I thought this what follows bellow was a bravura analysis of the enormous practical difficulties companies face in establishing whether the metals they use come from "conflict mines" in the DRC. It's drawn from the brief presented by the National Association of Manufacturers to the US District Court appealing the SEC's ruling, so take it for what it's worth.
I'm very much a "let justice prevail tho the heavens may fall" kind of guy, so if I felt the conflict minerals campaign was going to help bring an end to the conflicts in eastern Congo, I wouldn't give any kind of damn whether it cost US companies $1 billion or $100 billion to institute. But what's clear, reading the following, is just how incredibly complex and ever-shifting supply chains are, at both upstream (from the mine to the smelter) and downstream (from the smelter to the finished product) ends. It is all but impossible to envision companies ever knowingly buying minerals from eastern DRC until rigorous, stable, closed loop supply chains are established. And it is hard to imagine how those closed loop chains could ever incorporate more than a handful of mines, given current conditions. The rest of the mines will either export their products to Asia, or slip it in to the supply chain at a heavily discounted price, or go defunct.
Factual Background 1. Uses of Tin, Tantalum, Tungsten, and Gold
Tin, tantalum, tungsten, and gold are commonly used in a multitude of products, including “everyday goods like tin cans, light bulbs, ballpoint pens, and sewing thread.” JA704. A few examples illustrate their pervasive presence: USCA Case #13-5252 Document #1455974 Filed: 09/11/2013 Page 20
- • Tin is found in solders, plastics, coatings for food cans, eyeglasses, watches, sports and fitness equipment, metallicized yarns, electrical products such as toys, phones, computers, audio equipment, GPS devices, and appliances, and automotive parts such as brake pads. OECD, Downstream Implementation of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict- Affected and High-Risk Areas 11 (Jan. 2013) (OECD Report); BSR, Conflict Minerals and the Democratic Republic of Congo 6 (2010) (BSR Report), http://www.bsr.org/reports/BSR_Conflict_ Minerals_and_the_DRC.pdf.
- • Tantalum is present in superalloys for jet and power plant turbines, cutting tools, BSR Report 6, camera lenses, corrosion-resistant equipment for chemical processing, medical devices and implants, automotive parts such as airbags and skid control, and electronics such as cell phones and computers, OECD Report 11.
- • Tungsten is used in aerospace components, lighting, electronics, BSR Report 7, jewelry, decorative crafts, power tools, lawn mowers, OECD Report 12, window heating systems, X-Ray machines, dental drills, golf clubs, darts, and remotecontrol racing cars, ITIA Newsletter, A Family’s Day With Tungsten 3-11 (Dec. 2007), http://www.itia.info/assets/files/Newsletter_2007_12.pdf.
- • Gold is used in jewelry, electronics, medical equipment, aerospace equipment, BSR Report 8, anti-lock brakes, airbag-inflating sensors, USCA Case #13-5252 Document #1455974 Filed: 09/11/2013 Page 21 of 198 7 http://www.gold.org/technology/(access “Gold’s Role” hyperlink), and dental fillings, http://geology.com/minerals/gold/uses-of-gold.shtml.
The minerals appear in miniscule amounts in many additional products. Shoe soles, for instance, may contain tiny amounts of tin, as may buttons and zippers. The Costs and Consequences of Dodd-Frank Section 1502: Impacts on America and the Congo: Hearing on Pub. L. 111-203 §1502 Before the H.R. Subcomm. on Int’l Monetary Policy & Trade (May 10, 2012) (statement of Stephen Lamar, Am. Apparel & Footwear Ass’n) (House Testimony). Fluoride compounds used in toothpaste and mouthwash sometimes contain tin as well. Suzan Salman, A Clinical Study Evaluating the Effect of 0.4% Stannous Fluoride Gel in Controlling Plaque and Gingivitis, 23 J. Baghdad College Dentistry 97 (2011). Minute “nanoparticles” of gold are used in home pregnancy testing kits, stained glass, colored pottery glazes, and technologies targeting cancerous tumors. World Gold Council, Gold for Good: Gold and Nanotechnology in the Age of Innovation (Jan. 2010), http://www.gold.org/download/rs_archive/gold_and_nanotechnology_in_the_age_ of_innovation.pdf. And tin, tantalum and tungsten are all used in alloys and catalysts. See JA148. The minerals are thus used by numerous companies “spread over an array of industries, from [the] high-tech field to food and beverage producers, as well as energy and medical technology sectors.” JA489. USCA Case #13-5252 Document #1455974 Filed: 09/11/2013 Page 22 of 198 8
2. Identifying the Country of Origin of Tin, Tantalum, Tungsten, and Gold
The sources of these minerals are as varied as their uses. Only a small percentage of the world’s mineral supply comes from the DRC: 3% of the global supply of tin; 12% of tantalum; less than 1% of tungsten; and less than 1% of gold. Government Accountability Office, SEC Conflict Minerals Rule: Information on Responsible Sourcing and Companies Affected 10 (July 2013) (GAO Report) (2010-2011 figures). The rest of the 400,000 tons mined each year comes from dozens of other countries on six continents. U.S. Geological Survey, Mineral Commodity Summaries (2012).
