Businesses trying to comply with 'conflict minerals' law

Businesses must disclose if the products they produce contain “conflict minerals.”

The argument goes that using a smartphone made from materials mined in war-torn Africa is no better than buying so-called blood diamonds.

Rebel groups in the eastern hills of the Democratic Republic of the Congo and neighboring countries run mines that produce key minerals used in the manufacture of consumer electronics and more mundane products such as zippers. The proceeds fund continuing strife that's killed up to 5 million people since 1998, more than any conflict since World War II.

In hopes of stemming the use of such "conflict minerals" from the Congo — and perhaps bringing peace or easing the humanitarian crisis there — Congress included a provision in the Dodd-Frank financial reform law passed in 2010 requiring U.S. public companies to disclose whether they use minerals from the region in their products or manufacturing.

Companies in Maryland and elsewhere, from chemical maker W.R. Grace & Co. to sports apparel brand Under Armour, have scrambled to comply with the new disclosure requirement.

In the second year that companies have had to file the reports with the U.S. Securities and Exchange Commission, advocates say the law has shrunk a key income stream for Congolese warlords.

But others call the law — which only requires companies to disclose their use of the minerals, not stop using them — unnecessarily burdensome. They say it may have little impact on the conflict in the Congo, formerly Zaire, and could even be exacerbating problems.

"It's basically the blood diamonds of the 21st century," said Lina Ramos, the chief business officer of Source Intelligence, a group that advises companies on how to comply with the law.

Conflict minerals aren't as flashy as blood diamonds, which became a cause celebre at the end of the 1990s and the theme of a 2006 Leonardo DiCaprio film about the role of diamonds in financing Sierra Leone's civil war, yet the minerals are far more widespread in the economy.

The law identifies four conflict minerals — tin, tungsten, tantalum and gold — that are used in a multitude of items. including smartphones, computers, zippers, light bulbs, medical implants and rocket engine nozzles, to name just a few. With an estimated $24 trillion of untapped mineral reserves, Congo is a large source for these minerals.

Last Monday was the deadline for companies to file reports with the SEC on their potential use of conflict minerals. In Maryland, Under Armour and W.R. Grace & Co. reported either that they may be using the minerals or that they could not determine whether their products contained them.

"This has caused the industry countless man-hours, countless millions to implement, for something where we have an impact on trace amounts of tin," said Nate Herman, the vice president of international trade for the American Apparel and Footwear Association.

Tin typically is used as a coating for zippers, in eyelets for shoes, or in buttons, said Herman, arguing that the industry would have little influence on the situation in the Congo. "Yet it's created a lot of cost and headaches"

In a filing last year before it was acquired by Men's Wearhouse, Jos. A. Bank Clothiers describes how it questioned and sought certification from its suppliers before determining that the tin in its zippers and hook-and-eye closures and gold in some buttons did not come from Congo or nearby.

A PricewaterhouseCoopers survey last year found that 89 percent of companies had at least one full-time employee working to ensure compliance with the law, with 6 percent of companies reporting that they had five or more employees dedicated to the task. Yet less than half of companies surveyed, about 45 percent, planned to become "conflict-free" in the future, with only 7 percent of those planning on doing so in the next two years.

To trace what can often be tiny amounts of the minerals back to the original mines can be tricky, as they are often smuggled outside the Congo to neighboring countries and taken to smelters. Language also is a barrier.

Ramos said the onus falls on the suppliers to ensure compliance with the law.

The effectiveness of the required disclosure is the subject of debate.

The Enough Project, a group affiliated with the progressive Center for American Progress and an advocate of the disclosure requirement, found in a 2014 report that the law had significantly reduced the amount of money flowing to warlords from the mining of all the minerals except for gold ore. Yet, the report noted, the situation in the Congo remains violent and unstable.

"There's a dramatically shrunken market for illicit minerals which are financing conflict on the ground," said Sasha Lezhnev, the associate director of policy for the Enough Project. "Still, there's a long way to go. Congo's not yet at peace. There's numerous actions that the U.S. government, the European Union and companies can take to address the problems in Congo."

A Washington Post investigation last year found that the law had the unintended consequence of putting Congolese miners out of business, with the miners or their children then joining militias in order to feed their families.

Herman said only small number of smelters — for tin, around a half-dozen, for example — have become "conflict-free," because of the complicated nature of tracing all the minerals brought to them back to where they are mined.

In its filing this year, Stanley Black & Decker said it totally relied on the smelters to comply with the law. The Connecticut-based company, which maintains a large campus in Towson, disclosed that it determined some of its products may contain minerals from the Congo.

However, the tool maker continued, it never communicated with those supplying the smelters, saying the company's "size, complexity of its products, and the depth, breadth and constant evolution of its supply chain" made it difficult to do so. Stanley said it set up a hot line and email address for employees or others to report suspected violations. The company did not respond to a request for comment.

Columbia-based W.R. Grace doesn't make anything using conflict minerals, but reported that equipment it uses may contain the minerals, "just to be sure that we're in compliance," spokesman Rich Badmington said.

"The only reason we file is we use some equipment that could conceivably have some conflict minerals built in, but it's not core to the business we perform or the products that we make," he said.

Its filing said a "catalyst loading device," "chemical purification and analysis equipment" and "packers/traps/degasser" may contain the minerals, but the company could not determine their presence definitively.

Baltimore-based Under Armour said in its filing this year that some of its suppliers could not give them more information on where the minerals used in its products had been sourced from, making it impossible for the company to determine whether it was using conflict minerals.

The company said in its filing that 23 of 107 suppliers who responded to its request for information could not say whether they used conflict minerals, while the rest said they did not use them. The company did not respond to a request for comment.

"Global brands are going to demand their suppliers are producing ethically and legally," Ramos said. "The new generation is really committed to ethical sourcing. The product isn't enough to be functional, the product has to stand for something, it has to be something people believe in and give their loyalty to."

cwells@baltsun.com

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