Do Conflict Mineral Regulations Work?

Its that time of year again – when my inbox begins filling with emails from Schlumberger, GE, and many others asking me to fill out their conflict minerals forms certifying that our material is free of conflict minerals. To be candid, these forms and requests usually end up being put aside or finding their way to the bottom of my to-do list as everything else takes precedent. Until I get the follow-up email, and then I feel guilty for having completely forgotten about them.  

The last time I filled them out, I pondered what a great cottage industry had been created by these U.S. regulations. And I wondered to myself, as I started getting the requests in this year, does this do anything?

Well, apparently there is growing evidence that these regulations are not working.

By way of background, in 2010 as part of the Dodd-Frank Wall street reform bill, Congress mandated that the U.S. Securities and Exchange Commission (SEC) implement a regulation requiring that U.S. businesses examine whether their products contain conflict minerals.   The purpose was to cut off financing to armed groups in the Democratic Republic of the Congo (DRC). The idea was simple – cut off their way to make money, and the groups die and life for the people of the Congo improves. So every year, we fill out these forms and sign and certify what we believe to be true.

Yet, according to researchers at Harvard University, six years later most companies affected by the regulation still cannot determine whether their products contain conflict minerals. These researchers examined companies from 2014, 2015, and 2016 and found only about one percent of companies were able to declare their products “conflict-free beyond a reasonable doubt.” Nineteen percent of companies said they had “no reason to believe their products contained DRC conflict minerals” while the rest—80 percent—“admitted that they were unable to determine their raw materials’ country of origin.”  The researchers concluded that the supply chain was simply too broad to allow companies to source these minerals. They noted “the more global the company (in terms of the range of countries it operated in and the proportion of its sales made outside the U.S.), the less likely it was to declare its products conflict-free” and “the bigger and more dispersed the supply chain … the less likely the company was to declare itself conflict-free.” Last fall, the U.S. House Financial Services Committee (HFSC) passed a piece of legislation, the Financial CHOICE Act, that included a provision to repeal the SEC’s conflict minerals regulation. The Financial CHOICE Act didn’t make it through the last Congress, but sponsor HFSC Chairman Jeb Hensarling (R-TX) is expected to reintroduce it soon. Other evidence that the regulation is pointless and costly to U.S. business:

• A Government Accountability Office (GAO) study released in 2016 found U.S. companies continue to have significant difficulty fulfilling their disclosure responsibilities.
• According to the American Action Forum, the regulation already has cost companies $4.7 billion and 2.2 million in paperwork hours.
• Rwanda’s Minister of State in Charge of Mining, Ministry of Natural Resources and Government Evode Imena has said, “Rwanda has taken extensive steps and made great strides in improving accountability and transparency in the mineral supply chain” and “despite all that has been accomplished, our efforts to improve are hampered by the fact that Rwanda was lumped together with nine other countries in Section 1502 of Dodd-Frank.”
• The Washington Post has reported that the conflict minerals provision “set off a chain of events that has propelled millions of miners and their families deeper into poverty ...”
• In a letter released in September 2014, officials in the Congo argued the U.S.’s efforts to stem the use of conflict minerals have done little to improve the lives of the people living in the Congo.

Like many well-intended regulations passed by U.S. Congressmen who have exactly 0 experience in the real world of business, it appears that this legislation has largely failed to have any real world impact, and yet comes with a huge price tag to U.S. businesses.

By: Ty Chapman

Five Star Metals, Inc.

Raising the Bar for Customer Service and Quality

Twitter: @FSM_TY

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