SEC cannot cleanse the electronics industry alone: 'blood minerals' mandatory disclosure legislation effective only if applied across the board.

Author:Blake, Allison M.
 
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  1. INTRODUCTION II. BACKGROUND A. History of Violence and Resource Exploitation in the DRC B. Congress's Response III. ANALYSIS A. To Whom the Conflict Minerals Rule Applies 1. Directly Affected Companies 2. Companies "Contracting to Manufacture" B. The Conflict Minerals Rule Reliance on Disclosure, Not Sanctions C. The Conflict Minerals Rule Requires Filing, Not Furnishing Supply Chain Information D. Required Level of Detail and Diligence in Filing 1. Companies Required to Perform Due Diligence 2. Companies Not Required to Perform Due Diligence E. Financial Burden of Compliance F. Public Reaction to the Conflict Minerals Rule IV. RECOMMENDATION A. Expanding the Rule Within the United States B. Expanding the Rule Outside U.S. Borders C. Expansion of the Rule Itself V. CONCLUSION I. INTRODUCTION

    In modern industrialized society, many consumers possess multiple personal electronic devices that were beyond human imagination 100 years ago. These personal electronic devices improve entertainment, convenience in everyday tasks, and long-distance interpersonal communication. People want and have become dependent on such technology--evidenced by shipments of 121 million tablet PCs in 2012 alone, which are expected to grow to 416 million shipments per year by 2017. (1) The benefits of owning personal electronic devices such as smartphones, computers, and tablets are obvious, but what are the economic and social implications of producing these consumer electronics on such a large scale?

    This Note focuses on the social implications of sourcing materials needed to build consumer electronics from one of the most dangerous places on the planet, the Democratic Republic of the Congo (DRC). This Note begins in Part II by summarizing the long history linking resource exploitation and violence in the DRC. Although the country has recently emerged from a four-year civil war, rebel groups continue to terrorize the DRC's citizens to gain control of the many mineral mines. Unlike the misfortunes associated with past resource exploitation in the country, sourcing of materials is now occurring in an age of global information dissemination. Part II of this Note concludes by explaining how public outcry about the dire conditions led Congress to weigh various options to improve the situation and ultimately settle on the current Conflict Minerals Rule.

    In Part III, this Note summarizes the main provisions of the Conflict Minerals Rule and analyzes their likely efficacy in ending violence in the DRC. Part IV of this Note, while acknowledging that many of the rule's provisions are in line with the ultimate goal of ending violence and are likely to be upheld, recommends that the rule must be expanded to cover privately held companies and must be copied by other countries in order to truly solve the DRC humanitarian crisis. Finally, Part V provides a brief conclusion and call to action.

  2. BACKGROUND

    This Part first describes the past and present humanitarian crises due to resource exploitation in the DRC. Next, this Part describes the public outcry that sparked Congress's search for a solution to the problems conflict minerals are causing in the country. After discussing the different options Congress considered, this Part explains that Congress finally chose to pass the current Conflict Minerals Rule under the Dodd-Frank Act.

    1. History of Violence and Resource Exploitation in the DRC

      The DRC is a sprawling country of 400,000 square miles, straddling the equator in central Africa. (2) In 2011, the estimated population was 71 million, made up of roughly 250 named ethnic groups that spoke as many as 700 dialects. (3) The western region of the DRC is dominated by mountains, which gradually fade into the grasslands of the east. (4) It is bordered by nine countries: Angola, Burundi, Central African Republic, Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda, and Zambia. (5)

      The DRC has a violent and turbulent past dating back to its colonization by King Leopold II of Belgium in 1885. (6) King Leopold sought the valuable supplies of rubber and lumber in the area, and Belgians under his command killed between five and eight million people while extracting materials. (7) Initially, he claimed sole ownership of the Congo, but he relinquished the land to Belgium in 1908 after public backlash from his acts. (8) It was not until 1960 that the Belgian Congo became independent, shortly after which a brutal civil war broke out. (9) From the civil war emerged U.S.-backed leader General Mobutu. (10) He reigned for 32 years, until 1996, (11) but when he left the country, it was in utter shambles. (12) In 1998, the DRC became involved in the "Second Congo War," which at its height tangled nine African countries, including several of the DRC's neighbors. (13) The war was the deadliest the world had seen since World War II. (14) The war officially ended in 2002 when a peace agreement was enacted, (15) but the lingering humanitarian conditions continued to kill 45,000 people per month as late as 2008.16 In 2008, Foreign Affairs called the situation in the DRC "the largest humanitarian crisis on the planet." (17)

