NYT Op-Ed Regarding the Unintended Consequences of Dodd-Frank's Conflict Minerals Provision

News Brief
August 8, 2011

By Cydney Posner

Not the best way to start a week, but following is a link to a depressing op-ed from The New York Times, How Congress Devastated Congo, which describes the unintended consequences of the conflict minerals provision in Dodd-Frank. As you know, the conflict minerals provision requires new SEC rules mandating public company disclosure regarding the use of "conflict minerals" (tin, tungsten and tantalum) from the Democratic Republic of the Congo (the DRC) and adjoining countries. The provision was designed to help address the exploitation and trade of conflict minerals from the DRC, which were used to finance "conflict characterized by extreme levels of violence in the eastern Democratic Republic of the Congo, particularly sexual- and gender-based violence, and contributing to an emergency humanitarian situation therein…." Under the SEC's implementing proposal, 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.

Unfortunately, the author of the op-ed has found that the conflict minerals provision "has had unintended and devastating consequences, as I saw firsthand on a trip to eastern Congo this summer. The law has brought about a de facto embargo on the minerals mined in the region, including tin, tungsten and the tantalum that is essential for making cellphones." Apparently, instead of develop a "clean" supply chain through the DRC, companies have stopped buying these minerals from the area altogether: "The smelting companies that used to buy from eastern Congo have stopped. No one wants to be tarred with financing African warlords…. It's easier to sidestep Congo than to sort out the complexities of Congolese politics — especially when minerals are readily available from other, safer countries.

"For locals, however, the law has been a catastrophe. In South Kivu Province, I heard from scores of artisanal miners and small-scale purchasers, who used to make a few dollars a day digging ore out of mountainsides with hand tools. Paltry as it may seem, this income was a lifeline for people in a region that was devastated by 32 years of misrule… and that is now just beginning to emerge from over a decade of brutal war and internal strife….Villagers who relied on their mining income to buy food when harvests failed are beginning to go hungry."

Ironically, the author contends that "the law is benefiting some of the very people it was meant to single out," including a general nicknamed The Terminator who is sought by the International Criminal Court and whose militia provides "security" to traders smuggling minerals across the border to Rwanda. All this might be worthwhile, the author argues, if the law were "economically asphyxiating" the warlords, but, by the time the law was signed, the conflict had "moved into a different phase," and the remaining militias that wreaked havoc now "get their money from kidnapping and extortion, not from controlling mining sites or transport routes. The law has not stopped their depredations."

The author argues that people of eastern Congo would like to "bring greater clarity and transparency to the mineral trade," but that various initiatives that were under way before the law may now become a casualty of Dodd-Frank. According to the author, local miners, high-level traders, mining companies and civil society leaders agree "were unanimous" in condemning the Dodd-Frank provision: "But once the advocacy groups succeeded in framing the debate as a contest between themselves and greedy corporate interests, no one bothered to solicit the opinion of local Congolese. As the leader of a civil-society group, Eric Kajemba, asked me, more in confusion than in anger, ‘If the advocacy groups aren't speaking for the people of eastern Congo, whom are they speaking for?' "