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 BusinessweekNew 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.

  • Nell Okie

    Last I knew, Carol, Jason Stearns was for the bill – to which you make no mention of here.  Where were you when the bill was before Congress?  Did you ever speak reach out to Enough to share your opinion, or do you do as Laura Seay does?

    • http://twitter.com/Carol_Gallo Carol Jean Gallo

      I think we’re all for the bill, it’s just a question of how to implement it. When I learned of the law I initially thought it was great, but worried about the fact that since the conflict is a political and economic one, armed groups would just find funding elsewhere. After doing some research, I still have that concern.  But just because partial implementation of the law has had negative effects doesn’t mean the law is “bad.” This is the first time I’ve had the time to do some research, and all I’m saying is that there is a debate out there in which groups like Enough have been criticized. Had I been doing this research a year and a half ago and thought this criticism was warranted, I may very well have contacted them. But I think they do their job quite well, in terms of rallying support for a cause, and I think there are a lot of smart, passionate people that work there. I am simply highly skeptical about the groups that focus on advocacy, those without experience or expertise in the area prior to there being a problem to address, being the ones that are also informing actual law and policy. Advocates need simple messages; complex problems require expertise and nuanced solutions.  They’re two totally different strategies.

      I think the law is great, but it’s not nearly enough– particularly without that “plan to promote peace and security” paragraph being pursued in any kind of meaningful way.  And for that you need an enormous amount of diplomatic capital, and professional peacemakers who know what they’re doing, and it has to be an international effort.

    • http://twitter.com/Carol_Gallo Carol Jean Gallo

      I think we’re all for the bill, it’s just a question of how to implement it. When I learned of the law I initially thought it was great, but worried about the fact that since the conflict is a political and economic one, armed groups would just find funding elsewhere. After doing some research, I still have that concern.  But just because partial implementation of the law has had negative effects doesn’t mean the law is “bad.” This is the first time I’ve had the time to do some research, and all I’m saying is that there is a debate out there in which groups like Enough have been criticized. Had I been doing this research a year and a half ago and thought this criticism was warranted, I may very well have contacted them. But I think they do their job quite well, in terms of rallying support for a cause, and I think there are a lot of smart, passionate people that work there. I am simply highly skeptical about the groups that focus on advocacy, those without experience or expertise in the area prior to there being a problem to address, being the ones that are also informing actual law and policy. Advocates need simple messages; complex problems require expertise and nuanced solutions.  They’re two totally different strategies.

      I think the law is great, but it’s not nearly enough– particularly without that “plan to promote peace and security” paragraph being pursued in any kind of meaningful way.  And for that you need an enormous amount of diplomatic capital, and professional peacemakers who know what they’re doing, and it has to be an international effort.

  • Scott

    Everyone keeps saying that the legislation led to a de facto embargo on the trade.  False–the Congolese government imposed a de jure embargo.  Clearly the most important causal factor, but one that does not fit in the blame the NGOs narrative, and thus conveniently lost from posts by Seay, Aronson, yourself, and others.

    • http://usalama.wordpress.com Carol Jean Gallo

      I am not trying to blame NGOs for being singularly responsible; I’m only trying to point out that there is a debate in which criticism has been levied at their short-sightedness. (I’d also defend the position that they do their job very well in terms of advocacy, which requires simple narratives and doesn’t always need to be terribly far-sighted.) 

      And I agree, the Congolese de jure embargo is just as important.  The point of this post was to assess the Wall Street Reform Act, not the Congolese mining ban. In any case, as reported by the AP (http://www.nytimes.com/2011/03/11/world/africa/11briefs-Congo.html?_r=1), the ban was lifted in March 2011 after six months, with the African Association for the Defense of Human Rights stating that after six months of the de jure mining embargo “the situation is even worse and peace still has not been restored to eastern Congo.”  If the Congolese government has reinstituted the ban, I haven’t heard about it.

  • Scott

    Everyone keeps saying that the legislation led to a de facto embargo on the trade.  False–the Congolese government imposed a de jure embargo.  Clearly the most important causal factor, but one that does not fit in the blame the NGOs narrative, and thus conveniently lost from posts by Seay, Aronson, yourself, and others.

  • Nell Okie

    Your claim:  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.

    Outrageous and repugnant.

    • http://usalama.wordpress.com Carol Jean Gallo

      I’m sorry, Nell, it’s just a feeling; it’s not a claim.

    • http://usalama.wordpress.com Carol Jean Gallo

      I’m sorry, Nell, it’s just a feeling; it’s not a claim.

  • Nell Okie

    Your claim:  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.

    Outrageous and repugnant.

  • Peter E

    See the book, Consuming the Congo, for and in-depth look at “blood minerals” and the DRC.

  • Anonymous

    That last sentence is the best single diagnosis of the problem I’ve read.
    -David Aronson

  • http://www.facebook.com/chuckblakeman Chuck Blakeman

    This all sounds good until you look under the hood at the unintended consequences.  Our company works with artisanal miners throughout the Congo to help them export without a dime going to conflict groups.  Dodd-Frank has been disastrous for them.

    It is critical to note that all the activists and U.S. politicians are quoting United Nations groups, the DRC Government and large NGOs who are applauding the bill, and not a single one of them are quoting chiefs, tribes and locals who are affected by it.  Doesn’t this say something very powerful to us?

    I can put them in touch with chiefs and tribes whose livelihoods have been utterly devastated by this bill, and the collateral damage is universal.  There are six regions from which coltan and other minerals in the Dodd-Frank are mined and only one of them has ever had anything to do with conflict, the Kivus.  And in that region there are thousands of hard-working ethical people making a living from mining without support conflict.

    Dodd-Frank has put them all out of business and it hasn’t even been enacted yet.  I’m in Tanzania right now supposedly to help a chief export his coltan using a highly visible, DR Congo government approved, well-documented process that ensures not a dime goes to conflict.  We have to tell that chief that his people will go hungry because the smelters have vanished, and they all cite Dodd-Frank as the reason, saying they can buy these minerals anywhere and it makes no sense to go anywhere near the suspicions that Dodd-Frank puts on minerals from the Congo.  The chief will be devastated, as will his people and the nearly 1 million honest people in the Congo who are finding their meager livelihoods completely destroyed by this over-reaching Act.

    All the politicians, NGOs, activists and special interest groups are all patting each other on the back for helping the Congolese.  But not a single one of them dares to go to the miners themselves and ask what they think of it. 

    The most condemning thing about Dodd-Frank is that it is a nuclear option.  In order to take out the militia, they and the American government are willing to take down every innocent man, woman, and child throughout the Congo that depend on mining for their food.  Such massive collateral damage is not acceptable under any circumstance.  The United Nations stands by idly and does nothing. 

    Mining is not the issue, the militia is the issue.  Remove mining from the equation and the milita will exact its pound of flesh from the locals using other means.  The only ones hurt will be the miners – 100% of them in all six regions.  If there was every a place to send in a coalition of troops to destroy the militia, this is it.   This whole thing could be handled with virtually no civilian collateral damage.  Right now we’re taking a route that before the bill is enacted, has already destroyed the local economy, what little of it their used to be, and the innocents who depend on it.

    Unconscionable.
     

  • http://pulse.yahoo.com/_R6L2DNG4A2M7ECLP4AEHX2J2CE Clarence

    After seeing the movie “katanga business”, I am curious whether or not it is even worth it for the mines to continue anyway? It appears that in Katanga at least, most of the miners are not getting paid, the chinese shortchange the locals with their prices, and there is still billions in minerals that get stolen from the country each year. So…maybe a ban can do some good?