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SEC rules on conflict minerals expected this year

|Written By Jennifer Brown
SEC rules on conflict minerals expected this year
Under a new U.S. law, companies must report to the SEC and disclose on their web sites whether any materials in their products originate in the DRC. Photo: Reuters/Katrina Manson

Rules being written into the Dodd-Frank Act intended to crack down on the use of “conflict minerals” mined in the eastern Democratic Republic of Congo will also impact Canadian issuers trading in the United States.

In an effort to put pressure on rebels in the Congo, the U.S. passed a law in 2010 requiring the Securities and Exchange Commission to write rules forcing companies to prove minerals they derived from Congo are “conflict free.”

It is expected the SEC will release specific rules to implement the conflict minerals provisions set out in s. 1502 of the Dodd-Frank Act by the middle of this year. It will affect issuers that file reports under s. 13(a) or 15(d) of the Securities Exchange Act of 1934, including foreign and Canadian issuers.

Originally expected in April 2011, the rules have been delayed due to opposition from companies and industry groups, creating uncertainty that has led some companies to stop purchasing materials from Congo.

“The rules were expected in the last few months but the SEC is now saying middle of the year,” says Michelle de Cordova, director of corporate engagement and public policy for NEI Investments based in Vancouver, an ethical funds company that has provided written submissions and spoke with the SEC about the development of the rules.

“I realize it’s a challenge — they’ve been asked to craft rules dealing with an issue that is complex and deals with human rights,” says de Cordova. “But it’s created a situation where ordinary people on the ground who earn their livelihood in minerals are being impacted by a de facto boycott of the area. To eliminate the livelihood of the people of Congo isn’t a positive outcome.”

Under the new law, companies must report to the SEC and disclose on their web sites whether any materials in their products originate in the DRC or its adjoining countries such as Angola, Zambia, Tanzania, Burundi, Rwanda, Uganda, Sudan, Central African Republic, or Congo. The law applies to publicly traded U.S. manufacturing companies that use certain metals in their products.

If companies are using materials from the identified countries, they are required to describe steps taken to make sure the metals are from responsible sources and provide details about the location of the mine from where they originated.

Eight years after the official end of a war that killed more than five million people, the government in the DRC has struggled to get a grip on criminal activity within its own armed forces.

Pressure to address the issue within Canadian law is also building here at home. Last year, NDP MP Paul Dewar introduced a bill in Parliament for similar measures — tracing and auditing supply chains, certification, and labelling of conflict-free items.

“We have a chance in Canada to learn from what the SEC has done and perhaps come up with even better policy,” says de Cordova.

Finnish phone maker Nokia published a policy recently explaining how it deals with the issue of conflict minerals that come from areas engaged in war. The company listed the steps it is taking to avoid supporting any illegal activity:

• Prohibits human rights abuses associated with the extraction, transport, or trade of minerals.

• Prohibits any direct or indirect support to non-state armed groups or security forces that illegally control or tax mine sites, transport routes, trade points, or any upstream actors in the supply chain.

• No tolerance with regard to corruption, money laundering, and bribery and requires parties in its supply chain to agree to follow the same principles.

The rules will have widespread impact across industries and sectors. The SEC estimates more than 5,500 companies will need to disclose ranging from electronics, communications, aerospace, and autos, to jewelry and industrial products.

De Cordova says some companies, like Motorola, have been working with the rest of the electronics industry on a tracking and validation system of materials through the supply chain to make sure they come through “responsible sources.”

While the minerals trade is exploited to fuel conflict it also provides a means for people to make a living in Africa.

“It’s important companies not boycott these regions,” says de Cordova. “The goal is to take the conflict out of the minerals supply chain.”