New EU regulation planned: The struggle with conflict minerals continues

The struggle with conflict minerals

A mobile phone, a computer, a pair of earrings, a light bulb– all of these items can have a unique common attribute that is quite perplexing.  Trading and/or buying these items often supports corruption and violence in their countries of origin due to their use of conflict minerals. But how should consumers know as most of the time not even the companies do? The United States approved the Dodd-Frank Consumer Protection Act about five years ago to regulate the international trade and use of conflict minerals as we already addressed in a previous blog post. Now the European Parliament wants to follow suit with their own legislative proposal.

Similar to the issue with blood diamonds the so-called conflict minerals tantalum, tungsten, tin and gold or their derivatives, are raw materials that come from the Democratic Republic of the Congo (DRC) or an adjoining country where conflict is occurring and affects the mining and trading of these minerals. Money from selling such materials is not only used for personal profit but also to fund further violence.

 

conflict minerals

conflict minerals

 

Fulfilling the Act’s rules is difficult

The U.S. law requires all public companies to investigate the origin of their product’s minerals and report their results to the Securities and Exchange Commission, declaring whether they found conflict minerals from the DRC or adjoining countries. The regulation of the Dodd-Frank Act is aimed at the entire supply chain of US stock exchange-listed companies. This also extends to companies’ n-tier supply chains. Unfortunately years of experience shows that realizing this transparency measure is extremely difficult. Often it turns into a real investigative process in order to expose this information.

The latest GAO report regarding conflict minerals reveals that more than two-thirds from 147 examined enterprises could not identify the origin of the metals or their derivatives in their products. Furthermore none of these companies were able to say for certain whether or not the minerals financed or benefited armed groups.

Following the U.S. policy, the European Union has been discussing a law which targets those responsible for conflict resourcing. In the beginning they wanted to create a certification process for smelters, refiners and importers into the European Union on a voluntary basis. In May 2015 the European Parliament voted to reject the proposal calling to convert it to a mandatory requirement for all importers of raw material from conflict-affected and high-risk areas around the world. Although the discussion about this controversial topic is still ongoing, it is interesting to look at the possible consequences on the world’s industries and economies.

 

Possible impacts

Experts are afraid that the duty for companies to document their whole supply chain would be counterproductive. Especially for smaller companies the expenditure could be too costly. Furthermore avoiding imports from countries like the DRC, Bolivia or Peru could even worsen the economic and social situation for the local populations.

Finally, companies have to take into consideration that continuous analysis of their supply chain is crucial to protecting their image, ensuring compliance and remaining competitive. Regardless of whether or not this is reached through a certification system or by a new law, establishing transparency within your supply chain helps to reach company goals and simultaneously improves the situation in crisis regions.

Rolf Zimmer is a founder and managing director of riskmethods, and is responsible for Finance, Product Strategy and Customer Success Management.

Rolf has been working in software business and procurement for 18 years. He has excellent knowledge in the areas of procurement, supply management and risk management – which he gained from working inside procurement departments as well as from consulting activities at SAP, Ariba and Emptoris, among others. His previous position as Sales Director at IBM included responsibility for distribution of the “Emptoris” Supplier Relationship Management suite and associated consulting services.


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