The Democratic Republic of Congo continues to be overwhelmed with warfare. The violence has resulted in the creation of laws that address the use of minerals from the region.
The Conflict Minerals Act directly applies to the situation, bringing to light several issues that the home furnishings industry must tackle. Read on to learn about the law and find out what the government intends to do to help in the matter.
What is the Conflict Minerals Act?
A law outlined in Section 1502 of the 2010 Dodd-Frank Act, the Conflict Minerals Act limits sourcing of materials from Congo to create products for sale. Jointly, the regulation requires public companies to give full disclosure of where they obtain materials so that measures can be taken to reduce the transfer of money to war-driven regions. As a result, the United States and its businesses can steer clear of supporting exploitation and trade of conflict materials by militia.
Who is the governing body enforcing the law?
The United Sates Securities and Exchange Commission administers the regulation.
Why is it important to spend less in Congo?
The Congo region suffers from civil warfare that is driven by the mining of conflict minerals. Natural resources, such as gold and diamonds, are sold for the purpose of supporting rebel armies and funding violence.
The problem weighs heaviest in the eastern regions of Congo, which has experienced war for more than a decade. Rather than establishing a strong governing body with processes that involve taxing people’s income to spur economic growth for the best interest of its citizens, the Congolese government profits from royalties and remains functioning off of a lawless system.
What minerals does the law cover?
The Conflict Minerals Act covers gold, tin, tantalum, and tungsten.
What must be disclosed regarding use of conflict materials?
Paperwork must be filed whether the company directly makes a product or farms out production of an item to another company. In both instances, the company must do its due diligence to source materials from a region that does not support warfare in Congo.
In reporting use of conflict materials on Form SD, available through the United States Securities and Exchange Commission, a company must share the origin of resources utilized to manufacture a product. The statement must include if use of a material of concern is “necessary to the functionality or production” of the product.
For minerals that are determined to be “DRC conflict free,” which indicates they were not purchased from the Congo region and did not support armed groups, the company must have the report audited by an independent party and have it certified to be included as part of a conflict minerals report.
The same process applies to minerals that have “not been found to be DRC conflict free.” However, extra measures must be taken to explain the origin of the conflict minerals, processes taken to determine its source, and facilities used to convert the minerals into a product.
Some companies may not have the ability to identify the source of their minerals. In these instances, a company should file a report noting the phrase of “DRC conflict undeterminable.” Information required under the label includes giving an explanation of the process used to determine origin and how the company intends to mitigate risk. If possible, offering details of facilities used to process potential conflict minerals is helpful.
The final disclosure applies to scrap and recycled sources. Minerals that do not come directly from mines and instead come from a recycled or scrap source are deemed “DRC conflict free.” However, extra attention must be given to individual metals if a company cannot determine whether they came from recycled or scrap sources.
Gold, for example, must undergo an auditing process. Companies must also meet stipulations outlined in the Organization for Economic Co-operation and Development (OECD) Due Diligence Guidance. After completing both, results must be communicated in the report.
In terms of tantalum, tin, and tungsten, other details that must appear on a report should speak to a company’s process for determining materials’ origin. An independent audit will only be required once a due diligence framework is developed.
How does a company determine the origin of minerals?
Conducting a “country of origin” inquiry is an ideal way to evaluate where minerals originate. There is no standard inquiry process or guideline, but companies should include questions that address where minerals came from to accurately relay the information on a conflict minerals report.
What impact does this have on the furniture industry?
Unfortunately, furniture companies continue to struggle with determining where their minerals are sourced. A large factor is documentation fraud committed by mineral processing facilities. Failure to accurately note the journey minerals undergo before they reach their final destination to be turned into couches, tables, or other household furnishings makes it difficult to report with certainty that a product does not contain contents that possibly support warfare in Congo.
In fact, a survey conducted in August of 2016 confirmed that more than half of furniture companies could not find the originating source of minerals used in some or all relevant products. The same survey concluded that nearly all companies in the industry were unsure if materials used financed or benefited Congolese armed groups.
As a response, the Government Accountability Office sought the aid of the Department of Commerce. The agency requested the department create a plan of action to evaluate the accuracy of independent audits. Based on feedback, the Government Accountability Office and Department of Commerce can offer recommendations to improve the precision of the information that is relayed.