Apple Says Supply Chain Now 100% Audited for Conflict Minerals

 Emily Chasan 

March 30, 2016 — 1:00 PM EDT

Share on FacebookShare on Twitter

Apple Inc. has reached what it’s calling a milestone in supply-chain transparency, saying it’s now auditing 100 percent of its suppliers for the use of conflict minerals linked to violent militia groups in the Democratic Republic of the Congo.

The iPhone maker has been working since 2010 to remove minerals connected to these groups from its supply chain, and while it isn’t yet declaring its products totally conflict-free, the company said all of its 242 smelters and refiners of tin, tantalum, tungsten and gold are now subject to third-party audits. That figure is up from about 88 percent at the end of 2014 and 44 percent in 2013, according to an annual filing the company will release Wednesday.

“We could have very easily chosen a path of re-routing our supply and declared ourselves conflict-free long ago, but that would have done nothing to help the people on the ground,” Apple Chief Operating Officer Jeff Williams said. “We chose to engage with as many smelters as possible because the only way to have an impact here is to reach critical mass.”

Apple, which uses the minerals in its mobile-phone processors, motherboards and screen displays, is required to investigate its supply chain for the presence of the minerals under a rule stemming from the 2010 Dodd-Frank Act. The law is meant to choke off revenue to violent militia groups in the African nation and adjacent countries.

More than 1,300 companies file annual conflict minerals reports with the U.S. Securities and Exchange Commission, but few have been able to fully audit their supply chains and determine if their products are free of the minerals. Only a handful, such as chipmaker Intel Corp. and tantalum capacitor maker Kemet Corp., have been able to say they sell conflict-free products.

‘Embarrassing’ Suppliers

To reach a fully audited supply chain, Apple spent five years “cajoling, persuading, and even embarrassing suppliers by publishing their names,” Williams said. Apple has spent hundreds of hours in the region and also kicked out 35 smelters from its supply chain because they wouldn’t participate in the audits. The Cupertino, California-based company started saying in 2014 that it would end supply contracts with companies that didn’t take part in the audits.

“Despite our best efforts, we felt they were at risk of continuing to buy metals from armed groups,” Williams said.

While for some companies the simplest approach to eliminating conflict minerals would be to source outside of the region, manufacturers "should be working with suppliers to improve whatever conditions are happening because a de facto embargo would have negative consequences and undercut the effort to create a transparent supply chain," said Stephen D’Esposito, president of Resolve, an organization that works with businesses and governments on mining, oil and gas issues.

Apple has actually more than doubled the size of its minerals supply chain over that period, from 109 unaudited smelters and refiners in 2010 to the 242 audited suppliers today.

Though all of its smelters and refiners are now audited, Apple says it stopped short of declaring itself conflict-free because it wants to focus on improving issue resolution and responses to incident reports by suppliers that could include smuggling or fraud for small amounts of minerals that might get back to armed groups.

“There is a lot more work to do,” said Leah Butler, program director of the Conflict-Free Sourcing Initiative, which conducts supply chain audits for Apple and other companies.

The group audits 214 companies, up from just two when it started the process in 2010, she said. There are more than 300 smelters and refiners who convert metal to ore, and some metals have a more controlled supply chain than others. While almost 100 percent of the tantalum supply chain is now audited, it’s only about 80 percent audited for tin, 90 percent for tungsten and just 65 percent for gold, she said.

Apple plans to spend the coming year enhancing the due diligence in its gold supply chain and working to improve incident reporting and resolution processes, Williams said.