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Conflict Minerals: Hands-Off Is Not a Solution

Posted: 07/11/11 02:10 PM ET

What do an artisanal miner in the Democratic Republic of Congo, computer companies, and the Organization for Economic Cooperation and Development in Paris have in common? They all have a keen interest in ensuring that mining in Africa does not fuel conflict.

Last month, U.S. Secretary of State Hillary Clinton chaired a meeting celebrating the OECD's 50th anniversary where ministers from OECD and developing economies agreed on a set of practical recommendations that will keep minerals from becoming "conflict minerals". And recently in Washington, there were an important series of events around conflict minerals bringing together 200 downstream companies to discuss approaches and take action to ensure responsible sourcing.

In fragile African states, illegal exploitation of natural resources has fueled conflict across the region for a decade. While data is scarce, it is estimated that up to 80% of minerals in some of the worst-affected areas may be smuggled out -- bound for use by jewelers, the automotive and aerospace industries, producers of medical devices and other manufacturers around the world.

Trade and investment in natural mineral resources hold great potential for boosting growth and prosperity in the developing world. Too often though, misguided or illicit exploitation of these resources has contributed, directly or indirectly, to armed conflict, human rights violations, crime and corruption, and international terrorism, thereby impeding economic and social development. The story of "blood diamonds" is familiar to many -- brought back into the spotlight recently by a controversial decision to allow diamond exports from Zimbabwe -- but there are many other minerals that contribute to conflict across the continent.

In 2010 the US Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as the Dodd-Frank Act. This law has received a lot of attention because of its sweeping new regulation of the financial industry. Less known, however, is the fact that this same law (under Sec. 1502) imposes additional reporting requirements on publicly traded companies manufacturing products that could potentially be using "conflict minerals" (in particular tantalum, tin, tungsten and gold). The law obliges these companies to report to the Securities and Exchange Commission disclosing their tax, royalty and other payments on each project they operate. This provision will cover US and European companies as well as many from emerging markets that sell shares on US stock exchanges.

Until last month, companies did not have a set of government-backed recommendations on how to undertake supply-chain due diligence. The new OECD guidance clarifies how all involved -- from local exporters and mineral processors to the manufacturing and brand-name companies that use these minerals in their products -- can identify and better manage risks throughout the supply chain. The guidance is also designed to foster private sector engagement in sustainable sourcing practices that nurture revenue-generating trade in clean minerals, creating a peace dividend while supporting broader development goals.

The guidance seeks to avoid what all involved would consider an unhappy outcome: boycotting of mining in countries like the Democratic Republic of Congo (DRC). By incorporating the flexibility to allow trade to continue, it promotes responsible sourcing, bearing in mind that supply chains cannot become 100% conflict-free overnight. In this way, it avoids massive pull-outs that would have severe consequences for the poor populations that depend on mining for their bread and butter.

Responsible solutions are possible. For instance, "bag and tag" programs -- a scheme to track the origin of tin and developed to implement to the OECD guidance -- are now being used in the DRC and Rwanda by companies extracting and trading in minerals.

In a wide show of support, many have called on the Securities and Exchange Commission to refer to this guidance as providing reliable due diligence measures to meet the reporting obligations under section 1502. Such a reference to internationally agreed standards in the implementing rules being written now and anticipated to be issued in the coming months would ensure that companies will have one clear set of due diligence expectations throughout the entire supply chain, thereby avoiding multiple and potentially conflicting requirements for companies on how due diligence should be implemented.

Section 1502 of the Dodd-Frank Act and a whole-of-government approach to the implementation of the new guidance offered by the OECD are excellent examples of how we can deliver on a "new paradigm for development" -- one that looks beyond aid. In her speech last month in Paris, Secretary Clinton emphasized that we need a "new approach to development that will better prepare developing countries to move from aid to sustainable and inclusive growth." This work moves us solidly in that direction.

Stephen P. Groff is the deputy director for development cooperation at the Organization for Economic Cooperation and Development in Paris.