Requiring Disclosure to Increase Transparency Regarding the Sourcing of Conflict Minerals
Commissioner Luis A. Aguilar
U.S. Securities and Exchange Commission
Aug. 22, 2012
The Dodd-Frank Act requires that the Commission adopt rules to implement Section 1502 of the Act.1 Pursuant to this statutory mandate, these rules require companies covered by the rule to disclose whether certain minerals contained in their products – specifically, tin, tantalum, tungsten and gold, often referred to as “conflict minerals” – originated in the Democratic Republic of the Congo (“DRC”) or an adjoining country.
The DRC is the largest country in sub-Saharan Africa, with a population of 74 million people and vast natural resources.2 The facts demonstrate that armed groups use force, violence and intimidation to exploit that country’s mineral wealth for revenue and power, particularly in the Eastern portion of the country.3 These armed groups are responsible for serious and widespread abuses of human rights, including murder, disappearances, torture, mutilation, rape and forced labor, as well as the recruitment and abduction of child soldiers.4 The United States government has determined that this humanitarian crisis profoundly affects our national interest.5
To address these concerns, Section 1502 of the Dodd-Frank Act added Section 13(p) of the Exchange Act,6 which requires us to adopt the regulations we consider today.
Senator Richard J. Durbin of Illinois, a strong proponent of Section 1502, described the provision as follows:
Any US [reporting] company that uses minerals mined in Congo must publicly acknowledge the use of those minerals … and document what measures they are taking, if any, to ensure that they are not purchasing minerals from armed groups or military units and that their trade is not fueling the conflict….7
Following the enactment of Dodd-Frank, the Commission began a rulemaking process characterized by extensive public outreach, thoughtful deliberation, and rigorous economic analysis. The Commission received a number of comment letters from corporations, industry and professional associations, human rights and public policy groups, institutional investors, investment firms, United States and foreign government officials, and other interested parties and stakeholders. In addition, the Commission also held a public roundtable, at which stakeholders discussed their views and provided input on issues related to our required rulemaking.
Moreover, SEC Commissioners and staff have held over 140 separate meetings with external stakeholders. This robust, public, and interactive debate has allowed the Commission to more fully consider how to develop our final rules. In that connection the Commission engaged in an extensive cost/benefit analysis with respect to this rulemaking. The Commission has sought to address concerns about compliance costs while implementing Congress’ objectives. The Commission also considered the effects of the rule on efficiency, competition and capital formation.
Today’s rulemaking is the culmination of a careful and comprehensive process and a clear Congressional directive. The Commission has faithfully administered its judgment and expertise, as the independent agency tasked by Congress to implement Section 13(p). The rule under consideration today is in the interest of investors and the public interest.
Today’s rule will bring clarity to the various stakeholders that have already developed initiatives to conduct due diligence and trace supply chains. 8
I support the rule, and would like to take this opportunity to thank the staff for their work in connection with this rulemaking. In particular, I would like to recognize the Division of Corporation Finance; the Division of Risk, Strategy and Financial Innovation; and the Office of General Counsel. I appreciate your hard work and effort in support of this rulemaking.
1 The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) § 1502, Pub. L. 111-203, 124 Stat. 1376 (July 21, 2010). Section 1502(b) of the Dodd-Frank Act amended the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. 78a et seq., to add new a section 13(p). It is Section 13(p) of the Exchange Act that requires this rulemaking described herein.
2 CIA World Factbook (last visited August 17, 2012), available at https://www.cia.gov/library/publications/the-world-factbook/geos/cg.html.
3 U.S. Department of State, 2011 Human Rights Report: Democratic Republic of the Congo, at p. 15. Violence in the Eastern Democratic Republic of the Congo is perpetuated by units of the state security forces (which often act independently of civilian control and military command), rebel armies, and numerous local militias. Id. The State Department has stated that one cause of the conflict in the region is the illicit trade in conflict minerals. Id. U.S. officials and NGO representatives report that “some extreme violence, such as massacres of villages, rapes and mutilations of civilians may also result from [the] efforts of [armed groups] to generate fear and consolidate control over economic activities, including mining activities.” U.S. Government Accountability Office, The Democratic Republic of The Congo: U.S. Agencies Should Take Further Actions to Contribute to the Effective Regulation and Control of the Minerals Trade in Eastern Democratic Republic of the Congo (September 2010), GAO-10-1030, at p. 15. But cf id. at p. 19 (“while the minerals trade is one of several economic activities perpetuating conflict by providing resources to both illegal armed groups and some Congolese national military units, it is not the root cause of conflict…. While cutting the illicit incomes of certain illegal armed groups and some Congolese military units would reduce the incentive for their members to remain in the area, it is difficult to determine the extent to which their numbers or involvement in human rights violations would be reduced.”)
