03 July 2012

SEC to Decide on Conflict Mineral Legislation in August

August 22. On that day the Security and Exchange Commission will determine whether to adopt the rules in sections 1502 and 1504 in the Dodd-Frank financial reform bill that pertain to the extractive industry. A group of congressmen called on SEC chair Mary Schapiro to speed up the decision making process by scheduling the decision by July 1. The SEC missed the proposed deadline by a few days, but the announcement means the controversial legislation will finally meet its fate.

The push by advocates and the members of congress is twofold. Firs, they argue that transparency in the mining industry in the DRC can help to prevent it funding warlords in the country's east. Second, they worry that further delays will push back the implementation date further as there is a grace period for mining companies to comply.

Contliet minerals and non-transparent payments for natural resource extraction continue to be a Weight on developing nations’ growth and are a  risk to investors and the public. Worse, continued delay undermines efforts in the DRC to make  the mining industry more transparent and to diminish the link between minerals and the funding of the brutal violence carried out by Warlords. lf the rules are not released soon, some companies will not have to file their first reports until summer 2014, four years after Dodd-Frank was passed," says the letter that was signed by 58 members of congress.

A May hearing held by the House Financial Services Subcommittee on International Monetary Policy and Trade brought together advocates, academics and members of the mining industry to discuss the costs on American businesses to disclose supply chain details and the impact if the rule is or is not implemented on people in eastern Congo. Varied interests were at the table ranging from critics concerned with the cost of implementation to mining companies who want to maintain the status quo and avoid the estimated $7.03 billion it will cost to meet the rule's requirements.

Critics express concern that the rule will play out on the backs of artisinal miners who rely on the jobs provided by the mining industry go make a living. David Aronson wrote in a August 2011 New York Times OpEd, "[T]he Dodd-Frank law has had unintended and devastating consequences, as I saw firsthand on a trip to eastern Congo this summer. The law has brought about a de facto embargo on the minerals mined in the region, including tin, tungsten and the tantalum that is essential for making cellphones. The smelting companies that used to buy from eastern Congo have stopped. No one wants to be tarred with financing African warlords...For locals, however, the law has been a catastrophe."

Supporters disagree with the assessment. Congo expert Jason Stearns disagreed with Aronson blogging, "there also have been positive developments due to the push for transparency. The Congolese army has withdrawn from some of the largest mining areas, including the Bisie tin mine, the largest tin mine in the region which produces over 70% of all tin from North Kivu province. In addition, some large multinational corporations (Malaysia Smelting Corp and Rajesh Industries) have expressed an interest in investing in large-scale industrial mining in the Kivus and have said they would cater to western markets and would invest in certification and traceability initiatives."

Mining companies argue that the financial cost of implementation in addition to the exposure through transparency will put their businesses at risk. Section 1504 co-sponsor Senator Richard Lugar (R, Ind.) does not find the argument by the mining companies to be compelling. He said in a statement about the SEC announcement, " Information is power. It is power for shareholders and power for citizens living under oppressive regimes. With the Cardin-Lugar Amendment, the U.S. is leading the world in the moral and economic necessity to choose transparency over shadow, rule of law over corruption.

While both sides of the debate continue to air their disagreements, the rule will finally move towards resolution in August. “We are glad to see the SEC is taking steps to comply with the law as Congress has instructed,” said Ian Gary to the Wall Street Journal, senior policy manager of Oxfam America’s oil, gas and mining program, in a statement. “We expect the SEC to move rapidly to finish its job and issue a strong final rule for oil and mining company payment disclosures in the public interest.”