US regulator approves 'conflict mineral' rules

24 August 2012

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24 August 2012 | Paul Snell

The Securities and Exchange Commission in the US has approved regulations that will require companies to disclose their use of ‘conflict minerals’.

Members voted three to two in favour of the rules that will require businesses to report to the SEC if the metals tantalum, tin, tungsten or gold are used in their products, and where they are sourced.

The provision was introduced in the Dodd-Frank Wall Street Reform and Consumer Protection Act, a piece of US legislation introduced as a reaction to the financial crisis. The law is intended to prevent the money spent by corporations on these minerals funding armed conflict in the Democratic Republic of Congo. It is estimated the rules will affect around 6,000 companies, in sectors such as automotive, electronics and telecoms, which are users of the elements. And the regulator estimates the cost of implementation will be between $3-$4 billion (£1.9-£2.5 billion).

The first reports, covering the 2013 calendar year, must be submitted on 31 May 2014. The SEC has repeatedly delayed the introduction of the rules, to take additional consultation on their impact.

Mary Shapiro, SEC chairman, said in a statement: “I am pleased that the Commission has finalised this very challenging project in such a thoughtful manner. We have received significant public input on this rulemaking, and in response we incorporated many changes from the proposal that are designed to address concerns about the costs.”

The implementation is seen as a positive move by campaign groups, although the Enough Project said companies who have already taken steps to audit their supply chain will incur the cost of the required independent audit of minerals, whereas those companies that have made no efforts will benefit from a two-year ‘phase-in’ period.

"The SEC's passing of the two Dodd-Frank rules on the extractive sectors will benefit those industries in the long run,” said Heyrick Bond Gunning managing director of Salamanca Risk Management. “The realities of operating in emerging markets in the extractive sector are well known, but we are increasingly seeing clients successfully adhering to zero tolerance corruption policies. These start with increasing levels of pre-deal reputational due diligence of potential partners, focusing on their ties to government and their supply chains. If wrongdoings are uncovered, the deal stops, they are carved out of the deal or these wrongdoings are corrected and reinforced by robust policies, procedures and training.”

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