Initiatives by the US and the OECD have the potential to clean up mineral production, says Peter Davis, politics editor

It is said that each of us carries around a piece of the Democratic Republic of Congo (DRC) in our pocket. DRC is one of the few sources in the world of coltan, the rare mineral that is a key element in the manufacture of mobile phones. Does this mean that each of us is at least a little bit responsible for the ongoing conflict in the region?

As diamonds were associated with the continuation of the west African wars of the late 1990s, so coltan and a range of other rare elements are associated with funding conflict in DRC.

In August the US Senate passed Barack Obama’s financial reform bill. Under the new law, the US government will be given the power to seize control of a failing bank to avoid a collapse that could threaten the financial sector, and derivatives trading will be subject to new controls.

The act also contains section 1502, which requires manufacturing companies to report annually to the Securities and Exchange Commission if their products contain conflict minerals from the DRC. The new law will apply to manufactured goods containing tin, tantalum, gold and tungsten, used in electronics manufacturing.

Companies will also be required to submit a due diligence plan with the annual SEC report. The SEC has 270 days to finalise regulations to implement these requirements.

However, it is not just the US that is beginning to require companies to look more closely at where the materials they use come from. The OECD is currently developing a similar due diligence framework on sourcing of minerals from conflict zones.

This draft guidance defines risk-based due diligence for companies throughout the entire mineral supply chain to detect and manage risks of directly or indirectly supporting conflict through the extraction and trade of minerals from conflict-affected areas. This due diligence guidance also helps companies address non-conflict-specific risks associated with high-risk areas, including conditions of mining, corruption, financial crime and tax evasion.

The OECD draft guidance is based on the supply chain of cassiterite, tantalum and wolframite. However, it is expected that the principles, standards and procedural steps will be applicable to other minerals, and to supply chains.

These developments are highly significant. The US move is especially important. A company’s SEC disclosure is an important document, and to make the issue of conflict minerals a legal part of this is a serious move.

Potential impact

Certainly there are limitations – at present, the SEC disclosure requirement applies only to minerals from the DRC. However, having established the principle, it would not be difficult to extend the logic of the disclosure requirement to other countries if they too seemed to be a source of conflict materials.

The OECD guidance is more comprehensive, and potentially applies globally to all countries that may provide conflict materials, and to companies in all OECD jurisdictions. However, OECD implementation of such guidance tends to be patchy and depends on the willingness of OECD member states to incorporate the guidance into their own national legislation and to enforce it. The US regulations may be more limited in scope, but they will enjoy the force of law.

The OECD says the draft guidance is intended to pave the way for the development and implementation of comprehensive certification schemes of mineral resources, the implementation of which requires the performance of due diligence. Although details are not made clear, a structure for this would presumably resemble the Kimberley Process certification scheme designed to address the issue of blood diamonds.

This would be an interesting model since while Kimberley certification is not a legal requirement within the diamond business, there has become an expectation that companies will participate in the scheme. The same is true of the Extractive Industry Transparency Initiative. There is usually no legal requirement for companies to disclose the payments they make under production-sharing agreements, but it is increasingly difficult for oil companies not to participate in the local EITI chapters where they operate.

Certification processes may be non-legal, but they are reaching the point where companies regard compliance with them as being as important as compliance with law and regulation. It will be interesting to see how far and how fast the new OECD guidance moves in this direction.

And the US developments have immediate impact: many companies now have a legal requirement to explain an important aspect of their responsible business practice.