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Companies must take clear position on legal threat to Conflict Minerals Provision

14th November 2012

On 22 August 2012 the Securities and Exchange Commission (SEC) published the final rule for Section 1502 of the Dodd-Frank Act.

The provision aims to prevent the trade in tin, tantalum, tungsten and gold from fueling conflict and human rights abuses in eastern Democratic Republic of Congo (DRC). It requires companies listed with the SEC to establish if the minerals in their products are sourced from the DRC or adjoining countries and, if so, to carry out supply chain due diligence to determine whether their mineral purchases are funding armed groups in eastern DRC. Companies are also required to report publicly on their due diligence and to have the reports independently audited.

In October 2012 the Chamber of Commerce, the National Association of Manufacturers (NAM) and the Business Roundtable filed a lawsuit against the SEC over the final rule for Section 1502. In their petition, the industry associations request that the rule “be modified or set aside in whole or in part.” The groups have not yet provided legal arguments for the lawsuit.

The decision by the Chamber, NAM and the Roundtable to file the suit is deeply regrettable. The humanitarian situation in the Congolese provinces of North and South Kivu, which the statute seeks to address is urgent and necessitates immediate and comprehensive implementation by companies. The SEC’s sixteen month delay in issuing the final rule led to disruption in the minerals trade in eastern DRC and the lawsuit risks further undermining efforts to establish conflict-free supply chains from the region.

Some companies, such as Electronics Industry Citizenship Coalition (EICC) and Global e-Sustainability Initiative (GeSI) members Dell, Hewlett-Packard, Motorola Solutions, Microsoft, Xerox, Intel and AT&T have been engaged in developing promising industry-wide schemes to implement Section 1502. These firms, along with companies like General Electric, Ford Motors, Honda and Boeing, are also participants in the due diligence implementation programme hosted by the Organisation for Economic Cooperation and Development (OECD).

The companies listed above are all members of the Chamber of Commerce, NAM or the Business Roundtable. Their participation in progressive initiatives to address conflict minerals is at odds with the legal position taken by the industry associations on Section 1502. Members of the Chamber, NAM and the Roundtable would do well to clarify their stance with regard to the lawsuit in order to avoid sending conflicting messages, or at worst, appearing duplicitous.

Other companies that are engaged in industry-wide due diligence efforts and who are not associated with the Chamber, NAM or the Roundtable should also clarify their stance on the legal action. This includes firms such as Acer, Advanced Micro Devices, Research in Motion, Kemet and Panasonic.

Global Witness believes that the companies listed above should issue a public statement outlining their position on the lawsuit filed by the Chamber of Commerce, NAM and the Business Roundtable over the final rule for Section 1502. In their statements, the companies should make clear whether they are formally backing the lawsuit. It is Global Witness’s view that a failure by companies to publish a clear position on this matter will indicate support for the lawsuit.