Moving at the blinding speed of bureaucracy, the U.S. Securities and Exchange Commission has finally adopted a rule that requires manufacturers to report on their use of conflict minerals from the Democratic Republic of the Congo.

It only took the agency two years and change.

The rule was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Obama on July 21, 2010. That sweeping piece of regulatory reform, a response to the hijinks of investment bankers who brought on the Great Recession, included a provision for disclosing the use of conflict minerals from the DRC and nine adjoining countries.

The minerals at issue are tantalum, tin, tungsten and gold. Under the new rule, manufacturers are required to identify the presence of those materials if they are "necessary to the functionality or production of a product." The goal is to choke off a significant source of income for armed gangs who control certain mines in the DRC, engaging in acts of murder, rape and slave labor.

That is no small order. The four identified minerals are found in just about every high-tech product imaginable, including laptops, smartphones, medical devices and automobiles. Given the complexity of global supply chains, identifying those elements that come from gang-controlled mines in the DRC is going to be a huge challenge. And a costly one, too: the SEC has estimated that companies could spend up to $5bn on getting up to speed with the law, in addition to annual monitoring and report expenses, while a study by Tulane University puts the price tag at closer to $7.93bn. (The SEC's original estimate of the ruling's cost was $71.2m, a laughable figure.)

So what exactly is in the SEC rule? It applies only to publicly held companies that file reports with the agency, and are either manufacturers or have influence over the actual making of their products. They are not covered by the rule if they merely slap on a brand or label to a generically produced item, or service or repair a product that is manufactured by a third party.

Companies meeting the SEC's definition of a manufacturer must undertake a country-of-origin inquiry into their products' components. They must then state that the minerals either didn't originate from banned locations, or came from scrap or recycled sources. The disclosure must be made in a new Form SD, to be electronically filed with SEC. A description also must be posted on the company's website, but not in its annual report, as had been originally proposed by the agency.

If a company discovers that one or more of its products contain conflict minerals, then it must detail the item's complete chain of custody, and file a conflict minerals report as an exhibit to the Form SD.

Not every mine in the DRC is considered a source of conflict minerals. If a company determines that its products are "DRC conflict-free," and do not come from a source within the country that is controlled by the gangs, then it must meet a series of certification requirements that include an audit by an independent, private-sector entity.

Exactly who that entity might be remains unspecified. Nor does the SEC state what constitutes "due diligence" in a company's efforts to lay out the chain of custody for affected products. It simply says that the measures "must conform to a nationally or internationally recognized due diligence framework," while referring to a global framework set up by the Organization for Economic Cooperation and Development. Businesses can also get help from a smelter validation program established by the Electronic Industry Citizenship Coalition.

In response to industry feedback during the rulemaking phase, the SEC is delaying full implementation of the rule. For the next two years (four for smaller companies), filers have the option of identifying their products as "DRC conflict undeterminable." In such cases, they are not required to obtain an independent audit of their conflict minerals reports. The first disclosure statements must be filed on May 31, 2014, covering the 2013 calendar year, then annually on May 31 of every subsequent year.

Just because you are not a publicly traded manufacturer of high-tech items is no reason to get complacent. Chances are you supply an original equipment manufacturer that is covered by the SEC rule, and will demand disclosure by you and all its other vendors. The chain of custody of a global supply chain isn't limited to companies that trade their shares in an open market.

In any case, the SEC isn't the final arbiter of a company's moral qualities. That's the consumer. And the damage to a company's brand, if it's found to be supporting unsavory characters halfway around the world, could be incalculable. Companies like Nike and Apple have already learned the price to be paid, when they are shown to be enabling unfair labor practices. So rather than complain about the burdens of the new SEC rule, perhaps business would be better off learning what it needs to be doing in order to comply with it.

Next: Reactions to the rule - and what to do now.

- Robert J. Bowman, SupplyChainBrain

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