Monday 23 September 2013

Blood on Your Handset

Is your cellphone made with conflict minerals mined in the Congo? The industry doesn’t want you to know.

Gold miners in northeastern Congo form a human chain while digging an open pit.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.

Gold miner in northeastern CongoTwo 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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