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Blood diamonds. Blood chocolate. Blood smartphones.
Silicon Valley technology companies are racing to comply with new federal rules that require them to disclose efforts to determine if their products contain materials that fund armed groups in the Democratic Republic of Congo.
By June 2, companies whose products use tantalum, tin, tungsten or gold — widely used in semiconductors, mobile phones and other electronics — are required by the Securities Exchange Commission to disclose steps taken to trace the origin of those minerals.
Companies must describe their efforts to determine the country of origin of these minerals, collectively known as “3TG.” If they have a reason to believe their minerals come from Congo or bordering countries, they must try to determine the minerals’ complete chain of custody, including the source mine if possible.
The rule is a result of years of pressure from human rights organizations such as the Enough Project, Amnesty International and Global Witness. They hope that increased transparency will pressure companies to make sure their minerals are not funding violence in Congo, where 5.4 million people have died since 1998 due to conflict-related causes according to an International Rescue Committee report.
As of May 29, 60 companies had filed with the SEC, including Intel Inc., considered a pioneer in developing a conflict-free supply chain. The company declared its microprocessors and chipsets “DRC conflict-free” while saying all other products were “DRC conflict undeterminable,” meaning the effort to trace the supply chain went cold at some point.
Thousands more companies are expected to file, including Silicon Valley brand names Apple Inc. and Cisco Systems Inc.
The challenges companies face in complying with the SEC conflict minerals rules: A long supply chain that can thread from Africa to Asia to North America, a lack of information on facilities in that supply chain, vague language in the SEC rule and of course, the cost of compliance.
Another issue? Some say not all companies are trying hard enough.
“One of the biggest frustrations for us is companies that are lazy,” remarked Bruce Calder, a vice president at Claigan Environmental, a firm that advised the SEC on the wording of the conflict minerals rules. His company has advised 30 firms on their disclosures.
He said he has seen companies fail to do basic research such as searching a refiner’s name and “DRC” in Google to find out if their 3TG could come from one of the 10 Central African countries covered by the law.
“There’s a lot of tracing a high schooler can do that a lot of companies say they can’t do,” Calder said.
That said, Calder points out that in his experience, when companies do find out they’re sourcing from a “negative actor, they cut them out.”
Spansion’s point man
One of the people responsible for finding out who the bad actors are is Rick Lattanzio, vice president of environmental health and safety at flash memory maker Spansion Inc., based in Sunnyvale.
When Lattanzio started work on tracing Spansion’s 3TG in late 2010, the complexity of its supply chain made him pessimistic about his chances for complying with the SEC rules, which were spawned by the 2010 Dodd-Frank legislation.
“It almost looked like an impossible task,” he said.
It’s not an unusual predicament for Silicon Valley companies.
Anywhere from three to nine intermediaries usually separate companies from the smelters who refine their minerals, never mind the actual mine it came from, according to accounting firms PwC and KPMG.
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