National police arrive on a boat at Goma's port in DRC as U.N. peacekeepers look on. Credit: William Lloyd-George/IPS

By Carey L. Biron
WASHINGTON, Apr 15 2014 (IPS)

The United States’ second-highest court has upheld most of a landmark U.S. law requiring companies to ascertain and publicly disclose whether proceeds from minerals used to manufacture their products may be funding conflict in central Africa.

The ruling, released Monday, means that U.S.-listed companies will need to file their first such reports with federal regulators by the end of May. The statute, known as Section 1502 and covering what are referred to as “conflict minerals”, became law in 2010, but the details of its actual implementation have remained up in the air ever since.The ruling is “a major step backward for atrocity prevention in the Great Lakes region of Africa and corporate accountability in the United States.” -- Holly Dranginis

“There are very encouraging aspects of this ruling, and the bottom line is that the rule hasn’t been overturned and now companies will need to move forward,” Corinna Gilfillan, head of the Washington office of Global Witness, a watchdog group that supports Section 1502, told IPS.

“The heart of this statute is companies carrying out due diligence on their supply chains so they can figure out whether their minerals are coming from conflict areas. Due diligence is a process – first knowing the supply chain and then taking action to address any problems. This ruling has upheld the due diligence and reporting aspects.”

The U.S. Congress hoped Section 1502 would help quell the violence that has wracked Africa’s Great Lakes region, particularly in parts of the Democratic Republic of Congo (DRC), for the past decade and a half. Findings by the United Nations, rights groups and others have warned that rebels in these areas have funded their operations in part by mining and selling any of five minerals that have become particularly sought after by the international electronics industry.

The rule has come under attack by U.S. business groups who say the requirements would be onerous and infringe on their constitutionally guaranteed right to free speech, by forcing them to label their products “conflict free”. But agreeing with previous rulings, a three-judge bench on Monday dismissed most of these concerns.

The dismissal included business concerns that the Securities and Exchange Commission (SEC) had not adequately analysed costs and benefits of the regulation.

“The rule’s benefits would occur half-a-world away in the midst of an opaque conflict about which little reliable information exists, and concern a subject about which the [SEC] has no particular expertise,” the court stated in its decision.

“Even if one could estimate how many lives are saved or rapes prevented as a direct result of the final rule, doing so would be pointless because the costs of the rule – measured in dollars – would create an apples-to-bricks comparison.”

Compelled speech

Yet the court also offered a split decision in favour of the manufacturers on the free speech concern, allowing both proponents and critics of Section 1502 to claim victory.

U.S. law allows for certain “compelled” public disclosures, but generally only if those are recitations of straight fact. However, the court found the issue of conflict minerals to be far more complex.

“[I]t is far from clear that the description at issue – whether a product is ‘conflict free’ – is factual and nonideological. Products and minerals do not fight conflicts,” the court stated.

“The label ‘conflict free’ is a metaphor that conveys moral responsibility for the Congo war. It requires an issuer to tell consumers that its products are ethically tainted, even if they only indirectly finance armed groups … By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech.”

It is unclear whether the SEC will appeal this part of the decision to the U.S. Supreme Court (the agency says it’s reviewing the ruling). For now, the decision undermines a key strategy for groups hoping to use a labelling requirement to shame companies into compliance, though related information will still be publicly available.

The ruling is “a major step backward for atrocity prevention in the Great Lakes region of Africa and corporate accountability in the United States,” Holly Dranginis, a policy associate with the Enough Project, an advocacy group here, said Monday.

“The court’s proposal that a conflict-free determination is ideological is unfounded and undercuts the power of society’s growing awareness that global markets and security in fragile states are in fact linked.”

Meanwhile, a separate case before the same court could soon undermine the free speech finding. A smaller bench has already ruled in favour of requiring meat producers to include “country of origin” information on their products, and the case is now slated to be heard by the full court in mid-May.

A dissenting opinion in the conflict minerals ruling noted that the meat-labelling decision could have a significant impact on Monday’s ruling.

6,000 reports

The complexities of implementing Section 1502 remain highly problematic in central Africa, and some are warning that the law could soon collapse under its own weight. Yet others say the regulation is already having a noticeable impact, with the Enough Project suggesting that “over two-thirds of tin, tantalum and tungsten mines [are] now free of armed groups.”

Monday’s ruling should now allow the U.S. side of the statute’s implementation to proceed. This means that around 6,000 U.S. companies will need to file reports with the SEC, and post them to company websites, by the end of May.

The lawsuit against Section 1502 was brought by three of the United States’ largest business lobbies, the National Association of Manufacturers (NAM), the U.S. Chamber of Commerce and the Business Roundtable. In a joint statement sent to IPS, the three lauded the decision.

“[W]e are pleased with the D.C. Circuit’s decision … finding the statute and regulation are unconstitutional,” the groups stated. “We understand the seriousness of the humanitarian situation in the Democratic Republic of Congo (DRC) and abhor the violence in that country, but this rule was not the appropriate way to address this problem.”

Yet other businesses are already complying with the spirit of Section 1502. Perhaps the most significant of these companies, Intel, is actually a member of NAM.

In January, the company pledged to remove all conflict minerals from its microprocessors. It says it now has no plans to change course.

“Regardless of this decision, we will continue to do our part to achieve conflict-free supply chains and to report publicly on these efforts,” Lisa Malloy, an Intel spokesperson, told IPS.

