"Conflict Mineral" Rules Delayed

By now, U.S. electronic companies were supposed to have taken another important step in corporate accountability. By now, they were supposed to be governed by a new law that would make it harder--and more embarrassing–to source certain critical materials from war-torn Congo.

As we told you in December, a new law on "conflict minerals" was supposed to go into effect by the end of 2011. It didn't.

The conflict minerals law, which was slipped into the Dodd-Frank financial reform act of 2010, is intended to prevent warlords in the Democratic Republic of Congo from profiting from mines that they control. The law mandates that all companies that use the minerals tin, tantalum, tungsten, and gold in their products determine whether they're sourcing any of these materials from Congo's "conflict mines," and report their findings each year.

Because these minerals are commonly used in electronics--cell phones, laptops, you name it--companies like Apple, Intel, and Motorola Solutions have been scrambling to get their supply chains in shape.

But the law won't go into effect until the U.S. Securities and Exchange Commission (SEC) hammers out the exact rules, and that process is taking longer than anyone expected. The SEC first planned to issue the final rules last April, then pushed it back to the end of 2011. Now the SEC's website says the rules will come out between January and June of this year. (The SEC is in charge of implementing all new regulations from the Dodd-Frank act.)

When asked to comment on the latest delay, an SEC spokeswoman noted that there is no mandated timeline for finalizing the conflict mineral rules. She referred me to a quote from one of her SEC colleagues who recently said, "The Commission and staff are working hard to adopt effective rules as quickly as possible with an emphasis on getting the rules right."

Be that as it may, activists are getting restless. Sasha Lezhnev of the Enough Project, a human rights group that has been active in the conflict minerals debate, thinks the delay is due to business groups that have complained fiercely about the cost and logistics of implementing the law. "I think that the SEC is facing intense pressure from industry lobbyists to water down or kill the regulations," he told me.

Lezhnev also notes that there's a widespread rumor that the U.S. Chamber of Commerce plans to sue, once the rules are issued, to strike down the conflict minerals law. "The Chamber of Commerce has sued the SEC four times in a row and won four times in a row," Lezhnev says. "I think the SEC is really concerned with saving face on this issue and not getting sued." For the record, the Chamber of Commerce won't confirm whether they expect to sue.

The latest delay has real repercussions due to the wording of the law. Once the final rules are issued, companies will have a 12-month grace period, but will then have to include a conflict minerals report in their annual reports for the next fiscal year. Because most companies ended their fiscal years at the end of December 2011, the delay means that their first conflict mineral reports will appear in their year-end 2013 annual reports.

Lezhnev says that timeframe will still give companies an incentive to get serious about conflict minerals--but he's worried that the final rules may delay action even further. "If the SEC rules establish a further 2- to 3-year phase-in process for the law, that would be disastrous for any kind of real reform," Lezhnev says.

Image: Grassroots Reconciliation Group / Sasha Lezhnev

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