Promoting Peace in the DRC?: A Look at Section 1502 of the Dodd-Frank Act One Year Later
Section 1502 of the 2010 Dodd-Frank Act requires US-registered firms doing business in the Democratic Republic of the Congo (DRC) to demonstrate that their supply chains are conflict-free by certifying the origin of tin ores they purchase. This provision is well-intentioned, but as is often said: the road to hell is paved with good intentions. The Dodd-Frank Act is a bold step that aims to delink legitimate mining in the DRC’s mineral rich provinces (particularly those involving the three Ts --- tin, tungsten, and tantalum) from the conflict economy that has claimed thousands of lives, displaced tens of thousands and disadvantaged many. The violence associated with the three Ts has also deprived millions of their livelihood and led to the rape and traumatization of countless more. By requiring firms doing business with conflict minerals to trace and validate their source(s) of supply, the Act seeks to weed out bad actors while ensuring that mining communities benefit from licit mining that is conflict-free.
Unfortunately, things have not unfolded as planned. Although the Act came into effect after being signed into law by President Barack Obama in July 2010, the regulations to guide the implementation are yet to be finalized by the U.S. Securities and Exchange Commission (SEC). This delay has created an atmosphere of uncertainty and confusion among firms and mining communities that is undermining prospects for conflict-free mining and lasting peace. The SEC has been hamstrung by a host of definitional and practical difficulties and is yet to release the final version of the guidelines. For example, the precise definition of “conflict-free” is ambiguous, particularly since the ores change hands and sometimes crisscross borders. There is also some doubt about how best to account for recycled material. Should there be a threshold of say 80 percent conflict-free in such cases? How do end users account for a myriad of sub- and sub-sub-contractors?
The consequent inordinate delay has had a number of adverse effects. Many established mining companies are now wary of doing business in the DRC because of the sense of uncertainty. They have decided to err on the side of caution and suspend business rather than risk being blacklisted or retroactively saddled with onerous obligations when the SEC regulations are finally released. Participants at the seventh Conflict Minerals Supply Chain Workshop co-hosted by the Global e-Sustainability Initiative (GeSI) and the Electronic Industry Citizenship Coalition (EICC) on 19-20 September 2011 noted that official purchases are significantly down in mining communities leading to hardship in mining households. Official receipts have also been impacted. The fall in official trade has triggered an upsurge in smuggling, thereby enabling the conflict economy and associated violence. Smugglers are taking advantage of the situation and paying miners roughly 25 percent of what they previously received. There is also a lot of concern about the anticipated costs of compliance – e.g. costs of verification, audits, compliance reports, etc. Firms worry that these costs could make them less competitive and less likely to do business in the DRC --- defeating the purpose of the Dodd-Frank Act.
Mining is the core economic activity in many conflict-affected states like the DRC. Discouraging legitimate business would not only increase the prospects for violent conflict by perpetuating illegal channels, but could also worsen the quality of life in mining communities. Dodd-Frank is a step in the right direction but for it to have a positive effect the following should be prioritized: (a) a speedy release of the SEC regulations; (b) clarification of ambiguous terms and issues; (c) an analysis of financial and socio-economic costs; (d) an evaluation of competitiveness of conflict-free mining in a global context; and (e) a clear strategy to dismantle the conflict economy without negatively impacting the lives and livelihoods of the DRC’s mining communities.