DODD-FRANK LEGISLATION

Conflicting interests
US law requires rms using metals from the Democratic Republic of Congo to detail due diligence in sourcing. Paul Snell looks at the consequences and eect of laws elsewhere
Illustration: Zara Picken

ar what is it good for? Well, for some it has actually proved extremely lucrative. It is estimated armed groups in the Democratic Republic of Congo (DRC) have earned hundreds of millions of dollars to fund the conict that has torn apart the country over the past 15 years, through the sale of the countrys rare and valuable natural resources. What started as a war over politics and ethnic grievances and politics has morphed into a war over control of strategic mineral reserves, says Aaron Hall, a policy analyst at campaign group the Enough Project. Because of this, in 2009 the US senators Dick Durbin, Russ Feingold and Sam Brownback (now governor of Kansas) sponsored the Congo Conict Minerals Act, which was designed to stop money paid by US companies for these minerals funding this conict. Although this legislation never passed into law, the minerals funding provision reappeared a year later, tucked away in the miscellaneous provisions section of the mammoth 849-page Dodd-Frank Wall Street Reform and Consumer Protection Act. While this act was primarily a political response to the

regulatory failings of the nancial crisis, it also included Congo plans. Section 1502 of Dodd-Frank establishes the requirement for US companies to make an annual disclosure if they use any conict minerals (or their derivatives) that originated in the DRC (or a country that borders it) in products. The legislation focuses on what are sometimes called the 3TG metals tantalum, tin, tungsten and gold and the minerals from which they are extracted (see box, p32). If companies do manufacture (or contract to produce) products that use these, the business will have to provide a report independently audited that details what these are and explaining the due diligence it has undertaken to establish the source. It is expected that around 5,500 rms could be aected by the new rules, primarily the end-users in the automotive, electronics and defence sectors. The body responsible for enforcing these rules, the Securities and Exchange Commission (SEC), was supposed to publish the regulations for companies to follow by April 2011. But having delayed implementation last year, the SEC has again postponed their introduction until an unspecied point later this year. We

have missed the deadline on this one quite some time ago because it is so complex and it is so out of the ordinary for the SEC, SEC chairman Mary Schapiro told a congressional committee last month. The commission is working to finalise the adoption and I am hopeful in the next couple of months we will be done. But Schapiro did oer some clues as to what companies can expect. She said the SEC was working closely with industry, looking at the well-regarded OECD guidelines on due diligence and that there would be a phase-in period to allow businesses time to develop compliance schemes. However, she added, while trying to give latitude and exibility to rms, the law itself leaves no room for exceptions. The specic intention of the legislation is not 100 per cent clear. It does not prohibit sourcing from the DRC, nor place an embargo on exports from it. But this might have an unintended consequence as CEOs fearful of a knock at the door from the SEC order their rms to stop buying from the region, to avoid prosecution and the regulatory burden of disclosure. In addition, a report by the United Nations Group of Experts on the DRC published in December 2011 said that, despite the actions of rms keen to comply with the Dodd-Frank provisions, there was little evidence that comptoirs the middle men that buy raw materials from the mines were making an eort to enhance due diligence. But there is also evidence the situation is improving as a result of the pressure created by the legislation. Hall cites a recent visit to a mine that two years ago would not have been possible without payments and armed guards. But without the nal SEC rule, progress is slower. One of the biggest impediments to progress over the past months has been the SEC, he says. The hesitation hurts progress and the sooner it releases the regulations, stakeholders involved in the process can move forwards. CPOs outside the reach of the regulations should not rest on their laurels either. In January, the European Commission said it would promulgate the use of the OECD guidelines among rms, and both Global
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CPO AGENDA | SPRING 2012

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