Semiconductors: The Conflict Over Conflict-Free Minerals – by Ian King (Bloomberg News – June 05, 2014)

Like most advanced chips these days, Intel’s (INTC) contain tantalum, gold, tin, and tungsten—elements that can be mined on the cheap in war-torn parts of the Democratic Republic of Congo. Carolyn Duran’s job is to make sure the company doesn’t use so-called conflict minerals.

For the past five years, Duran, Intel’s supply-chain director, has paid for independent audits and led the company’s own audits of metal producers to determine if their ore comes from mines controlled by militias in the DRC, where a decades-long civil war has claimed millions of lives. It’s as tough as it sounds, she says: “Every single member of Intel’s conflict team has felt, at some point, that we’ve hit an insurmountable task.”

By June 2, U.S. companies with products that may contain conflict minerals were supposed to send reports to the Securities and Exchange Commission detailing their efforts to discover whether their metals originated in the DRC. The rule, designed to starve militias in the central African country of revenue by discouraging companies from dealing with them, dates to 2010’s Dodd-Frank Act.

In April a federal appellate court struck down the part of the rule that would have compelled companies to disclose the possible use of DRC-sourced conflict minerals on their websites. But businesses must still prove to the SEC that they’ve performed their due diligence, either by auditing their suppliers or hiring an accredited third party to do so. Besides Intel, Apple (AAPL) and Hewlett-Packard (HPQ), few companies put in the work before the deadline to trace their components from mine to factory.

Corporate lobbying groups including the U.S. Chamber of Commerce, the Business Roundtable, and the National Association of Manufacturers are arguing in court that the disclosure requirements should be eliminated completely. In addition to free-speech complaints, they say the rule imposes “staggering costs” because there’s no uniform system in place to audit or certify conflict-free suppliers.

The manufacturers’ association estimates that about 22,000 companies affected by the law would have to pay as much as $16 billion to perform their due diligence. Claigan, which evaluates regulatory compliance for companies, says the total number of affected companies is under 2,000 and the price tag no more than $180 million, if that.

There are roughly 300 to 600 companies around the world that turn ore into metal, according to the Conflict-Free Sourcing Initiative, an industry group that lists about 100 smelters certified as free of conflict minerals. Since 2009, when the Dodd-Frank bill was in committee, Duran’s four-person team has visited 86 smelters in 21 countries, asking for records that can prove their ore isn’t sourced from mines controlled by the DRC’s armed gangs.

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