The Conflict Minerals Act: Good Start Or Bad Law?
Last August brought the long-awaited finalization of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which details the rules and regulations under which manufacturers must disclose their use of conflict minerals. Implementation of the new regulations kicked off on January 1, 2013, and the first calendar-year “conflict mineral” reports are due on May 31, 2014. But while the regulations are a step toward curbing the the use of conflict minerals in manufactured products — most notably electronic devices such as smartphones and tablets — they are broad and leave gaping holes that are ripe for exploitation.
Under the regulations, companies that have determined that conflict minerals sourced from countries like the Democratic Republic of the Congo — which is plagued by violent, armed militia groups intent on exploiting the area's natural resources — are “necessary to the functionality or production” of one or more of their products must file a report with the US Securities and Exchange Commission (SEC).
Companies that contract out the manufacturing of products (or components) that contain conflict minerals can circumvent the required disclosure if it is deemed that the company holds no influence over the item being contracted. A company does not qualify as having influence over the manufacturing of a product if it is simply stamping its brand on the product or if it merely services a product manufactured by a third party, according to the SEC.
Essentially, if a company hands over control of the manufacturing of any component of its product, the disclosure of the materials used by the manufacturer is unnecessary. What, then, is to stop companies from outsourcing the manufacturing of their products in order to bypass SEC regulations?
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