Thousands of companies could be forced to reveal the source of metals and ores they use under a proposed U.S. rule aimed at cutting the flow of money to armed rebels in the Democratic Republic of Congo.
The Securities and Exchange Commission proposed on Wednesday that companies annually reveal whether they are sourcing tantalum, tin, gold and tungsten from the war-torn region.
That means companies such as Hewlett-Packard Co. and Research in Motion Ltd., which rely on the metals to make their electronic gadgets and laptops, could be subject to the new rule. The SEC estimates 6,000 companies could be affected.
“The idea is to cut off funding for the armed rebels in the Democratic Republic of Congo who are getting money from the sale of these minerals to fund these activities,” said Darren Fenwick, a senior manager at Enough Project, an organization aimed at ending genocide and crimes against humanity.
“It is going to create transparency in the supply chain process. It will force consumers to make a choice,” he said.
Much of Congo’s metals and ores come from its troubled east, where fighting between government forces and rebel groups has displaced more than 1.4 million people.
The SEC rule is required by the Dodd-Frank legislation that was enacted in July to reform Wall Street and chiefly aimed at plugging regulatory gaps after the worst global financial crisis since the Great Depression.
The “conflict mineral” provision was put into the bill by a number of senators, including Dick Durbin, who has said he witnessed first-hand atrocities of horrific and inhumane proportions.
Under the SEC’s proposal, a company would have to disclose the source of the conflict mineral if that mineral is needed to make the product work. Likewise, a company would be subject to the rule if it contracts a manufacturer that uses the mineral for the product.
The electronics industry relies on tantalum for its ability to store and release an electrical charge and is used in power-storing processes in devices like smart phones and laptop computers.
SEC commissioners had no comment on the proposal and voted unanimously to seek public input, due by the end of January.
The SEC also unanimously voted to require mining companies to disclose mine safety information and proposed rules that would force companies to disclose payments to government in developing oil, natural gas or minerals.
The types of payments required to be disclosed include royalties, bonuses and taxes.
At the same meeting, the SEC largely followed the chief U.S. futures regulator’s proposal to exempt certain companies from new derivatives rules.
So-called “end users,” companies such as Ford Motor Co. that use derivatives to manage their risk, are trying to make sure that they will not have to set aside extra capital in order to use the financial instruments.
Under the SEC and Commodity Futures Trading Commission’s plan, an end-user would be exempt if the deal is not speculative and one side of the trade is a non-financial entity.
The company would need to prove to regulators that it had the financial support needed for the derivative deal such as written third-party guarantee or credit line.
Regulators won new powers to police the estimated $600-trillion (U.S.) over-the-counter derivatives market under Dodd-Frank after insurer AIG’s pile of risky credit swaps unsettled financial markets. The SEC will police about a tenth of the market, while the CFTC will supervise the rest.
The exemptions would apply deal by deal and not be a blanket exemption for a company. The SEC sought comment on whether additional exemptions were needed for small banks, savings associations, farm credit system institutions and credit unions with total assets under $10-billion.
Most derivatives, private contracts between two parties, will be forced onto trading venues and through clearinghouses. The trading venues, also known as swap execution facilities, will help make the market more transparent. The clearinghouses are expected to help mitigate risk if one party defaults.