Generally, the source of the minerals contained in a particular manufactured product is unknown. This is largely because, with very few exceptions, manufacturers do not buy directly from mines. Instead, there are often “ten, twelve, or even more layers of intermediaries between the mines” and the final manufacturer. JA432. Manufacturers may not even know whether their products contain certain minerals. “Although one might expect that a purchaser of products would know what is in the products they purchase, that is often far from the truth.” JA160. Rather, “[m]any companies purchase parts, components, or subsystems based on certain performance capabilities without specifying the materials.” JA383. Moreover, the materials used “may be considered proprietary,” id., and manufacturers “typically do not have the necessary leverage to force a supplier to disclose” this information, JA160. USCA Case #13-5252 Document #1455974 Filed: 09/11/2013 Page 23 of 198 9
These difficulties are amplified when trace amounts of the minerals are involved. For instance, tin is sometimes used as a catalyst or stabilizer by subsuppliers manufacturing coatings, sealants, and specialty chemicals. ADD 113-14. The tin is generally washed away in processing, but trace amounts may remain. And, “[b]ecause of batch variances, it is possible that a catalyst remains in one batch but not another.” ADD-114. To determine whether products contain trace amounts of tin, the manufacturer would “have to conduct very frequent testing at substantial expense.” Id. Similarly, because “very, very small quantities” of tin are occasionally present in the plastics in buttons or shoe soles, manufacturers of clothing and footwear would have to test thousands of products every year to discover whether de minimis amounts of tin are present in a handful. House Testimony (statement of Stephen Lamar).
Even if the manufacturer knows its products contain a mineral, identifying the country of origin is often extremely difficult and expensive. First, the supply chain is not “a transparent, linear process,” but rather “a complex, multi-layered network of trading companies and suppliers.” JA160. Second, manufacturers, particularly of complex products, frequently purchase enormous numbers of parts from numerous suppliers. A vehicle, for instance, “typically contains thousands of parts or components, and most of these contain multiple materials.” JA421. Wireless handsets for phones “commonly contain about 1,000 parts.” JA432. A “747 aircraft incorporates some six million parts.” JA573. And “Boeing’s defense business— USCA Case #13-5252 Document #1455974 Filed: 09/11/2013 Page 24 of 198 10 which represents only one half of the Company’s total business—acquired well over 190 million piece parts” in 2010. JA572.
Each part may have its own distinct supply chain. Indeed, a single manufacturer may obtain parts from “tens of thousands” of suppliers. JA401. AT&T, for example, has “over 50,000 direct suppliers.” JA432. Boeing’s defense business had “almost 8,000 direct suppliers [in 2010],” and its “commercial aircraft business had almost 2,000 direct suppliers.” JA572-73 (emphasis omitted). One member of the NAM has “over 22,000 direct material suppliers.” JA630. And each of a manufacturer’s “direct suppliers may have thousands of direct suppliers itself, and many of those indirect suppliers will have a comparable number of suppliers.” JA573. Typically, manufacturers “only have direct contact” with their own suppliers, and know little to nothing about this vast web of sub-suppliers. JA160. Suppliers often consider their supply chains to be proprietary, and “may be unwilling to identify to the public company customer all [their] sources of supply.” JA463; see JA423. Even when sub-suppliers can be identified, they “could be small businesses and/or non-public companies located anywhere in the world … without the infrastructure, resources, and capability to meaningfully comply” with requests for information on the identity or source of minerals. JA476.
Moreover, even if a company succeeded in mapping its supply chain, the map “would be out of date as soon as it was released.” JA572. Not only do “[c]ompanies change suppliers,” but their “suppliers change suppliers, and their suppliers change USCA Case #13-5252 Document #1455974 Filed: 09/11/2013 Page 25 of 198 11 suppliers all the time.” JA585. Boeing, for instance, estimates that up to a quarter of its direct suppliers change every year. JA573. This fluidity is necessary; “supply chains must be able to shift at a moment’s notice to address small-scale disruptions like a fire at a critical supplier’s facility, as well as large-scale disruptions like [nuclear disasters]—and, of course, to reflect changes in price or quality of inputs.” JA572. Due to the complex, constantly shifting, global nature of supply chains, attempting to identify the country of origin of minerals contained in products is extremely challenging and tremendously costly. See OECD Report 39-41; JA630; JA422.
