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Future of DR Congo mining could be on rocky ground if US Dodd Frank 1502 rolled back
The future of mining in the Democratic Republic of Congo could be changed forever as watchdog agencies, Congolese non-governmental organizations, and American businesses are watching the US Trump administration after a draft executive order was leaked last month, calling on the two-year repeal of the Section 1502 of the US Dodd-Frank Act.
“It has been the backbone of reform in the minerals trade in the region, helping build up rule of law,” says Sasha Lezhnev, Associate Director of Policy at the Washington, DC-based Enough Project, a watchdog non-governmental organization working to prevent crimes against humanity in DRC.
“If you were to see Dodd Frank repealed, you would see a return of armed groups to mines, and a major disruption for the miners and security, as they would suddenly have more access to money,” he says, adding that companies would embargo using DRC minerals because it wouldn’t be clear whether the minerals were conflict-free or not.
Listen: US repeal of 'conflict minerals' act would be a setback for Democratic Republic of Congo: activists
Although the Dodd-Frank Act was enacted by US Congress in 2012 to deal with excesses in the US banking sector, a key, unrelated provision was included at the end—Section 1502, which requires any company who deals in conflict minerals to declare their supply chain publicly. The companies they deal with also need to declare their supply chains, and so on. Although companies could still use conflict minerals, the 1502 provision would give activists the opportunity to ‘name and shame’ companies due to the public disclosure requirement.
Conflict minerals include the ‘3T’s—tungsten, tantalum and tin, as well as gold, which are used in cell phones, computers, and included in jewelry.
At the international level, the Dodd-Frank Act, particularly in the Eastern DRC, where armed groups were controlling mines and having access to money which facilitated their activities and violence, helped to eliminate the control and exploitation of minerals by armed groups, says Ambassador Ambeyi Ligabo, Director for Democracy and Good Governance at the International Conference on the Great Lakes Region (ICGLR), based in Bujumbura, Burundi.
Downstream companies were forced to do due diligence, particularly in the tracking and traceability of minerals. “It was, and it has resulted in violence being reduced to a very inconsiderable level. Also, conflicts amongst member states that were earlier fighting each other were also being reduced,” says Ligabo.
Although the law was signed in 2010, company reports did not come out until 2015, giving analysts time to see whether declaring their supply side chain, which some companies have complained is a costly venture, is worth the hassle. Companies hire law firms, such as Squire Patton Boggs based in Cleveland, OH, US, who help them comply with the regulation.
“There’s been reports about prices of tin, tantalum and tungsten (3Ts) and gold which don’t necessarily move in one direction, and they don’t necessarily move altogether, because they are quite different minerals,” says Dynda Thomas, a lawyer for Squire Patton Boggs, and a Dodd Frank 1502 expert.
Thomas says that 1502 is not the only factor in determining the market price for conflict minerals. “Other things in the global economy could impact pricing,” she adds.
Thomas said that while some activists have said that violence surrounding mining has gone down, others say 1502 has had a negative impact on commercial and artisanal mining in the DRC.
“People who were engaged in artisanal mining, because companies have started to avoid purchasing from the DRC, those people have no longer been able to make a living at mining and have had to turn to participating in armed groups,” she says, citing activists and others making this claim.
“I think there’s probably evidence of both things happening, and certainly evidence of both things happening with respect to different minerals,” she says.
Although companies originally said that the time and money it took to list their suppliers in order to comply with 1502 would be cost prohibitive, this has cost far less than what the industry associations made it out to be, says Leznev, of the Enough Project. He cites independent Securities and Exchange Commission (SEC) auditor Elm Sustainability Partners, which just last month said that the cost of 1502 was “75 to 84 percent less than the SEC estimate”.
If compliance is not as expensive as was originally thought, what are the other benefits to keeping 1502 in place?
Locally, the money that went into the pockets of criminal gangs and militias is now being channeled into funds that benefit the community, says Kinshasa-based National Bishops Conference of the DRC (CENCO) Executive Secretary Henry Muhiya.
“Each tonne of 3T minerals is $180 which goes into a “basket fund”, which should finance development projects in the environment where these minerals are mined,” says Muhiya. “If they cancel the law, its means that this effort will also be canceled, which would not be good.”
CENCO has come out publicly, along with a number of the Congolese groups, to call for 1502 to remain in place.
Internationally, the European Union is also on board to create their own ‘name and shame’ regulation that goes even further—its scope will be not only the DRC and its surrounding countries, but conflict minerals found anywhere in the world. So minerals in light bulbs, computers, and medical devices, to name a few would also be strictly regulated.
This new legislation, which was agreed upon last June, is slated to be signed this year. Ligabo of regional group IGCLR says that this could negatively impact the EU efforts, or discourage them from going ahead with their law and plunge the country into further chaos again.
“If the Dodd Frank was canceled now, as it looks like the US president wants, it would be a setback,” he says.
“The traceability measures that have been taken here have allowed progress to be made and this not only fights against conflict minerals, but also tries to control the circulation of minerals,” says regional director Ligabo.
“The danger of this is that we won’t be able to control the flow of arms, we won’t be able to control the flow of financing and the insecurity could continue,” he adds.
The precedent set by this regulation has had a ripple effect not only through the international community, but through businesses who work with the extractive industry, including gemstone and electronics companies, such as Tiffany and Apple.
To say that the Dodd Frank Act is supported by many in the business community is an understatement. “We firmly believe that the continued existence of Federal regulation that addresses the sourcing of conflict minerals provides an important framework for industry, laying the foundation for protection of human rights and responsible sourcing efforts in the DRC and beyond,” according to a statement issued by Tiffany and Co. the high-end jewelers on 5th avenue in New York. It also urged US Congress to support legislation that promotes due diligence and transparency.
Signet Jewelers, the largest jewelry retailer in the US, Canada and the UK, which includes chains Kay Jewelers, H. Samuel and Zales, goes one step further in its statement. It calls on US Congress to amend Section 1502 by aligning it with international body The Organisation for Economic Co-operation and Development’s (OECD) Due Diligence Guidance, creating more stringent measures for “conflict free” jewelry.
Many companies working with conflict minerals, including Tiffany and Signet, have also maintained that they will continue to apply the same due diligence to their supply chains, regardless if the law is repealed or not.
Next steps by the administration are seemingly to review the leaked draft executive order, particularly on section 1502, to make sure that it is watertight, says Squire Patton Boggs lawyer Thomas, in order to avoid the legal issues the first seven-country travel ban had.
“It simply stated the determination and linked it to instability in the region, and therefore said it’s in the national security interests of the US. But it’s possible, in light of the difficulties with the travel ban executive order, they may be gathering more detail and including that in a draft,” she says.
For people on the ground, there is no alternative.
“If there is a need to review this arrangement, it would be more appropriate for the US administration, the ICGLR, to come together and we see how to look at it, in a more consultative manner,” says Ligabo.
“Rather than make unilateral decisions to suspend the act, which will have a very, very negative impact on the overall arrangement of peace and security in the Great Lakes region,” he adds.