Conflict minerals law starts working despite poor industry response

Tue Jul 1, 2014 2:04am EDT

* Law forcing firms to change their sourcing of African minerals

* Conflict minerals helped fuel wars that killed millions

* Companies urged to be more rigorous in tracing supply chains

* Profits still go astray in lawless region

By Eric Onstad

LONDON, July 1 (Reuters) - A U.S. law on conflict minerals is curbing African warlords' presence around mines in Congo, campaigners say, but its full impact remains unclear, with most firms failing to pinpoint the origin of their metals by a June deadline.

Millions are estimated to have died in nearly two decades of bloodshed in eastern Democratic Republic of Congo (DRC) fuelled by the minerals smuggled through Rwanda, Uganda and Burundi.

Under the Dodd-Frank financial reform law, U.S. companies must try to establish the origin of four metals often used by rebel groups in the area to finance their activities.

Only five percent of firms making filings by a June 2 deadline traced the conflict status of the minerals used in their products, said Source Intelligence, a U.S. risk management firm.

A grace period means big firms can say they were unable to get information for two years, but campaigners urged them try harder, saying the law had already helped but could do more.

"Overall we've been disappointed with the response of companies, and the lack of meaningful information on the supply chain checks and risk assessments they are doing, although a few of the reports have been strong," said Emily Norton, assistant campaigner with Global Witness in London.

The electronics sector has been the most robust at tracing the source of its minerals, Norton said, holding up chip giant Intel as a rare company that had conducted an audit.

Campaigners say the law has had a positive impact in three of the four metals it covers -- tin, tantalum and tungsten -- while gold remained a problem. Many of the minerals are used in smart phones and other electronics goods.

"The law has triggered companies right along the supply chain to change their sourcing practices," Norton said.

CERTIFICATION

A new certification scheme organised by the tin industry body ITRI is being rolled out in North Kivu after earlier projects in Congo's copper-rich southeastern provinces of Katanga and South Kivu.

Sasha Lezhev, senior policy analyst with the Enough Project based in Washington DC said about two third of mines in tin, tantalum and tungsten in eastern Congo had been demilitarised.

In a report based on five months of field research, the organisation said minerals not certified as "conflict free" sold for 30-60 percent less, cutting profits for the armed groups.

Some analysts say the law's impact has been overstated.

A Congolese government adviser cautioned rebel involvement was hard to track in remote areas and an academic specialising in the region said profits were still going astray.

"Dodd-Frank and the ensuing initiatives, including traceability and certification, have removed armed actors from the mines," said Christoph Vogel, a Congo researcher at the University of Zurich.

"But now we hear that army commanders are sending intermediaries to organise taxation on the sites," Vogel said.

GOLD

Global Witness said last year there was still high-level military involvement in eastern Congo's gold trade and Lezhev called on jewellers and the U.S. government to counter this.

Campaigners are also urging the European Union to strengthen a conflict minerals proposal released in March, making it mandatory instead of voluntary.

Some of those advising the companies about the law say the firms find it hard to discover the origin of their supplies.

"We have clients that have literally tens of thousands of suppliers," said Michael Littenberg, a partner at New York law firm Schulte Roth & Zabel.

Another consultancy said that information was available and companies needed to be more rigorous.

Of the 1,306 companies that filed reports, only 14 of them contacted Indonesia's CV United Smelting Corp, one of the most widely used tin smelters in the world, said Canadian environmental consultancy Claigan, which specialises in conflict minerals.

"Very few companies showed any due diligence," Bruce Calder, vice president of consulting services at Claigan, said in a presentation.

When the conflict minerals law was first passed, there were fears that it would lead to companies boycotting the region's minerals, and some firms initially moved in that direction, but that is less of a problem now, Littenberg said.

"Most companies have figured out that isn't the right approach and the NGOs (non-governmental organisations) have also been pretty vocal that they don't want to see companies boycotting the region," he said.

The law was watered down by a court ruling after industry groups challenged it, but an appeal has been launched by the Securities and Exchange Commission (SEC) which is in charge of enforcing it.

Analysts say it has had little impact in some neighbouring areas, such as Central African Republic on the DRC's northern border, where the short-lived rule by Seleka rebels last year triggered an internal political and religious conflict which has required the intervention of French and African peacekeepers.

"Once in power the movement asserted control of lucrative trafficking networks (gold, diamond and ivory). Their systematic looting destroyed what was already a phantom state," said a report in June by Brussels-based International Crisis Group. (Additional reporting by Peter Jones in Kinshasa,; Pascal Fletcher in Johannesburg and David Lewis in Dakar; editing by Veronica Brown and Philippa Fletcher)

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