Wall Street Journal Article on Lobbying Efforts Related to DFA's "Conflict Minerals" Provision

By Cydney Posner

The Wall Street Journal featured an article regarding opposition by various retailers to the "conflict minerals" provisions in the DFA, perhaps the biggest sleeper in the DFA. The article reports that top U.S. retailers, including Wal-Mart and Target, are lobbying the SEC to exempt them from the provisions that could otherwise require that they report whether their private-label products contain conflict minerals -- tin, tantalum, tungsten and gold -- from parts of the Democratic Republic of the Congo or neighboring countries. The DRC accounts for about 15% to 20% of the world's tantalum and about 4% of its tin, according to high-tech industry estimates cited in the article. The article notes that "income from those minerals is blamed for fueling violence that has claimed millions of lives in eastern Congo, which a senior United Nations official recently branded the world's rape capital." Obviously, the law is intended to help address the emergency humanitarian situation in the DRC by embarrassing companies into selling only DRC conflict-free products. The law has the potential to affect a wide swath of companies, including makers of medical devices, cell phones, electronic devices such as laptops and DVD players, airplanes and machine tools. In addition, compliance is likely to be very challenging given the large number of intermediaries and other difficulties in tracing the sources of the minerals (e.g., smuggling of gold). The retailers argue they should be outside the rule "if they don't exercise direct control over the manufacturing of goods carrying their own brands. The Retail Industry Leaders Association sent a letter making that case to the SEC." In addition, Ford and other manufacturers have expressed concerns about timing of the rule in light of the need to complete necessary due diligence; according to Ford, the company purchases $50 billion of goods and parts each year from about 1,600 suppliers to make its vehicles. Jewelers, such as Tiffany, are also seeking exemptions, "arguing that it is impossible for jewelers to know whether the gold bars they buy contain recycled gold tainted by conflict." Tiffany is seeking a rule that requires only that fine jewelers obtain annual certifications from their suppliers.

It will be up to the SEC to define which companies will be subject to the new rules and the nature of the efforts companies must make to verify that their products are conflict-free, although the DFA does spell out in some detail the diligence that must be conducted. (See my email of 7/28/10) According to the SEC's published rulemaking schedule, rule proposals on conflict minerals are expected this month.

(On a side note, it appears that a number of planned SEC projects under the DFA (e.g., creation and staffing of a whistleblower office and creation of an investor advisory committee, have been "deferred due to budget uncertainty)."