Wednesday, July 21, 2010

U.S. Mandates Reporting on Conflict Minerals

An unlikely amendment to the recent financial reform law adopted by the United States this week includes a requirement for publicly-traded U.S. firms to report on their purchase and use of so-called "conflct minerals."  Sometimes compared to blood diamonds, conflict minerals include tantalum, tungsten, tin and gold from the Democratic Republic of Congo which are often used in laptops, cellphones and medical devices.  These purchases are funding the devasting 15-year-old Congolese war that has displaced 1.4 million persons and has spawned particular concerns about high levels of sexual violence.

The new law requires U.S. companies to disclose to the Securities and Exchange Commission whether their products contain conflict minerals and, if so, what steps they are taking to ensure that these minerals do not come from the Congo.  The difficulty for international business is that it is often hard to trace the origin of the minerals.  Many of these minerals are smuggled out of the Congo, are mixed with minerals from other countries, and then sold through a series of middlemen in countries around the world. 

To deal with the problem of tracing the minerals, in 2009, U.S. House Representative James McDermott (D-Wa) introduced H.R. 4128 entitled the Conflict Minerals Trade Act. Under the bill, U.S. Commerce Department-sanctioned auditors would audit mineral mines to determine whether they are conflict free. It would also map mines to show which ones fund conflict.  This bill has not yet been adopted. Of note, curbing trade in conflict minerals has bipartisan support.  Sen. Sam Brownback (R-Kans.) has also introduced legislation to deal with the problem and was the sponsor of the amendment to the financial reform bill.

Opponents of the law argue that it will result in a de facto embargo of minerals from eastern Congo, which in turn will cause huge job losses for mine workers.  Those workers will then be recruited by the warring parties. 

The law does not currently contain any penalties if companies report taking no action, but does require that companies post certain information on their websites so that consumers can make informed choices when purchasing products. The U.S. State and Treasury Departments are reportedly considering imposing sanctions on U.S. companies that do use conflict minerals. 

While increased attention and efforts to end the war in the Congo are certainly laudable, unilateral sanctions tend to be more easily evaded and therefore less effective.  It therefore would be better if the international community increased its collective efforts to bring an end to the conflict in the Congo.  The United Nations currently has 21,000 peacekeepears in the Congo, but this force has not been sufficient.  A U.N. group of experts suggested in a report last May that financial institutions that bankroll exporters and manufacturers could be made more accountable.  These financial institutions could be encouraged to devise ways to reduce illegal payments to armed groups. The panel further suggested that such action would complement the present UN-backed pilot scheme to introduce five "centres de negoces" (buying centres) in which deposits can be traded and tagged free from illegal taxes or armed groups.


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