4 4 U.S. Department of State, 2011 Human Rights Report: Democratic Republic of the Congo.
5 See, Don Yamamoto, Principal Deputy Assistant Secretary, Bureau of African Affairs, U.S. Department of State, Testimony Before the House Foreign Affairs Subcommittee on Africa, Global Health, and Human Rights (February 2, 2012) (“The importance of the DRC to the United States is multifaceted and profound. Our humanitarian obligations to this country that has brutally suffered so much drive our policy and underpin our commitment to the Congolese people. [The] stability of central Africa in the near and long-term depends on the still precarious stability of the DRC.”) and Yamamoto, “LRA, Boko Haram, al-Shabaab, AQIM and Other Sources of Instability in Africa,” Testimony Before the House Foreign Affairs Committee (April 25, 2012) (“President Obama’s first priority for Africa is to help build strong and stable democracies. Our security engagement cannot be separated from our long-term goals of good governance, civilian control over security forces, and respect for human rights.”) See, also, Democratic Republic of Congo Relief, Security, and Democracy Promotion Act of 2006, Pub. L. 109-456 (Dec. 22, 2006) (“Congo is … of long-term interest to the United States”).
6 Exchange Act § 13(p), 15 U.S.C. 78m(p).
7 Senator Richard J. Durbin, “Voices from the Congo” Conference, The US Holocaust Memorial Museum, Washington, D.C. (July 26, 2011), copy of prepared remarks available at http://durbin.senate.gov/public/index.cfm/pressreleases?ID=387783ff-9e7a-489c-9a6a-5ffb56300d35.
8 Initiatives developed or accelerated by stakeholders in anticipation of our final rule include, without limitation, the following:
- The DRC government has begun rating mines for conflict and enforcing its prohibition on the export of conflict minerals that cannot be audited and traced to conflict-free mines, and recently suspended two Chinese companies for conflict trading in violation of Congolese law. EICC & GeSI, “Conflict-Free Minerals Supply Chain Workshop IX” (May 29, 2012); Fidel Bafilemba, Sasha Lezhnev, Sarah Zingg Wimmer, “From Congress to Congo: Turning the Tide on Conflict Minerals, Closing Loopholes, and Empowering Miners,” The Enough Project (August 2012) at p. 2.
- The Conflict Free Smelter Program developed by GeSI (the Global e-Sustainability Initiative) and EICC (the Electronic Industry Citizenship Coalition) certifies smelters and refiners that are found by independent audit to be compliant with a protocol meeting the requirements of the OECD due diligence framework. The program includes the majority of the world’s tantalum smelters, including at least one certified smelter processing conflict-free materials from the DRC. The CFS has also certified a number of gold refiners, and recently certified the first tin smelter found to be compliant with its protocol. Press Release, EICC and GeSI, Conflict-Free Smelter Program Reaches Smelter Milestones (May 29, 2012), available at http://www.conflictfreesmelter.org/documents/PRExtractivesTinandDRCSmelterFINAL.pdf. However, according to company representatives interviewed by the U.S. General Accountability Office, expansion of the Conflict Free Smelter Program to smelters in Asia, which process the majority of global mined tungsten and almost half of global tin production, has been hampered by the lack of a final SEC rule on conflict minerals, as smelters are reluctant to participant without the commercial incentive provided by an SEC mandate affecting their customers. U.S. Government Accountability Office, Conflict Minerals Disclosure Rule: SEC’s Actions and Stakeholder Developed Initiatives (July 2012), GAO-12-763, at pp. 22-23.
- ITRI, a tin industry association, has developed a physical chain of custody system for tracking and monitoring minerals from mine to smelter, which is currently operating in both the DRC’s Katanga province and Rwanda, an “adjoining country” as defined in the final rule. This program, too, may be hampered by any further delay in the final rule, as potential customers seek certainty and wait for market signals. Id., at 20, 23-24.
- Solutions for Hope, a pilot project implemented by a consortium of technology companies, has developed a “closed-pipe” supply chain for sourcing conflict-free tantalum from the DRC. RESOLVE, Solutions for Hope Fact Sheet, http://solutions-network.org/site-solutionsforhope/fact-sheet/.