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and regulators have “significantly
expanded the scope of required
disclosures beyond the core concept
of materiality.” Statements like these
indicate a change in sentiment on
the part of regulators, at least with
regard to Conflict Minerals, but for
now, many of the costs for suppliers
remain unabated. Meanwhile,
with the EU Commission’s new
Guidelines for social responsibility
reporting, customer requirements
for expansive third-party surveys
continue to grow in number.
The unfortunate result is an
increasingly complex set of
regulatory requirements that has
created a shift in organizational
focus from product quality and
performance
to
paperwork;
investment by companies and
efforts by regulators largely
wasted on merely documenting
“compliance” without meaningfully
effecting positive change in the
social, economic and geopolitical
crises that was their original intent
to resolve.
Conflict Minerals: Flawed
Means to a Noble End
Conflict minerals rules emerged
in 2010 from section 1502 of the
Dodd-Frank Wall Street Reform
and Consumer Protection Act. The
underlying goal of the legislation
is to prevent funding of violent
actors and human rights abuses in
the eastern Democratic Republic
of the Congo through the sourcing
of “T3G” minerals (Tin, Tantalum,
Tungsten, and Gold) from mines
controlled or taxed by warring
factions. The European Union and
the Far East have developed their
own versions of Conflict Minerals
regulations based on the rules
imposed on US manufacturers. In
response electronics suppliers are
required, either by regulatory bodies
like the SEC or by their customers,
to provide documented evidence
tracing minerals in their products
back to the smelter and further to
the point of origin.
Due to the scale and complexity of
the global electronics supply chain,
establishing a reliable chain of
custody from the finished product
back to the mine comes with several
significant challenges. For example,
Mini-Circuits is fully committed
to taking all necessary steps to
meet the disclosure requirements
of customers and regulators to
comply with Conflict Minerals
rules. However, we rarely if ever
purchase T3G minerals directly,
but rather in the bill of materials
of sub-components, several levels
downstream from the smelter.
We maintain strict standards of
documentation from our direct
suppliers, but the difficulties
obtaining relevant data suppliers
further upstream and beyond the
smelter, many of whom are not
required to file disclosures under US
Law, are well known. Therefore, our
best efforts to provide traceability of
minerals to a conflict-free source
are ultimately only as reliable as the
companies and individuals providing
it down the line. It is our desire
not only to meet our customers’
requirements and comply with the
rules of the Conflict Minerals agenda,
but also to see that our efforts to
do so contribute to its fundamental
humanitarian goals. Unfortunately,
much research on this issue has
shown evidence to the contrary.
The IPC cites a study by Tulane
University Adjunct Lecturer, Chris
Bayer that found SEC issuers
incurred an average annual expense
$545,962 to comply with Dodd-
Frank. A followup studyof 238 survey
participants, 73% of whom were
not SEC issuers but still performed
conflict minerals due diligence
to meet customer requirements,
found that the average cost of due
diligence activities was $129,000
per year. Despite this level of
investment, a 2014 open letter
signed by over 70 academics and
experts policy in the region asserts,
“The conflict minerals campaign
fundamentally misunderstands the
relationship between minerals and
conflict in the eastern DRC.” Profit
from minerals does fuel conflict but
is not the underlying cause, nor is
it a necessary element to sustain
violence. Mining is also vital to
the local economy, employing eight
to ten million people across the
country.
The letter goes on to say, “nearly
four years after the passing of the
Dodd-Frank Act, only a small fraction
of the hundreds of mining sites in
the eastern DRC have been reached
by traceability or certification
efforts.” The artisanal mining sites
in question are located in isolated
regions where systems for reliable
auditing and certification, have yet
to be established, making it difficult
if not impossible to obtain proof that
a mineral source is conflict-free.
The requirements of section 1502
of Dodd-Frank unintentionally drive
buyers to simply source minerals
from other parts of the world. This
may succeed in delivering more
ethical products, but does nothing to
improve the security and livelihood
of the Congolese people, which was
the original basis for the legislation.
The Conflict Minerals agenda has
been a source of much debate,
and in part due to its questionable
results since the passing of Dodd-
Frank in 2010, regulatory reform
seems to be already underway. In
addition to the statements of SEC
senior officials, easing enforcement,
in May, the House Financial Services
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