      The deplorable conditions in the DRC are largely caused by the country's mineral trade, which has consistently brought despair rather than economic success to its people. (18) While the DRC contained valuable rubber and lumber in its earliest days of colonization, the DRC now takes in approximately $180 million annually from trading tantalum, tin, tungsten, and gold. (19) These "conflict minerals" are referred to as the "3T + G minerals." (20)

      These minerals are currently in hot demand worldwide because they have widespread application in the electronics industry. (21) Tantalum is used in capacitors to store electricity in cell phones, digital cameras, and other handheld electronics; tin is essential to solder circuit boards; and tungsten is used in the vibrating mechanism in cell phones. (22) Gold, while valuable for aesthetic applications, is also crucial in constructing modern electronics due to its conductivity. (23) Consumers purchase these materials at an alarming rate as modern personal electronics are becoming ubiquitous, and according to one expert, "if a product has a circuit board, it probably received some of its minerals from [the DRC]." (24)

      With the high (and increasing) value and widespread use of these minerals, people will stop at nothing to take or maintain control of potential profits to be reaped in the DRC. (25) With the political system in shambles, those in power frequently use violence as a means of control. (26) One northern territory in the DRC, Walikale, contains some of the "most lucrative mining sites in the region." (27) A group in power there, the Democratic Forces for the Liberation of Rwanda, together with another rebel group, the Mai-Mai, raped approximately 300 women and children in 13 villages in the Walikale territory in a span of just two months. (28) This horrific brutality occurred while thousands of Congolese soldiers were deployed to the region to restore order and enforce a presidential halt to mining activities. (29) The United Nations later reported accounts of Congolese soldiers participating in rapes as well. (30) These brutal rapes have emerged as a form of social control that rebel groups use to show village men that they are powerless to stop the mining. (31) The escalating violence has led to the DRC now being called the most dangerous place in the world to be female. (32)

      Violent rape is just one tactic rebel groups use to control local inhabitants while acquiring wealth and power. (33) Illegal taxation (not sanctioned by the government) is imposed "on every worker, merchant, and visitor who works or lives near the mines." (34) The rebels use the illegally obtained money to purchase more weapons and "maintain a brutal form of order by killing or chopping off limbs of the men." (35) Many small rebel groups also compete for control by using violence, further complicating the already bloody landscape. (36)

      In an age of global information dissemination, consumers and lawmakers in developed countries such as the United States are appalled if and when they hear of the events in the DRC. (37) The current violence could be similar to the violence associated with King Leopold Il's rubber and lumber extraction in the late 1800s, but modern technology enables people worldwide to quickly and accurately learn about such brutality. Ironically, the very products built from DRC minerals increase the capacity for people to learn of the brutality in the country. Furthermore, the situation in the DRC is much more tangible than a distant and removed barbaric war, because this bloodshed is directly quenching consumers' thirst for personal electronics. (38) Because consumers are outraged, investors and corporate executives are hesitant to "place[] major investments in the heart of one of the world's largest humanitarian crises," because they either wish to be socially responsible, are afraid of repercussions of such information going public, or both. (39)

    2. Congress's Response

      The massive bloodshed in the DRC placed the crisis in the forefront of both the U.S. media and Congress's agenda, and lawmakers began scrambling to draft a solution in 2009. (40) Senator Sam Brownback introduced the first legislative initiative to the 111th Congress, titled the Congo Conflict Minerals Act of 2009. (41) This proposed initiative would have required companies to disclose to the Securities and Exchange Commission (SEC) the origin of any conflict minerals they use. (42) Senator Brownback's bill required company disclosure for tin, tantalum, and tungsten, but not gold. (43) The initiative would have amended the Securities Exchange Act of 1934 and proposed that the U.S. Department of State create a map of mineral-rich zones and rebel controlled areas. (44) These maps would be created to assist companies in engaging...

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