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Businesses benefit from US conflict minerals reporting rule, say NGOs

Products - Conflict minerals © istockphoto/EdStock

NGOs have urged the Securities and Exchange Commission (SEC) not to weaken or repeal the US conflict minerals reporting rule, as doing so would have detrimental effects on businesses and human security.

Thousands responded to the SEC's call for comments to 'reconsider' Section 1502 of Dodd-Frank. The rule requires publicly traded companies to conduct due diligence and report to the SEC on whether their sourcing of tin, tungsten, tantalum and gold (3TG) is supporting armed groups in the Democratic Republic of the Congo (DRC), or neighbouring countries.

NGO the Enough Project wrote that many US businesses, particularly in the electronics industry, benefit from the rule. "They have seen decreased supply chain risks – especially for tin and tungsten – increased transparency in the minerals trade and their supply chains, and new investment opportunities in Congo and the surrounding region."

Global Witness pointed out that there are now public expectations around responsible sourcing. Efforts to weaken or repeal the law, it said, will only make it more difficult for companies to meet these investor, shareholder and customer demands.

Amnesty International added that the rule helps companies reduce exposure to legal liability and sanctions, including being put on the UN Sanctions List. The UN Security Council, it said, "continues to make clear that companies in the minerals supply chain must do their part to avoid financing armed groups or criminal networks by undertaking supply chain due diligence."

A group of 127 investors and investor groups with $4.8tn in assets under management also voiced support for the rule. Conflict minerals disclosure, they said, is "material to investors", and has improved their ability to assess social and reputational risks in a company's supply chain.

Rule's effectiveness

Several industry groups voiced criticism that the rule has not served its effect on the ground, despite huge compliance costs. But Amnesty International countered that it is a "vital regulation, which is working and is still needed."

Global Witness said that unintended consequences of the rule – such as its leading to a de facto embargo of DRC-sourced materials – do not support its being repealed, especially when no viable alternatives have been set forth.

Rather, it said, "we must build on its hard-fought foundations and seek to improve implementation by supporting robust enforcement and the development of complementary development, governance, and accountability measures."

Amnesty International agreed that suspending the rule would do more to contribute to instability in the region and threaten the US's national security interests than the ongoing implementation of the current rule.

But despite benefits to businesses and in the DRC, Amnesty said many companies in the 3TG supply chain are only exercising due diligence and disclosing their efforts because they are legally required to do so. Keeping the rule in place, it says, ensures fair competition and a level playing-field for US companies.

The Enough Project added that the EU's recently adopted Regulation is "significantly weaker" than the Dodd-Frank reporting rule. Its suspension would, therefore, "leave a major gap in global corporate due diligence".

It also pointed out that several US states have passed local legislation requiring the sourcing of conflict-free materials, and that these jurisdictions rely on robust federal standards to support their efforts.

Increased enforcement

The Enough Project said it would be "premature" to suggest a need for reconsidering the rule, given that the SEC has taken no enforcement action to date. Without records of enforcement activity, it said, it is "impossible to determine whether 'any additional relief is needed,' as [SEC] Commissioner Piwowar suggests."

Amnesty International added that while it is unclear what 'relief' is being sought, the rule was developed by notice-and-comment rulemaking. The SEC, it said, cannot weaken or repeal it "by using guidance or other mechanisms that fall short of new rulemaking in compliance with the SEC's legal obligations under the Administrative Procedure Act (APA)."

Global Witness called on the SEC to "uphold its obligation to enforce the rule ... [while] holding companies accountable for incomplete reporting and not meeting basic requirements". It also urged the US Department of Commerce to release its overdue report assessing the accuracy of Independent Private Sector Audits (Ipsas), as well as a list of best practices.

"Without these, the law is not being effectively implemented, which limits its ability to change supply chain behaviour."

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