More Views on the Dodd-Frank Conflict Minerals Provision

News Brief
September 30, 2011

By Cydney Posner

As the SEC prepares to host a roundtable on October 18 to discuss required rulemaking under Section 1502 of Dodd-Frank, which relates to reporting requirements regarding conflict minerals originating in the Democratic Republic of the Congo and adjoining countries, we have yet another article addressing the complex impact of these provisions. You'll recall that the conflict minerals provision requires new SEC rules mandating public company disclosure regarding the use of "conflict minerals" (tin, tungsten and tantalum) from the DRC. The provision was designed to help address the exploitation and trade of conflict minerals, which were used by warlords in the DRC to finance their violent conflict. The SEC has proposed that companies that manufacture products (or contract to have products manufactured) would be required to conduct due diligence and provide disclosure regarding any conflict minerals used. The intent was to encourage public companies that use conflict minerals to leverage their collective buying power to pressure their suppliers through their entire supply chain to provide "DRC conflict free" minerals.

The author argues that the Dodd-Frank conflict mineral provisions are consistent with a basic paradox that characterizes a long-standing pattern of actions taken to help the DRC: "In Congo, obvious solutions often aren't implemented because they'll simply create other problems." The author first cites the NYT op-ed (see my articles of 8/8/11 and 8/10/11) that argues that "[i]t's easier to sidestep Congo than to sort out the complexities of Congolese politics"; as a result, many companies have sought minerals outside the DRC, impoverishing the population of the region that depends on the sale of minerals for its livelihood. The article cites a comment letter to the SEC from representatives of Congo mining cooperatives  that cautioned the SEC, in drafting regulations, against relying solely on statements from foreign advocacy organizations, such as The Enough Project and Global Witness, which may not fully understand, from the local perspective, the "reality and complexity" of the situation.

However, the article notes that many Congo advocates still support the conflict minerals rule. First, as is clear from the comment letter above, the decline in production should not necessarily be attributed entirely to Dodd-Frank: the rules haven't even become effective yet and, more importantly, since April, there has been an embargo on untraceable Congo minerals, and before that, a six-month ban on mining in part of eastern Congo imposed by the DRC itself.

In addition, other commentators have seen progress fueled by anticipated implementation of the conflict minerals provision, including a "dramatic shift" away from militia activity around certain mines observed by Amnesty International. In addition, demand has continued for some US companies: "Apple and Intel continued to purchase Congo minerals, having both released detailed mineral supply chain reports." (Intel's report acknowledges that "due to the complexities of the metals supply chain," Intel has been "unable to verify the origin of all of the metals used in our products. Despite these challenges, we continue to work diligently to put the systems and processes in place that will enable us, with a high degree of confidence, to declare that our products are conflict-free." Intel views its efforts to help establish a traceability/certification program as a way to mitigate potential unintended adverse consequences for thousands of small independent miners that could otherwise be devastated.) Apparently, Motorola has also recently invested in some mines in Katanga. Some commentators further argue that the law's "flaws are sort of secondary—since the rule's aftershocks aren't necessarily ours to handle in the first place. ‘Kinshasa also has a responsibility to blunt any short-term hardships created as the mining regime is turned into an actual asset for the Congolese people,' commented the Amnesty representative, ‘Ultimately, we're just trying to actually do something about the fact that, for decades, this extractive industry has been devastating the DRC.' "

As noted in the article, California just passed (still to be signed into law) its own version of the conflict minerals laws , which prohibits state agencies from signing contracts with companies that fail to comply with federal regulations. Since California is itself a huge economy, the provision may have some impact.