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Well intentioned ‘blood mineral’ provision backfires

By Lauren Cook -- Medill News Service   |   May 24, 2013 at 3:48 PM   |   Comments

WASHINGTON, May 24 -- A provision in the Dodd-Frank financial reform law aimed at reducing money to militia groups in the Democratic Republic of the Congo by imposing rules on buying minerals from the region has backfired, exacerbating and depriving at least 1 million subsistence miners of their livelihood, several experts told a congressional committee Tuesday.

“Dodd-Frank 1502, the conflict minerals provision … is a case study in how good intentions can go awry,” said David Aronson, panel member and editor of CongoResources.org. “The law imposed a de facto embargo on mineral production that impoverished the region’s million or so artisanal miners; it also drove the trade into the hands of militia and predatory Congolese army units.”

The original intent of the conflict mineral provision, or Section 1502, was to reduce financing opportunities for the militia groups in the Congo’s mineral market by establishing disclosure requirements for companies that use minerals like gold, wolframite, casserite, columbite-tantalite and their derivative metals (tin, tungsten and tantalum) to make their products.

The companies are required to report the particular mineral’s origin. If the material is determined to be from the DRC -- or if its source is unknown -- they must notify the Securities and Exchange Commission. There is no ban or penalty for using the materials; they must be disclosed. Overall, experts say, nearly half, or 6,000, of publicly traded companies in the United States would have to perform this supply chain inspection to comply with Section 1502.

A few of the affected technology companies -- like Intel, HP, Apple, Dell, Motorola, Microsoft and Nokia -- were already implementing their own initiatives to develop clean sourcing channels.

“Simply put, the mechanism contained in Section 1502 encourages companies to avoid the region while layering regulatory burdens and costs on those that stay,” said Rick Goss, senior vice president of environment and sustainability for the Information Technology Industry Council. “Even companies that source cleanly from the covered region must submit a full Conflict Minerals Report to the SEC.... Companies that elect to exit the region altogether can avoid these obligations.”

Goss said customers are “demanding metals that are Congo-free, rather than conflict free.”

As a result, the Congo’s economy has taken a hit and many of its subsistence miners are struggling to survive, said Mvemba Dizolele, an expert in U.S.-Africa policy and a visiting fellow at Stanford University’s Hoover Institution on War, Revolution and Peace. This economic instability, along with the emergence of groups like the M23 militia last spring, which escalated tensions in the Great Lakes region of the DRC, is evidence that the conflict mineral provision is working to reduce violence in the targeted region, he said.

“In Congo, businesses are not the enemies; armed groups and their international and local backers are,” Dizolele said. “If we are serious about ending the conflict, we should go after the negative forces and help restore state authority so that the Congolese government can finally meets its obligations toward the people…. Only then can the Congolese know real peace.”

Sophia Pickles, a policy adviser for anti-corruption advocacy group Global Witness, however, said the conflict mineral provision of Dodd-Frank is an important milestone in the fight for supply chain transparency, and it’s just a matter of time before its effects can be seen.

“Breaking the links between the minerals trade and the conflict will deprive armed groups of a significant revenue stream,” Pickles testified. “Proper implementation of Section 1502 has the potential to substantially improve socio-economic prospects for artisanal miners in eastern DRC.”

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