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New US rule aims to crack down on Congolese capacitors

Companies must report use of minerals from conflict areas

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In an effort to stem the flow of foreign money into war-torn Africa, the US Securities and Exchange Commission (SEC) has issued new rules requiring manufacturers to publicly disclose whether they use minerals extracted from the conflict-torn Democratic Republic of Congo (DRC) or any neighboring countries.

Conflict diamonds, also known as "blood diamonds," have been recognized as a major source of funding for armed conflicts in Africa for many years. But the mineral-rich DRC, which has been embroiled in a series of bloody conflicts since 1998, is also a source of rare ores and metals that are in high demand by manufacturers of consumer electronics.

Specifically, the new SEC rule requires publicly traded companies to investigate and document the sources of any gold, tantalum, tin, or tungsten they import, whenever such materials are "necessary to the functionality or production of a product."

All four of these elements are frequently used in the manufacture of capacitors, solder, motors, connectors, and other electronic components for mobile phones, DVD players, videogames, computers, and other devices.

The SEC was required to draft the new rule by a section of the 2010 Dodd-Frank Act – the sweeping, controversial financial reform bill that Congress passed in response to the financial crisis of 2008 – but it has taken the agency until now to come up with the final language for it.

According to the Enough Project, a part of the progressive think tank Center for American Progress, companies have been using that delay as an excuse to avoid taking significant measures to curb their use of conflict materials.

Earlier this month, the Enough Project published a list that ranked companies based on their efforts to find out where their minerals come from and to avoid purchasing them from conflict-torn areas. Several major Asian electronics manufacturers – including Canon, HTC, Nikon, Nintendo, and Sharp – had failing marks, and Nintendo in particular was found to have made "no known effort to trace or audit its supply chain."

By comparison, major US and European electronics companies – including AMD, Apple, HP, Intel, Motorola, Nokia, and Philips – rated fairly well. All had made significant efforts to address the problem of conflict materials, the report found, with Apple, HP, Intel, and Motorola called out as "pioneers of progress."

Now that the final SEC rule has been issued, all manufacturing companies that report their earnings to the SEC will be required to include information about the sources of their materials and whether they believe those sources to be conflict-free.  They must also make the same information publicly available on their websites.

But not everyone believes that such laws will necessarily have the desired effect. According to Motorola, only a small quantity of the rare metals in DRC are controlled by militias, but the lack of a recognized system to verify the sources of minerals has led to a de facto ban on imports from the entire region. That has left thousands of people who depend on small-scale mining for their livelihood out of work, further threatening the economic stability of an already highly unstable region.

If the new SEC rule will exacerbate those problems, we might not know it for a couple of years yet. The rule goes into effect January 1, 2013, but companies won't file their first materials-sourcing reports with the SEC until May 31, 2014, with annual reports thereafter. ®

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