If you are reading this on a smartphone, then you are probably
holding in your palm the conflict minerals that have sent the biggest
manufacturing trade group in the U.S. into a court battle with the
Securities and Exchange Commission. At stake in this battle between the
National Association of Manufacturers and the government is whether
consumers will know the potentially blood-soaked origins of the products
they use every day and who gets to craft rules for multinational
corporations—Congress or the business itself.
The Dodd-Frank Act,
passed in 2010, is primarily known as the law that tries to tighten
regulation of the financial services industry and improve aspects of
corporate governance. It also requires companies to track and report the
conflict minerals used in their products. These minerals are tantalum
(used in cellphones, DVD players, laptops, hard drives, and gaming
devices), tungsten, tin, and gold, if they are mined in the Democratic
Republic of Congo and surrounding countries including Rwanda, where the mineral trade has fueled bloody conflicts.
The rule requiring disclosure of conflict minerals will go into
effect in 2014. Congress included it in Dodd-Frank out of concern for
what is known as the “resource curse”—the phenomenon wherein poor
counties with the greatest natural resources end up with the most
corrupt and repressive governments. The money earned from selling the
natural resources props up these harsh regimes and funds violence
against their citizens and neighbors. According to the New York Times,
Rep. Jim McDermott, who supported the requirement to disclose conflict
minerals, visited a group of rape victims in Congo and traced much of
the suffering in the country “to rebel soldiers who sold tantalum and other minerals to finance their war.” As the Dodd-Frank legislation puts it,
“the exploitation and trade of conflict minerals originating in the
Democratic Republic of the Congo is helping to finance conflict
characterized by extreme levels of violence in the eastern Democratic
Republic of the Congo, particularly sexual- and gender-based violence,
and contributing to an emergency humanitarian situation therein.”
In August 2012, the SEC, which implements parts of Dodd-Frank, issued a rule requiring that companies disclose whether their products contain conflict minerals that are “necessary to the functionality or production” of their products. Companies are also expected to detail which mine or location the conflict minerals came from, the efforts the companies made to figure this out, lists of the smelters or refineries used to process the minerals, and a description of any products that are not “conflict free.” They must post information on conflict minerals on their website.
Two months after the SEC acted, the NAM, along with the U.S. Chamber
of Commerce and the Business Roundtable, sued to try to stop the rule
from taking effect. The trade groups argued that complying with the rule
would be costly, that it is unclear whether Congolese people would
benefit, and that the rule violates companies’ First Amendment rights by
compelling them to speak. (Some big companies, including Microsoft, General Electric, and Motorola Solutions, have publicly opposed the business groups’ stance on the conflict minerals rule.)
In July, Judge Robert L. Wilkins upheld
the SEC’s rule. He said that Congress could pass the disclosure rule as
“a reasonable step to shed some light on this literally life-and-death
issue,” and to “encourage companies using these minerals to source them
responsibly.” Wilkins obliterated NAM’s argument about cost and
uncertain benefit, finding that the SEC had no obligation “to evaluate
the humanitarian impact and social benefits of the Conflict Minerals
Rule.” Finally, the court rejected the claim that the disclosure rule
compels speech.
As the battle advances to the U.S. Court of Appeals for the District of Columbia Circuit, the manufacturers’ group has submitted a brief repeating many of the arguments that they offered to the lower court. They’re still weak. The First Amendment argument that the rule “compels” speech is particularly silly. All SEC disclosure regulations make a company speak, whether it is about environmental liabilities or its own financial health.
As the court case looms, the underlying conflict in Africa escalates.
In late August, the U.S. State Department issued a statement saying it
is “alarmed” by the growing violence in Congo.
What happens in the appeals court this fall will determine whether
American industries can use conflict minerals without telling consumers
and investors what’s in the circuit board of the next cool cellphone. In
our interconnected global village, the appeals court’s ruling will also
matter half a world away for the Congolese miners, the militants who
sell tantalum to fund their violence, and the innocent people caught in
the battle zone.
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