The Corporate Battle Over Conflict Minerals

A tense legal battle is unfolding in the US over an emerging Corporate Social Responsibility issue – the mining and use of tiny minerals contained in consumer goods. CRS Reporter Nadia Boyce investigates.

A tense legal battle is unfolding in the US over an emerging Corporate Social Responsibility issue – the mining and use of tiny minerals contained in consumer goods. 

“Conflict minerals” commonly include tin, tantalum, tungsten, and gold and originate from the  African regions ravaged by civil war, including the Democratic Republic of the Congo (DRC) and bordering countries.

Trade in these minerals funds armed rebel groups operating in conflict zones, entwining corporations in potential human rights abuses.

It is an issue that is far-reaching – conflict minerals may be contained in a vast range of consumer goods from laptops and mobile phones to light bulbs, affecting supply chains and stakeholders in all phases of manufacture.

It is also proving divisive – pitting corporate interests against activists and US institutions and forcing companies to take sides.

Momentum is quietly building in Australia and around the globe as the court battle plays out and conflict minerals emerge on the radars of corporations worldwide.

Strict Disclosure

The US appeals court is hearing arguments regarding a US Securities and Exchange Commission (SEC) rule that requires companies to investigate and disclose whether their products contain conflict minerals.

The measure requires companies to determine if certain types of minerals may have originated from the conflict region, with results of inquiries into the minerals' origin to be disclosed to the SEC and posted on company websites. It includes companies that outsource their manufacturing, and even if a business does not use conflict minerals in its products, it has to demonstrate it has conducted due diligence in making that determination.

The first report, covering 2013, is due in May this year. The SEC and Government Accountability Office estimate that approximately 6,000 issuers and 280,000 non-issuer companies will be directly or indirectly impacted by the rule.

US Corporations are taking a stand against the complex and comprehensive requirements of the reporting, branding it time-consuming and costly, and a breach of free speech by forcing companies to publicly condemn themselves.  

The appeal is the latest in a line of legal challenges by major industry groups including the US Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers, a coalition representing some of the world’s biggest corporate powers.

Dr Holly Cullen, Winthrop Professor of Law at the University of Western Australia, acknowledges that the requirements are a significant burden.

“I don’t think there’s ever been active collusion. At worst the argument is that they [corporates] were too ready to put it into the too hard box,” she says.

“It’s a question of extent in those downstream countries and whether they are able to have internal controls…that’s where questions of control by states come in.”

“I do think there are problems with setting a really strict approach.

“One big concern is that its very hard to tell if activity is supporting conflict – especially when the governments are players in the Congo.

“The situation comes down to traceability…it’s not like iron ore – these are very small, high-value minerals so physical traceability is difficult.”

Artisanal mining systems, where families or small groups operate to mine independently of mining companies, are other barriers to traceability down supply chains, she says.

Dr Sara Meger is a lecturer at Monash University and has a PhD in International Relations. She believes stringency is necessary.

“I can empathise but we’re talking about multinationals with billions of dollars worth of revenue,” she says.

“It needs to be legislated.”

The case is ongoing.

The Activist Frontline  

Conflict minerals are not a new problem.

‘It’s an issue that’s really been on the radar for about ten years,” Cullen says.

She and Meger say pursuit by activists has brought the issue to the forefront in recent years.

The first conflict mineral friendly smartphone was successfully crowdfunded and produced in 2013 and organisations including Amnesty International and Global Witness have mounted campaigns to urge corporations to act on conflict minerals.

Amnesty has compared the required SEC disclosures to those routinely delivered in a range of other situations, for example, product labelling laws, tobacco and environmental spill reporting and accident reports.

Steven Hawkins, Executive Director of Amnesty International USA, last year described the legal challenge as “a crass effort by industry groups to put profits ahead of principles.”

“The rule was required by Congress to save lives and stop human rights abuses by curbing the flow of funding to armed groups operating with impunity in the areas these minerals are mined – in Democratic Republic of the Congo and other central African countries,” he said.

The Enough Project and other NGOs have also named and shamed offenders – only some have acted.

Last year Microsoft, General Electric and Motorola Solutions broke away from the US Chamber of Commerce’s position and said they do not support the legal challenge, but Meger maintains it is not enough.

She says many corporations like Apple have not been receptive to the pressure of naming and shaming.

On Australian Shores

Australian corporations are certainly not immune from responsibility – the issue is pertinent in the context of mining.

“A lot of mining companies with interests in Australia also have significant interests in Africa,” Cullen says.

A recent report from the Department of Foreign Affairs and Trade noted that Australian resource companies now have more projects in Africa than in any other region of the world, and Australian investment in African resources is expected to increase dramatically.

The Organisation for Economic Cooperation and Development has worked with the mining industry groups. The OECD is looking not only at minerals specifically funding armed conflict but also the broader picture of human rights. As a member of the OECD Australia is obliged to comply with their guidelines.

Cullen says she doubts that the ASX or other Australian corporate regulatory bodies have the resources and capacity to enforce rules comparable to those in the US.

She also cautions against heavy-handedness with regulation for fear of discouraging mining activity that aids development in Africa.

Cullen was a speaker at a Conflict Minerals Roundtable in late 2013 held at the University of Western Australia which brought together academia and the resource industry to explore and debate the problem of conflict minerals and proposed solutions.

The consensus there, the university reports, was that companies operating in the Congo were under a variety of pressures, presenting barriers to reducing conflict minerals, and that changes to governance from the bottom-up were necessary to bring about change.

Cullen says there is not the same urgency to address the issue among mining companies as there is among consumer electronics companies. Change may come where there is the willingness and opportunity to divest on ethical grounds.

“Big mining companies probably see themselves as having to at least pay it lip service…with multinationals there’s a willingness to do something when scandals build up – but we don’t have the same as with consumer facing businesses.”

“For mining companies the main leverage comes from investors…some big pension funds see it as a form of risk.”

There is a disconnect between thinking and the ability to generate change among peak industry bodies working to address the problem, she adds.

“I’ve read criticisms that yes you have peak mining bodies working with industry…. but peak industry bodies define the problem more broadly and are not the ones on the ground making the tough decisions.”

“Peak industry bodies are keen on having their reputation protected and want to be seen to be cooperating in good faith…it’s very difficult for those peak industry bodies who don’t have the ability to push further down the chain.”

The ethical issues with conflict minerals are commonly treated as a negative externality and not factored into purchase prices. Sara Meger says across the board the price of goods potentially containing conflict minerals might have to rise.

Yet there is also the possibility that the blacklisting of minerals from conflict-affected regions could be beneficial for mining operations on Australian shores.

“It’s akin to blood diamonds. Once blood diamonds received a high enough profile it created a niche market for the Canadian diamond industry – and people were willing to take on the additional cost,” Meger says.  

Meger is calling for “more active engagement on the part of Australian companies to disclose – full disclosure of where they are doing, and who they are doing business with,” along with a more cooperative relationship between government and industry.

“I think it’s worth it.”