Congo Conflict Minerals: Compliance Challenges Ahead as Businesses Worry About Penalization

New U.S. reporting requirements on sourcing “conflict minerals” create challenges and opportunities for companies.

You paid $100 for an organic heirloom turkey for your holiday table. Your fair trade coffee costs $16 per pound. And the hand-crocheted organic cotton blanket from a Peruvian co-op for your new baby niece? As much as $220 plus shipping.

Sustainable merchants have established strong niche markets for luxuries and incidentals. But what about an essential tool like your smart phone? Would you pay more if you could be sure its materials weren’t indirectly bankrolling human rights abuses in a distant frontier like the Democratic Republic of Congo?

New Reporting Requirements For Conflict Minerals

Creating a new economic framework amid anarchy is just one dilemma facing companies in the U.S. subject to new reporting requirements for “conflict minerals” by the Securities and Exchange Commission. These minerals are crucial to electronics and widely used in many products.

Other challenges: understanding and complying with the new federal reporting requirements, untangling complex global supply chains and quelling fears of both suppliers and customers.

As the DRC government and rebels consider a new round of ceasefire talks, companies are now determining whether to keep sourcing materials from the DRC under the new regulations, or source from other nations.

“It would be easier to just stay out of it,” said Michael Loch, director of supply-chain corporate responsibility for Schaumburg, IL.-based Motorola Solutions.

“But from a CSR standpoint, you don’t want to make a bad situation worse, “Loch said. “If there is enough momentum and people stay engaged, you can see how a legitimate pipeline can be established and eventually we will see this as a normal way of business.”

Companies See Compliance Challenges 

Other companies say the conflict minerals regulations penalize them for circumstances far beyond conflict mineralstheir influence. More than a year before the first conflict minerals report is due to the SEC in 2014, they are feeling the pinch from customers asking them to certify that their products are conflict-free.  Yet, they can’t see clearly down their supply chains back to the materials’ origins – often small “artisan” mines under the control of warlords.

“We do not want to purchase any components where the manufacturer purchases raw materials from the DRC region, “ said Michael Goeringer, president of Arc-Tronics, an Illinois-based circuit board manufacturer. “However, we have no mechanism to determine if they are doing that or not.”

Four materials – tin, tantalum, tungsten and gold – are covered by the new regulation, which was required in the 2010 Dodd-Frank Act. A percentage of the world’s supply comes from mines on the eastern frontier of the DRC, where millions have been killed or uprooted in a civil war that has persisted for more than a decade.

Next year, U.S. public companies will be required to report their use of “conflict minerals” exported from this tropical twilight zone in a new effort by policymakers to choke off the outlaws’ financing and establish a legitimate economy. They must report their audited findings to the SEC.

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