The Opportunity Within the Dodd-Frank Act's Conflict Minerals Reporting Requirements

Section 1502 of the Dodd-Frank Act, a major financial reform bill passed in 2010, requires companies to disclose if they are using conflict minerals in the Democratic Republic of the Congo (DRC) or nearby countries. The conflict minerals are tin, tantalum, tungsten and gold. They are used in the electronics we use everyday, such as cell phones, laptops and mp3 players.

Since 1996, over 5.5 million people died in the DRC from war-related causes, and although the war officially ended in 2003, over 2.5 million people live as refugees. Militia groups earn millions of dollars a year by trading conflict minerals, and government troops fight the militias for control of the mines. As a result, civilians are murdered and raped.

The SEC still has to issue compliance rules. The SEC was supposed to have issued the rules within 270 days of the Act's passage, but it has been over 530 days. However, once the final rules are finally adopted by the SEC, they will "be one of an increasing number of regulatory frameworks which focus on tracking and reporting the source of natural resources, and the processes used to extract and refine them," according to an article by Mondaq. In other words, the final rules can help companies that manufacture products containing conflict minerals track where they come from, and know the circumstances surrounding their extraction from mines in the DRC.

As a recent Forbes article points out, addressing the links between conflict minerals trade and human rights abuses "should also be seen as an opportunity to provide companies with critical information about their supply chains and to provide investors with more accurate information relating to their investments decisions."

The article has another good point about the requirements of Section 1502. If companies do not view a requirement such as Section 1502 as an opportunity to improve their supply chains, both the companies and their investors are "all worse-off."

The Mondaq article mentions that in 2010 the European Parliament invited the European Commission to draft a similar law as Section 1502 of the Dodd-Frank Act for the EU. As the article states, reporting requirements are "an increasingly popular way for national governments to address international concerns, such as the humanitarian concerns in the DRC."

Reporting requirements are desperately needed, and a major step away from mostly voluntary schemes such as the Kimberly Process, created to address the trade in "blood" diamonds. In December, Global Witness announced the removal of its support for the scheme after the Kimberly Process authorized two companies to operate in Zimbabwe's Marange diamond fields. In 2008, the Zimbabwean army seized control of the area and killed about 200 miners. Ironically, the deal to authorize exports from the Marange diamond fields occurred at an annual plenary meeting in the DRC's city of Kinshasa.

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