'Blood Minerals' in the Supply Chain

Compliance to the new financial reform bill will pose unique challenges

By Andrew K. Reese

The 848-page financial reform bill signed into law in the US on July 21 (the "Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010") contains a six-page section, starting on page 838, that addresses the issue of "Conflict Minerals" coming into the supply chain from the Democratic Republic of the Congo (DRC). The goal of Section 1502 is to ensure that certain minerals coming from the DRC are "conflict-free" — that is, not fueling the ongoing violence that has left more than 5 million people dead, and not funding the armed parties that have employed forced labor, child slavery and sexual terror as standard practice to control the minerals trade.

The minerals covered in the law — coltan (columbite-tantalite, a source of tantalum), cassiterite (tin), wolframite (tungsten) and gold — are used extensively in a variety of industrial, consumer and electronics products. Tin is used as a solder on circuit boards. Tantalum capacitors are used widely in the technology supply chain. Tungsten is used as tungsten carbide in applications like turning tools and milling, but it's also used in cell phones to make them vibrate. Gold is used in jewelry, of course, but also used for the gold plating, printed circuit boards, connectors, switches and other electronic components. Collectively the minerals are referred to as the "3Ts, plus gold."

The provisions of this new law will require compliance with new Securities and Exchange Commission (SEC) regulations. SEC requirements instruct companies to understand whether their products contain any "DRC conflict minerals." Failing to accurately report these to the SEC puts a company at risk of being perceived as supporting armed groups in the DRC.

The cost for any given company of complying with Dodd-Frank's requirements is an open question. One US-based non-governmental organization (NGO) The Enough Project has cited a figure. They indicate that it would add only $0.01 to the price of a cell phone to ensure that adequate auditing procedures are put in place to ensure that the minerals are conflict-free. However, that figure would seem to understate the complexity of the challenge once the minerals reach a smelter (i.e., ongoing DRC dynamics, lack of standards for managing mineral supply chain origins, tracking tools needed, and other unknown total costs involved).

In researching the issue, I interviewed executives at end-user organizations, original equipment manufacturers (OEMs), suppliers and industry technology associations and found the consensus is that the law's provisions are necessary. "Perception is reality, and hence no one wants to be perceived as supporting the horrific violence permeating the DRC civilian population," says Mark Northrup, Director of Advanced Technical Operations at IEC Electronics Corp. He has been working with IPC — Association Connecting Electronics Industries®, to help educate lawmakers and regulators on the supply chain aspects of the issue.

What to do about eliminating conflict minerals from the supply chain goes beyond the scope of this column. But, the first step is to start educating yourself about the law, its provisions, and implications. You can start with the whitepaper/article that will accompany the e-book version of this issue of the magazine (available through www.SDCExec.com). In addition to an outline of a strategy for dealing with conflict minerals, the online article will include additional background and links to online resources and relevant NGOs and industry associations.

"Blood minerals" have not yet achieved the visibility of the "blood diamonds" that inspired a Hollywood movie — a movie that reinforced a movement to prevent conflict diamonds from funding violence. But as the provisions of Dodd-Frank take effect and similar laws are promulgated elsewhere, you can be certain that the conflict minerals issue will impact your supply chain. As with other issues of environmental or regulatory compliance, leading companies will be working now to formulate their conflict minerals strategies — and to keep the blood out of their supply chains.