Blockchain Systems Create New Potential for Transparency in Conflict Mineral Tracking

The Responsible Sourcing Network’s 2018 report on commercial efforts to disclose reliable data when purchasing conflict minerals illustrated a concerning trend.(Andrea Vittorio, Bloomberg). The current trend indicates that many companies who deal in conflict minerals are receiving lower grades for their efforts and abilities to provide transparency on the origins of those minerals. Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 directs the Securities and Exchange Commission (“SEC”) to enforce reporting requirements for companies that manufacture products with conflict minerals. Conflict minerals are those that originate from mines controlled by armed groups in areas like the Democratic Republic of Congo and its neighboring countries. (Karen Woody, Hein Online). Despite this mandate, the current administrative agency’s relaxed stance towards enforcing these regulations likely led to the lower scores in companies engaged in business for which conflict minerals are necessary. (Andrea Vittorio, Bloomberg). 

In response to a consumer driven movement for increased transparency in the origins of conflict minerals, corporations are seeking more efficient tracking systems to comply with consumer initiatives. (James Munson, Bloomberg). Many companies believe blockchain technology brings new potential for a more secure and cost-efficient method to prevent unethical minerals from entering their supply chains. (James Munson, Bloomberg). Companies such as IBM and Ford Motor Company have announced test programs with blockchain systems in order to demonstrate that the minerals and methods they use are compliant with social and ethical standards. (Melissa Robinson, Bloomberg). 

Clare Church, a research officer with the International Institute for Sustainable Development, sees problems with the current conflict mineral tracking systems and their inability to keep unethically mined materials out of the mineral supply chain. (James Munson, Bloomberg).  The International Tin Supply Chain Initiative (“ITSCI”) is the main tracking system used for tin production in central Africa. (Responsible Minerals Initiative). ITSCI is a cloud-based system that attempts to provide end users with a detailed report on where the tin was mined, processed, traded, and smelted. (J.R. Goode, Springerlink). This system, created by the tin industry, has been criticized for its lack of efficiency and security in disclosing reliable information. Traditional cloud-based systems such as ITSCI have received criticism for being too expensive and easily hackable.  Church expressed concern about the current systems in place, specifically ITSCI, stating, “the near monopoly has many loopholes and it is very expensive for whoever holds the mineral export permit.” 

The ITSCI system illustrates the concern that tracking systems created by dominant economic powers do not adequately disclose issues such as local mining conditions for populations in the Democratic Republic of Congo. (James Munson, Bloomberg).  Louden Owen, chair and CEO of DLT Labs, identified additional deficiencies with systems like ITSCI  - that such systems are easily hackable and require manual changes for every document. (James Munson, Bloomberg). Current systems like ITSCI utilize cloud services similar to Google to store documents in a data center, which in turn shares the document with authorized users. Because documents stored in these data centers are vulnerable to alteration or hacking, companies are required to make manual copies, making reliable conflict mineral transparency a challenge. 

Owen believes blockchain technology is a viable replacement for systems such as ITSCI. (James Munson, Bloomberg). Blockchain technology allows tracking data to be stored in a peer-to-peer ledger, accessible by any shared user. When a user updates data in the ledger, that update is made simultaneously in every shared users’ ledger. (Investing News Network). Blockchain systems have been touted by supporters for being more secure and efficient by eliminating the need for manual updates to each copy and minimizing hacking concerns. Some believe this will drastically improve the process by making tracking more cost-effective and secure. Additionally, blockchain technology is praised for its efficient methods of sharing data with numerous parties, which can radically improve a company’s access to reliable supply chain information.(James Munson, Bloomberg). Providing companies with innovative and efficient methods of tracking conflict minerals, such as through the blockchain, could encourage large corporations and coalitions to more readily disclose information regarding conflict mineral tracking. Despite the current lack of interest by regulatory agencies in enforcing conflict mineral transparency regulations, new technology and consumer driven interest is leading toward a heightened level of accountability for large companies, which companies must comply or risk public fallout for their inability to prove the origins of conflict minerals in their supply chain. Blockchain systems, If fully utilized, will allow companies to comply with these consumer initiatives in a more cost efficient and reliable method. 

Cobalt Blockchain is looking to utilize this new software to track ore as it moves from mineral depots to processing facilities. (Canada News Wire). The company has a deal to buy forty thousand metric tons of cobalt from the Lualaba Province in the Democratic Republic of Congo and hopes this test system will provide increased ability for companies to disclose conflict mineral data. (Matthew Bohlsen, Investor Intel). Cobalt Blockchain hopes that as these systems become more widely adopted, systems that can track minerals from the mine all the way to the point of sale will be implemented.(James Munson, Bloomberg). 

Under the current system many companies are unable to mitigate the risk of fueling unethical conflicts. (Hannes Hofmann, Springerlink). Because of the flaws in the current system, Church expressed uncertainty whether any company can honestly and reliably say their cobalt comes from an ethical mine. (James Munson, Bloomberg). Although blockchain technology is a viable solution, it will take time for blockchain to become universally operational, and professionals fear it will not be soon enough to address current concerns.  (James Munson, Bloomberg). Blockchain technology brings new possibilities to the reliability and efficiency of conflict mineral tracking, but without a cooperative effort to implement these systems, blockchain technology will likely not be utilized to its full potential.