Academic journal article Journal of Business and Accounting

Conflict Minerals Disclosures: A Mandate of the Dodd-Frank Act

Academic journal article Journal of Business and Accounting

Conflict Minerals Disclosures: A Mandate of the Dodd-Frank Act

Article excerpt

ABSTRACT

For certain humanitarian reasons, such as deprivation of financial resources to militant groups that seek arms for nefarious purposes, the civilized world is seeking to eliminate or significantly diminish the trade in "conflict minerals". The United States is trying help in this effort by various means, including (a) forcing the publicly traded user companies of these minerals to establish their supply sources, and (b) after a proper audit, reporting the results in annual financial statements and official websites.

Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) requires a new reporting requirement for publicly traded companies that manufacture products for which "conflict minerals" are necessary for their functionality or production. The conflict minerals included in this provision of are cassiterite, columbite-tantalite, gold, wolframite, or their derivatives. The supply source of concern is the Democratic Republic of the Congo or countries adjoining the Congo. The requirements apply to both domestic and foreign issuers of publicly traded equities (issuers), including smaller companies that must report to the Securities and Exchange Commission.

Industries that may be subject to these new reporting requirements include aerospace, automotive, electronics, communication, jewelry, and manufacturers of healthcare machines. However, while it could be argued that the U.S. Congress' attempts to curb violence in the Congo and adjoining countries is commendable, there are several issues regarding the disclosure requirements for conflict minerals.

INTRODUCTION

For certain humanitarian reasons, such as deprivation of financial resources to illegitimate groups that seek arms for nefarious purposes, the civilized world is seeking to eliminate or significantly diminish the trade in "conflict minerals". The United States is trying help in this effort by various means, including (a) forcing the publicly traded user companies of these minerals to establish their supply sources, and (b) after a proper audit, reporting the results in annual financial statements and official websites.

Though there are no specified penalties for the use of conflict minerals (McDermott Will & Emery, 2010), the U.S. Congress hoped that mandating public disclosure might shame [the "name and shame" incentive, according to Ayogu and Lewis, 2011] user companies to curb or eliminate such trade, resulting in the denial of funds to abusers of human rights (Zweig, 2011).

Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) requires a new reporting requirement for publicly traded companies that manufacture products for which "conflict minerals" are necessary for their functionality or production (McDermott Will & Emery, 2010). The conflict minerals included in this provision of the Dodd-Frank Act are cassiterite, columbite-tantalite, gold, wolframite, or their derivatives (SEC, 2010). By passing this section of the Dodd-Frank Act, Congress in effect ordered the U.S. Securities and Exchange Commission (SEC) to require publicly traded companies to disclose whether raw materials essential to their products originated from the Democratic Republic of the Congo or countries adjoining the Congo (DRC countries) (SEC, 2010; Zweig, 2011). Countries contiguous to the Democratic Republic of the Congo included in this legislation are South Sudan, Uganda, Rwanda, Burundi, Tanzania, Malawi, Zambia, Angola, Congo, and the Central African Republic (Ayogu and Lewis, 2011).

The disclosure requirements apply to both domestic and foreign issuers of publicly traded equities (issuers), including smaller companies that must report to the Securities and Exchange Commission (SEC, 2010). Industries that may be subject to these new reporting requirements include aerospace, automotive, electronics, communication, jewelry, and manufacturers of healthcare machines (Ayogu and Lewis, 2011). …

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