Tuesday, December 31, 2019
Although conflict minerals disclosure is no longer enforced in the United States, a recent lawsuit may reignite the debate over the sourcing of materials widely used in electronics.
Families of children killed or injured while mining for cobalt in the Congo have filed a lawsuit against the world’s largest tech companies, including Google and Apple, according to court documents.
Advocates have been lobbying to add cobalt to a “conflict minerals list” that currently includes tantalum, tin, tungsten and gold (3TG). These minerals, widely used in passive components, batteries, solders and finished electronics products, are sourced from regions that use slave-and-child labor to mine them. The sale of these minerals, in turn, funds terrorist activities and human-rights abuses in these war-torn regions.
The U.S. rule – part of the 2010 Dodd-Frank Act – discourages the sourcing of 3TG from areas of conflict. Electronics companies have reverse-engineered their supply chains to identify, then eliminate, certain sources of these materials. To date, the industry has been considered highly compliant.
The lawsuit, which also named Dell, Microsoft and Tesla as defendants, was filed in Washington, DC, by human rights group International Rights Advocates. Fourteen families have accused the tech firms of aiding and abetting forced labor practices in the Democratic Republic of the Congo (DRC).
According to the lawsuit, Apple, Alphabet, Dell, Microsoft and Tesla all “knowingly aided and abetted and benefited enormously from a system that forces impoverished children, including the plaintiffs and others similarly situated, to perform extremely hazardous work without safety equipment of any kind for less than subsistence wages in order to barely eke out a minimal human existence.”
The lawsuit marks the first legal challenge of its kind against technology companies, many of which rely on their cobalt supply chains to power products like electric cars, smartphones and laptops.
Conflicts minerals in the U.S.
Under Dodd-Frank, the U.S. Securities & Exchange Commission (SEC) was charged with overseeing publicly-traded companies’ conflict-minerals compliance. Although the rule – which simply requires the presence of these materials be disclosed -- hadn’t been tested, penalties were the main means of enforcement.
In 2017, Acting SEC Commissioner Michael Piwowar implied that the SEC would cease enforcement of the due diligence and audit requirements of the conflict minerals rule, rendering it largely toothless. Many electronics companies, however, continue to comply. Tech companies have committed to corporate social responsibility (CSR) initiatives that support the environment and human rights. Additionally, Dodd-Frank carries with it the risk of reputational damage via public shaming.
International Rights Advocates claim, in the family lawsuit, “the supply chain is, by design, hidden and secretive to allow all participants to profit from cheap cobalt mined under extremely hazardous conditions by desperate children forced to perform extremely hazardous labor.”
Electronics companies and associations have done extensive research into the 3TG supply chain and have developed databases, auditing tools, approved supplier lists and a wide range of transparency and compliance practices. Cobalt is not included in Dodd-Frank but organization such as the Responsible Minerals Initiative are spearheading the effort for inclusion.
“Defendants know and have known for a significant period of time the reality that DRC’s cobalt mining sector is dependent upon children, with males performing the most hazardous work in the primitive cobalt mines, including tunnel digging,” according to the lawsuit.
Given all the publicly available information, these companies “reasonably should have known” about the abuses taking place in their cobalt supply chains. Computer Weekly (CW) cited UK and Chinese companies associated with suspected abuse.
Microsoft was unable to remark on ongoing legal cases, according to CW, and Apple, Google, Dell and Tesla did not immediately respond to inquiries. Advocacy organizations contacted by EPSNews said it was not appropriate to comment on ongoing litigation.
Global expansion efforts
The conflict minerals movement is expanding internationally. In the European context, the EU Conflict Minerals Regulation is set to come into force on 1 January 2021, which will attempt to stem the tide of 3TG conflict minerals from across the globe by introducing stricter measures for downstream companies, like those named in the lawsuit.
The 3TG minerals and cobalt were included in the U.S. Department of Labor’s 2018 list of goods produced by child labor or forced labor, which explicitly states these minerals are coming from the DRC.
Cobalt, however, is not currently covered in the scope of the proposed EU regulation, and although the regulation is set to introduce a mandatory due diligence framework, it is unclear now if this will be accompanied by any legal penalties for non-compliance.
“None of them actually perform the required due diligence to verify whether children are mining cobalt in their supply chains,” said the complaint.
According to the Harvard Business Review, which analyzed every conflict minerals report submitted to the SEC, most multinational corporations – some 80 percent – are still not sure where the raw materials they use come from. Only 1 percent of the enterprises were able to declare that their products were conflict-free beyond reasonable doubt.
The complaint also pointed out that the technology companies in question claim to the public that their policies and practices are designed to prevent forced or child labor.
Critics of such claims say they are largely voluntary and based on self-reporting, as are the various industry coalitions that were set up to eliminate the use of conflict minerals.
“I think the big companies are just hiding behind these naïve certification processes, especially in conflict minerals,” one expert told Computer Weekly. “If you talk to the big companies, they will say it’s not an issue because we have these [certifications], or the smelters have these certifications – but the problem is not at the smelter, it is on the ground in the DRC,” he said.
“As soon as one of these companies goes out and does a big audit of their supply chain, we all know what they’re going to find. It’s an open secret in the conflict mineral space – they’re going to find that it’s not good, and so their solution is should we just keep playing the game and be complicit.”
However, many companies remain committed to the effort. In the buildup to Dodd-Frank, enacted in 2012, the electronics industry spent an estimated $7.93 billion and countless “man-hours”’ on conflict-minerals compliance. Companies that have publicly committed to CSR principals are closely watched by compliance advocates, the media, and each other. A company that discovers non-compliance by a competitor could “weaponize” that information.
It’s also possible that investor concern is inspiring action. Nearly 50 different investor groups -- under the Alliance for Human Rights and represent $1.2 trillion in assets -- have pushed for the continued support of the rule.
The debate over conflict minerals enforcement has largely abated since the 2017 SEC opinion and the onset of the U.S.-China trade war. However, if courts or governments define – and test – penalties for non-compliance, companies can be held accountable for their sourcing decisions.
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