3. Identifying the Mine of Origin
As difficult as it is to trace the minerals to their country of origin, it is even harder to trace them to the mine. This is particularly true for the small percentage of minerals that comes from the DRC, a country long ravaged by a brutal war involving more than twenty different armed groups and several neighboring countries. JA72; House Testimony (statement of Mvemba Dizolele). Fighting continues in the eastern DRC, and armed groups continue to commit grave human rights abuses. JA73. After decades of instability and war, the central government has little control. GAO Report 17.
The multitude of armed groups, political instability, and lack of government control make it extremely difficult to identify mines. There are literally thousands of mines in the DRC, many of them “artisanal mines,” which are mostly “very small scale operations” dug “by hand or with basic tools.” JA680, Dep’t of State, Democratic USCA Case #13-5252 Document #1455974 Filed: 09/11/2013 Page 26 of 198 12 Republic of the Congo Mineral Exploitation by Armed Groups & Other Entities (2012) (State Dep’t Map). “[T]here may be over 2,000 [mines] in eastern DRC alone.” GAO Report 19. And “[m]any of the mining sites in eastern DRC are inaccessible to outsiders due to remoteness, a lack of passable roads, and the dangers stemming from the presence of militia, undisciplined army troops, and bandits.” State Dep’t Map, JA680.
4. Determining Whether Minerals Finance Armed Groups
Equally challenging is determining whether minerals benefit armed groups. The State Department reports that a “[l]ack of verifiable data makes it difficult … to comprehensively verify the armed groups or other entities that are either present at mines or have access to revenue streams emanating from them.” Id. Sending independent monitoring groups to each mine, in addition to being burdensome and dangerous, is unlikely to provide reliable data. Organizations that have tried have found that armed groups “were often alerted to the [monitoring] group’s visits and left in advance of the validators’ arrival.” JA694. And even if one could determine whether armed groups are profiting from a particular mine, the information would not remain reliable for long, because “[t]he situation on the ground is in flux.” State Dep’t Map, JA680; see JA694.
Furthermore, even if one could determine that no armed group “physically control[led]” a particular mine, §1502(e)(5)(A), that would not exclude the possibility that such a group had access to the revenue stream “emanating from” the mine, State Dep’t Map, JA680. Some groups “tax, extort, or control … trade routes” or “trading USCA Case #13-5252 Document #1455974 Filed: 09/11/2013 Page 27 of 198 13 facilities.” §1502(e)(5)(B); JA115. Indeed, armed groups will “seek control of any significant revenue-producing activity in the region.” GAO Report 18. Tracking the minerals from the mines to the country’s borders and confirming that no armed group had access to the revenues is fraught with difficulty. The minerals pass through numerous hands, largely without documentation or supervision from DRC authorities. First, merchants purchase minerals from miners and take them to trading houses. JA89. Because of the weakness of the central government, around 90% of merchants and trading houses operate “without proper licenses and registration.” Id. Trading houses then sell minerals to export companies, who sell them to foreign buyers, often smuggling minerals “across Congo’s porous borders.” JA91. At each stage, minerals from different locations are combined, so that “one shipment container of mineral concentrate … will usually contain material from hundreds of miners, passing through the hands of many traders.” JA172. The minerals are then sold to smelters and refiners, many located in China, at which point “supplies from all over the globe are mixed together,” and metal is extracted from the ore. JA92; GAO Report 26.
For years, international and trade organizations, including the Organisation for Economic Cooperation and Development (OECD), the United Nations, the Electronic Industry Citizenship Coalition, and ITRI, a tin industry group, have been attempting to design systems to reduce mineral funding to armed groups in the DRC USCA Case #13-5252 Document #1455974 Filed: 09/11/2013 Page 28 of 198 14 without harming the country’s population and economy, including systems to track minerals and certify that particular smelters are “conflict-free.” But “the DRC government lacks capacity to mitigate corruption and smuggling,” and the resulting “illegal trade of minerals undermines the exercise of due diligence in the DRC and affects the credibility of due diligence-based certification and traceability systems.” GAO Report 19. The extreme difficulties and expense of ensuring that minerals from the region are “conflict-free” have led many to avoid sourcing from the region entirely, leading to a de facto embargo that is devastating the DRC’s economy and legitimate mining communities. OECD Report 16-17, 61; GAO Report 18; see infra p.15- 16.