SEC has underestimated cost of complying with proposed conflict minerals regulations by $263 million in first year

By Fern Abrams, IPC Director of Government Relations and Environmental Policy

This past summer, in response to human rights and non-governmental organizations’ (NGOs) concerns that the mining of “conflict minerals” in the Democratic Republic of Congo (DRC) provide funds supporting continuing violence and atrocities, Congress added language (Section 1502) to the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act that requires companies to disclose their efforts to ensure that their products do not contain minerals originating in conflict mines in the DRC.

The law requires companies whose manufactured goods contain metals refined from the minerals columbite-tantalite (coltan and tantalum), cassiterite (tin), gold, and wolframite (tungsten) to report annually to the Securities and Exchange Commission (SEC) if the minerals did originate from the Congo or adjoining countries.  Companies are required to identify the country of origin of the minerals and whether the minerals came from mines controlled by rebel parties. Each company must also submit a report of their due diligence performed on the source and quality of the required inquiries. Although the reporting requirements apply only to publicly traded companies, it is clear that the requirements will rapidly flow down from the publicly traded companies to all of their suppliers, large and small.

IPC believes that the SEC has significantly underestimated the cost of complying with the proposed regulations. Draft regulations published in November by the SEC estimated a total compliance burden of 153,864 hours of company personnel time and approximately $71,243,000 for the services of outside professionals for all affected companies to comply with the proposed regulations. These estimates include the time and cost of collecting the information, preparing and reviewing disclosure, filing documents, and retaining records.

A study conducted by IPC — Association Connecting Electronics Industries,® “Results of an IPC Survey on the Impact of U.S. Conflict Minerals Reporting Requirements,” estimated that reporting requirements for conflict minerals proposed by the U.S. Security and Exchange Commission (SEC) will far exceed the government’s cost estimates.  The IPC study predicted that compliance could cost the electronic interconnect industry an estimated $279 million in the first year of implementation for due diligence alone, compared to the government’s estimate of $16.5 million. The study collected data from 60 electronics manufacturing services (EMS) companies, printed circuit board (PCB) manufacturers, materials suppliers and equipment suppliers.

The study reports that companies would experience a median due-diligence burden in excess of 1,300 hours or $65,000 per company in the first year. In addition, estimated costs for tracking software, additional staff, training, legal expenses and third-party audits totaled a median of $170,000. Recurring costs for companies in the electronic interconnect industry are expected to total approximately $165 million per year.

The IPC study was part of a set of extensive comments submitted by IPC for the SEC’s Notice of Proposed Rulemaking (NPRM). In its comments, IPC encouraged the SEC to implement the requirements of Section 1502 in a manner that supports the goals of the statute without excessively burdening U.S. manufacturing industries or causing unnecessary disruptions of the minerals trade, which is vital to the livelihood of the people of the DRC. Because industry efforts are still in their infancy and because the DRC government has shut down access to some mines, IPC advised the SEC to use its discretion to implement a phased-in approach to the regulations.

The full study and IPC’s comments are available at www.IPC.org/minerals. IPC will host a free educational session on conflict minerals (BZ02) on April 12, 2011, at IPC APEX EXPO in Las Vegas. The presentation will feature a panel of experts discussing the SEC regulations in detail and how to incorporate them into an already complex supply chain management environment.

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