlords overtook the mines and terrorized locals, forcing many of them into slavery. They also took over the smuggling routes, which would take the materials needed for everything from microprocessors to batteries and have them smelted down, essentially making it impossible to trace where the materials had come from. It is estimated that the rebels in the eastern region of the country bring in nearly $185 million dollars annually from their efforts.
In 2012, the SEC published their final rules for publicly traded companies to comply with the provisions of the Dodd-Frank act. Any company that produces products made with any of the four materials listed in the act (tin, gold, tantalum, and tungsten) must report indicated if the source materials are from the DRC, as well as produce an audit report of their supply chain indicating whether any of their suppliers use materials from the region. Understanding such an audit will be time consuming; companies are allowed to file for the next two years, companies can indicate “DRC conflict undeterminable” if they are unable to find the source of the materials or product (smaller companies can do this for four years if necessary). Their findings must be published publicly, including on the companies’ websites. The first report is due by May 31, 2014.
Many businesses have complained about the provision claiming that the new requirements will be time consuming and costly. While there are no penalties for not complying, there is worry that shareholders would get upset if customers stop supporting products which contain DRC conflict materials. Trade organizations such as the U.S. Chamber of Congress sued the SEC claiming they did not do a cost benefit analysis prior to establishing the rules. A federal judge upheld the rules.
While some companies are still trying to overturn the requirements via congressional action, others have taken the lead on making a difference. Earlier this month at the Consumer Electronics Show in Las Vegas, Intel CEO Brian Krzanich announced that all of the computer chips made in their factories come from conflict free regions. Intel sent representatives to more than 20 countries to ensure that their smelters were using auditing procedures to track the source of materials.
Like with conflict diamonds, human rights organizations do not believe that Section 1502 will end the decades-long conflict. The Enough Project co-founder John Predergast has been at the forefront of the efforts to bring attention to the conflict in the DRC (as well as Sudan and other regions of conflict resulting in tremendous human suffering). The group understands that many corporations received these conflict materials through their supply chain and have no idea how to weed them out. However, the organization reports that efforts by many companies, including Apple and Hewlett-Packard, have already reduced funding for the rebels by 55-75 percent from three of the source materials. The point is to end the human cost involved in the mining of the materials.
It has been done before.
As the source of illegal funding dried up, so did the resources for the rebels in Sierra Leone, which helped to end the conflict. With an established government in place, they could legitimize the mining of their resources, creating safer working conditions and improved lives of their citizens. In 2003, the U.N. lifted the ban on Sierra Leone diamond exports, and the country is now part of the Kimberley Process, having exported more than $100 million worth of diamonds in 2013.
Activists hope for similar success for the Democratic Republic of Congo by the next decade.
Photo by Spencer Platt/Getty Images via Thinkstock MONGBWALU, CONGO - MARCH 27, 2006
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