The Conflict Minerals Rule: The Unintended Consequences of Section 1502 of Dodd Frank

An earlier post described the lawsuit brought by the National Association of Manufacturers, the US Chamber of Commerce and Business Roundtable seeking to bar implementation of final SEC rules implementing Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).  Section 1502 and the rules promulgated thereunder mandate disclosure by public companies detailing their use of “conflict minerals” -- certain minerals sourced from the Democratic Republic of Congo and surrounding states.  A primary purpose of Section 1502 is to address the unrest existing in the DRC region, a concern specifically identified by supporters of the section who stated that “[i]t is the sense of the Congress that the exploitation and trade of conflict minerals originating in the Democratic Republic of the Congo is helping to finance conflict characterized by extreme levels of violence,… particularly sexual- and gender-based violence and contributing to an emergency situation therein.” (12 U.S.C. § 1502(a).

In the view of several experts well-versed in matters relating to the DRC, the SEC rules implementing Section 1502 will not achieve its desired result—at least not at an acceptable cost.  These experts, including Jendayl Frazer, a former assistant secretary of state for African affairs and former ambassador to South Africa and J. Peter Pham, director of the Michael S. Ansari Africa Center at the Atlantic Counsel, among others, filed separate amicus briefs supporting the challenge to Section 1502, arguing that the SEC failed to consider whether its final rule would advance Section 1502’s objective of weakening armed groups in the DRC.”  This position is supported by the findings of the latest report of the U.N. Group of Experts Concerning the Democratic Republic of the Congo (“UN Congo Report”) which found that the proposed SEC rules have backfired. The resistance of companies and industry groups towards the rules’ requirements has led international trading firms to stop purchasing minerals identified as Congolese.  Some go so far as to characterize the situation as having caused a de facto embargo of Congolese minerals. 

The impact on Congolese artisanal miners and their families has been devastating. (See Letter from the Mining Cooperatives of Eastern Congo, available here).   Miners are out of work, harming both them and their families.  Additionally, planes used to transport minerals out of remote areas have stopped flying to those regions and therefore stopped supplying essential food and goods that the planes had carried on their in-bound flights.  Because these regions are not accessible by road they now must do without such necessities.   According to the UN Congo Report, the ban on Congolese minerals, instead of reducing violence in the region, has instead led to increased smuggling and armed conflict.

The debate over Section 1502 and the SEC implementing rules is contentious, but all concerned support the goal of improving the quality of life and security situation of the Congolese people.  Questions remain over how best to accomplish this goal and evidence suggests that the “solution” worked by Section 1502 may not be the best approach.

Comments

[Marcia Narine]

I appreciate your acknowledging our amicus brief. We hope to have an impact. As a former compliance officer in the supply chain world, a current member of the global advisory board of an organization that does work in the Congo, and a corporate governance professor, I feel very strongly that the law was well-meaning but has had and will continue to have devastating consequences.

Marcia Narine- Visiting Assistant Professor,University of Missouri Kansas City.