I first became interested in the Dodd-Frank conflict
minerals law after leaving my former employer, which managed other companies’
supply chains, and while serving as a founding board member of Footprints
Foundation, a nonprofit that works with rape survivors, midwives and hospitals
in the Democratic Republic of Congo ("DRC") (see here). During a fact-finding
mission for the foundation to the DRC in late 2011, I observed the law through two
lenses– both as a compliance officer who used to conduct audits around the
world, and as a board member trying to determine whether this law would really
help stem the unconscionable violence which I witnessed first-hand when I saw
five massacred civilians lying on the road on my way to visit a mine.  (Note, my blog posts reflects my views only
and should neither be attributed to Footprints nor my former employer).  My 2011 trip and subsequent research convinced
me that the conflict minerals law could have unintended consequences that Congress had not
sufficiently thought through, and that the SEC, in writing the rules, had not
adequately addressed. For an article that describes the mining in the DRC today and some of the compliance successes and challenges see here. 

For these reasons, I signed on to an amicus brief along with
two experts on Africa to the suit brought by the National Association of
Manufacturers, the Chamber of Commerce and the Business Roundtable, who argue
that the SEC’s rule: (1) failed to create a de minimis exception to the rule
for trace amounts of minerals in products or the manufacturing process despite
the authority to do so; (2) applied the wrong standard regarding whether
minerals originated in the DRC; (3) erroneously
included non-manufacturers within the law’s
purview; (4) provided a flawed phase-in period for reporting that requires
large manufacturers to report two years earlier than the smaller companies on
which they may depend on for data; and (5) violated the First Amendment by
requiring companies to state on their website that their products are “not DRC
Conflict free,” which may not only taint
their brands but  may also be false or misleading.  The business groups also
discuss the significant expense, arguing that the SEC failed to conduct the legally
required cost-benefit analysis.

Our amicus brief, filed yesterday, focused
on the potential for unintended consequences, specifically a de facto boycott
on the region. We maintain that the SEC erred in failing to consider whether
its final rule would advance the law’s objective of weakening armed groups in
the DRC (which in my view could include the national army, which has also been
implicated in rapes), and that the SEC compounded that error by exercising its
discretion in ways that render its rule more likely to harm legitimate economic
activity in the DRC and benefit the very armed groups that Congress sought to stifle. In essence we believe that the law will
lead many companies concerned about the cost, safety and administrative burdens
of compliance to simply pull out of the DRC and source their minerals
elsewhere.  This will leave even
more miners out of work exacerbating poverty in a country where the per capita
income was estimated at $210 USD per year in 2011.  While conditions are improving on the ground somewhat, I also personally know of companies that are looking to
bolster their supply chains in other countries.

In a recent law review article I argued that given the
corruption endemic in the country, companies could put themselves at risk of their middlemen violating anti-bribery statutes to
get minerals out of the country with “proper” certifications. By failing to
disclose illicit payments, companies could also violate Dodd-Frank §1504, the
resource-extraction rule that requires certain companies to report on payments
to governments. (Note-the SEC is now re-writing §1504 after a court vacated that
rule). More important, focusing on corporate buying power while not addressing
the needs for judicial, infrastructure and security sector reform will not
solve the problem. Indeed, the Government Accounting Office issued a report in
July indicating that infrastructure issues are hampering compliance. As we
pointed out in our amicus brief, the GAO also noted that according
to numerous government and NGO sources, the DRC is incapable of certifying
various mines as outside the control of armed groups, regularly inspecting
them, stemming corruption, or halting smuggling. Furthermore, based on my research, the
fighting, looting and use of rape as a weapon of war in the DRC occurs not only
because of a fight for minerals, but also because of deep-rooted political and
ethnic rivalries and disputes over land rights, among other things.

As
observers have written, depending on the
success of Dodd-Frank §1502, Congress could choose to legislate on a number
of resources that have questionable provenance- tin and palm oil from
Indonesia, wood from countries that do not place a premium on sustainability,
cobalt from illegal mines, and “dirty water.”  Will Congress direct the SEC to be the watchdog over corporate responsibility for
human rights in the supply chain? Should the SEC, which is supposed to maintain
fair and efficient markets, even be in the business of dealing with human
rights issues? Are corporate governance disclosures the right mechanism? More
generally, what level of responsibility should US-based transnational
corporations have when operating abroad in weak or failing states? Hint- I
believe that it’s more than the reader might think from these last two blog
posts. I will comment on these and other topics from the West Virginia
conference on business and human rights next week.