“The challenge of responsible minerals sourcing requires a comprehensive solution that involves government agencies in the U.S. and internationally, non-profit groups and industry. We urge all partners to continue the momentum towards a solution.”

Major manufacturing and business groups on Tuesday urged a court here to roll back a new U.S. regulation that would soon require major manufacturers to ensure that their global supply chains are free of minerals used to fund violence in the Great Lakes region of central Africa.

Former “blood diamonds” now provide employment in Sierra Leone. Credit: Tommy Trenchard/IPS

Yet the previous day, Intel, the major computer hardware manufacturer, announced the world’s first product formally dubbed free of such materials, stating that its microprocessors would no longer use “conflict minerals”. The announcement highlights trends that advocates of greater supply chain accountability say are already well underway, and which they suggest belie parts of the legal case against the rule.

“This provision has already catalysed reforms of the minerals trade in the Great Lakes region and has prompted both [U.S.] and Congolese companies to carry out supply chain due diligence and source minerals more responsibly,” Carly Oboth, an assistant policy advisor with Global Witness, a watchdog group, told IPS.

“According to consulting firm Claigan, in September 2013 2,946 companies were identified as having conflict minerals compliance programmes … Despite the appeal, many companies have already publically demonstrated the feasibility of the rule as they begin implementation to meet the May 31, 2014 reporting deadline.”

The U.S. Chamber of Commerce, the National Association of Manufacturers (NAM) and the Business Roundtable, all major lobby groups, say the new rules impose an undue financial burden on companies and infringe on constitutional guarantees of free speech. The groups say they are supportive of the aims of the regulation, known as Section 1502, but want significant tweaks and the inclusion of certain exemptions.

But supporters counter that the Securities and Exchange Committee (SEC), the country’s lead regulator of publicly listed companies, has already thoroughly weighed these issues.

“Generally we’ve been supportive of the SEC’s position and think they did extensive analysis before adopting the conflict minerals rule,” Julie Murray, an attorney currently acting as counsel for Amnesty International, a rights group that has joined the lawsuit in support of Section 1502, told IPS.

“The SEC received some 13,000 letters urging it to promptly adopt this rule, and we think the commission did an exhaustive job of looking at the issues – taking into account the concerns that were raised by these groups, and trying to make the rule cheaper and easier to comply with.”

The appeal follows a detailed and strongly worded legal decision in July that upheld Section 1502, which was mandated by Congress in 2010 but only finalised last year. As the regulation currently stands, by June large companies will need to certify the sourcing of a handful of minerals sourced from central Africa, while smaller companies will have a longer timetable.

In the appeal, a central issue in the court’s decision-making will be the estimates the SEC used to figure out the financial burden that Section 1502 would place on companies, upwards of four billion dollars in initial compliance costs followed by annual costs of 200-600 million dollars. Yet Murray suggests that companies will be able to bring these costs down as they learn how to comply with the new regulations.

“In general we think that it’s important that companies learn about the source of the materials they’re using – most consumers say they should know whether the materials they’re purchasing are responsible for rape, torture and murder in the DRC,” Murray says. “At the same time, this rule isn’t just about human rights, but also serves an important role in informing investors and consumers.”

On Tuesday, however, two of the three judges hearing the case appeared sceptical of several aspects of Section 1502. They raised concerns about the precedent that the regulation would set, the SEC’s capacity to create such a rule, and even the scope of the underlying law.

Conflict-free microprocessors

In 2009, the U.N. Security Council formally recognised that revenues from minerals extraction were strengthening multiple armed groups operating in eastern DRC. The electronics industry has been one of the most significant users of the minerals that have been singled out for scrutiny, which include tin, gold, tungsten and others.

Supporters of Section 1502 say that many businesses are showing strengthening interest in doing the work necessary to comply with the rule, both for brand and financial reasons. In this, Intel is widely seen as having made a uniquely serious effort to clean up its global supply chain.

“Two years ago, I told several colleagues that we needed a hard goal, a commitment to reasonably conclude that the metals used in our microprocessors are conflict-free,” Intel’s CEO, Brian Krzanich, said Monday. “We felt an obligation to implement changes in our supply chain to ensure that our business and our products were not inadvertently funding human atrocities in the Democratic Republic of the Congo.

(An Intel executive sits on the National Association of Manufacturers’ board and is thus technically a party to the current appeal. While a company spokesperson declined to comment on the case, on its website Intel notes that its “positions do not always align 100% with those of the industry and trade organizations to which we belong.”)

Intel called the achievement a “critical milestone”, while Krzanich said the it was “just a start. We will continue our audits and resolve issues that are found.” He also urged the rest of the electronics industry to follow suit.

Others say industry leadership from other sectors is equally important.

“Now that Intel has released the first conflict-free product, it’s time for other companies to do the same,” Sasha Lezhnev, a senior policy analyst with the Enough Project, an advocacy group here, told IPS. “Particularly for gold – it’s important for jewellers to take action, while aerospace companies also need to step up. This problem won’t be solved by just one company.”

Lezhnev recently returned from the DRC, and notes that Section 1502, despite having yet to come fully into force, has already played a “backbone” role in defunding armed groups in the eastern part of the country. Such groups, he says, are also far less present today in the mining areas.

“Smuggled minerals are now about a third of the price of the [certified] minerals, so the new price this rule helped to spur is offering a strong incentive to build up a conflict-free trade,” he says. “You’re seeing the disarmament of many armed groups … and while that is not only because of the new regulation, this rule is offering a strong incentive for them to not restart again.”