Earlier this afternoon, I testified before a congressional subcommittee on what policy insiders refer to as Dodd-Frank Section 1502. Translated, that’s a provision in the 2010 financial reform law that requires publicly traded companies to disclose through a Securities and Exchange Commission report whether they source specific minerals from the Democratic Republic of the Congo (DRC) or adjoining countries. Known in short-hand as the conflict-minerals rule, the requirements cover companies across the economic spectrum.
(For background, here’s what we said when the SEC finalized its regulations last August.)
The hearing today was designed to examine the SEC’s implementation, to date, of Section 1502. Our report to the House subcommittee members: it’s a mixed bag. While the provision has yielded some positive outcomes, it also is having unintended consequences on the central African region.
ITI members are committed to ethical sourcing throughout our global supply chains. Our companies want to source cleanly from Central Africa to help provide critical economic benefits to local populations. To achieve both goals, we have launched a number of industry-wide initiatives, including:
- The Conflict Free Smelter Program;
- Establishing clean, in-region sourcing channels in Central Africa;
- Developing and promoting supply chain transparency and reporting measures; and,
- Joining with governments and civil society in the Public-Private Alliance for Responsible Minerals Trade.
These efforts are resulting in more responsible supply chains for our products and a better set of results for people in Central Africa. For its part, Section 1502 drove other sectors to join with us to drive policies and transparency measures throughout global supply chains. And the provision has helped to convince regional governments to engage more fully in mining sector reforms.
There have been challenges with the regulation’s implementation, as well – especially for companies that want to remain responsibly engaged in Central Africa. The mechanism contained in Section 1502 encourages companies to avoid the region, while layering regulatory burdens and costs on those that stay. This has led to a de facto embargo on minerals from the region, with serious consequences for local populations.
The results? Major smelters report that a majority of their direct customers are demanding metals that are Congo-free, rather than conflict-free. Likewise, most companies expend the bulk of their time and resources establishing that they are not sourcing from the region, rather than on developing programs that build clean sourcing capacity. Also, because of endemic security and corruption challenges, the volume of materials processed through legitimate in-region programs to date has been modest. The United Nations reports that even as security has improved at some major mining centers, exports of tin, tantalum, and tungsten from the eastern DRC have all but halted. And the prices for uncertified minerals have plummeted, with impoverished artisanal miners earning mere cents on the dollar, while brokers and exporters secure huge profits.
The societal impacts can be measured in reduced family incomes, limited availability and rising prices for food and medicines, and in falling school enrollments. Section 1502, by focusing almost exclusively on the role of the private sector, has diverted critical attention away from the indispensable role of governments in addressing the endemic political security and humanitarian crises in the region.
Private sector initiatives alone cannot succeed in a region beset by rampant conflict and corruption, and destabilized by chronic interference and intrusions from neighboring countries. The underlying causes of this regional war are linked to entrenched disputes over political power, land rights, and citizenship -- not by the economics of mineral mining. Ultimately, corporate efforts are no substitute for comprehensive international diplomatic engagement.
ITI and our members urge Congress to consider ways to overcome the deterrent effects of Section 1502 and to provide incentives to companies that responsibly source from Central Africa. These efforts could include lowering the regulatory burden, offering a federal procurement preference, enacting tax incentives, and providing public recognition to those companies that source through approved in-region programs.
The U.S. and other governments can also support in-region transparency and governance initiatives, and can place collective pressure on foreign smelters to participate in our audit program.
The tech sector will continue to work as part of the solution for peace and stability in the region, even as we join with governments and civil society to press for more concerted and lasting action from the international community to resolve the unfolding calamity in Central Africa.