Digging Deeper Into the Dodd-Frank Congo ‘Blood Minerals’ Controversy
Published on August 9th, 2011
Written by: Carol Jean Gallo
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is a far-reaching statute that introduced major changes to the United States’ financial regulatory environment. The US Securities and Exchange Commission (SEC) Chair said of the Act, “This landmark legislation set out to reshape the US regulatory landscape, reduce systemic risk and help restore confidence in the financial system.” William Sweet described concerns about the Act on the Harvard Law School website last year: “Will US firms lose business to foreign competitors? Will the regulations stifle innovation? Will the availability of credit be impaired by increased uncertainty and costs?”
This should put section 1502 of the Act, roughly 5 pages among 848 in the PDF version available for download on the SEC website, in perspective. Section 1502 is a corporate social responsibility and disclosure provision that deals with conflict minerals. By “conflict minerals,” it means those minerals that have been identified as having been exploited by armed groups in eastern DRC— coltan, for example— even though they are minerals mined and exploited legitimately as well. In other words, “conflict minerals” in the Act refers to the kinds of minerals, not whether a specific batch of them has financed an armed group or not.
The Act, then, stipulates that the SEC must promulgate regulations that will require American companies to disclose whether their products contain any of the designated “conflict minerals” and whether or not those minerals originated in the Democratic Republic of the Congo “or an adjoining country.” If so, they must submit a report to the SEC that includes:
…a description of the measures taken by the [company, referred to in the Act as the “person”] to exercise due diligence on the source and chain of custody of such minerals, which measures shall include an independent private sector audit… and a description of the products… that are not DRC conflict free (‘DRC conflict free’ is defined to mean the products that do not contain minerals that directly or indirectly finance or benefit armed groups in the Democratic Republic of the Congo or an adjoining country), the entity that conducted the independent private sector audit… the facilities used to process the conflict minerals, the country of origin of the conflict minerals, and the efforts to determine the mine or location of origin with the greatest possible specificity.
A great deal of debate has surfaced recently on blogs such as Texas in Africa and Congo Siasa on the effects of the implementation of this Act without adequate assistance for, or progress in, security sector and institutional reform. A lot of criticism has been levied at advocacy groups such as the Enough Project and Global Witness for failing to take into account the effects this legislation would have on the Congolese economy in the absence of the security and institutional frameworks needed to enforce the law, and in the absence of a coordinated effort to address the political, social, and economic root causes of the conflict.
The lopsided implementation of the Act has essentially led to a de facto embargo on the entire mining industry in the DRC. Because the institutional framework needed to sufficiently carry out due diligence is not there, many companies have chosen to play it safe and simply get their minerals elsewhere. As Texas in Africa, Congo Siasa, and others (Bloomberg Businessweek, New York Times oped page) have observed, many Congolese have voiced frustration with the effects of the bill. Legitimate mining ventures that provided livelihoods for people have screeched to a halt, and the country’s mineral exports are down 90% from what they were prior to the law; in most cases where it hasn’t been halted altogether, it has been driven underground, according to observers.
In an op-ed on Monday, David Aronson in the New York Times noted the sudden lack of income has meant mothers giving birth at home, children having to drop out of school, and people being unable to buy food.
Many have answered criticism of the Act’s implementation by saying that the Congolese government bears the brunt of responsibility for providing an environment in which companies can practice due diligence and legitimately purchase the minerals they need. While it’s true that the Congolese government has a responsibility to provide mechanisms for transparency, the fact on the ground is that those mechanisms are not there. So the implementation of 1502— or, I should say, part of it— doesn’t make much sense without the necessary regulatory framework in place. “Part of it” because 1502 also provides that the US Secretary of State shall submit a strategy to Congress that shall include:
A plan to promote peace and security in the Democratic Republic of the Congo by supporting efforts of the Government…, adjoining countries, and the international community… [to] develop stronger governance and economic institutions that can facilitate and improve transparency in the cross-border trade involving the natural resources of the Democratic Republic of the Congo to reduce exploitation by armed groups and promote local and regional development.
Without that provision being implemented in an effective way, the rest of 1502 doesn’t make a lot of practical sense given the circumstances. And as many observers have pointed out on numerous occasions, the root cause of the conflict— and attendant violence— is not competition over resources; while it’s true they may use income from the exploitation of resources to fund their political and/or military objectives, absent the option of doing so they will certainly find other sources of income. Aronson notes that the remaining non-state militias, those not integrated into the national army, “get their money from kidnapping and extortion, not from controlling mining sites or transport routes.”
I can’t help but feel that it’s a bit telling that this legislation is part of an act meant to protect American consumers. You can buy your cell phone without feeling guilty, but Congo’s problems have not been solved and may have even been exacerbated. The disconnect seems to be that the simple narrative needed to create a groundswell of public support is not the same narrative that should be used to formulate policy.