New regulations seek to expose Congo conflict minerals
New U.S. rules will soon require publicly traded companies that use minerals such as tin, tungsten and gold to disclose whether the minerals they buy to make cellphones, laptops and other goods may have helped bankroll conflict in the Democratic Republic of the Congo or neighboring countries.
But after years of debate, concerns remain about the recent regulations, which spell out what companies will have to include in reports showing that they've examined where their minerals come from. Those concerns come from both the activists who pushed for the law and the businesses that have questioned it.
The regulations, adopted last month by the Securities and Exchange Commission and effective in November, come more than two years after Congress passed the law behind them, part of the larger Dodd-Frank financial regulation bill. The law requires publicly traded companies to say whether they use minerals from the troubled region and, if so, to describe how they assess whether their products are "DRC Conflict Free."
Activists focused on the conflict in eastern Congo argued that by "naming and shaming" companies that buy minerals that profit armed groups, the law would nudge corporations to stop.
Government troops and rebels continue to battle for control in an enduring conflict that has led to slayings and mass rape. Margot Wallstrom, who served as the United Nations special representative on sexual violence in conflict, once called the area "the rape capital of the world," lamenting that its natural riches, sold to make electronics abroad, have helped fuel the violence.
The U.S. Chamber of Commerce said the goal of stopping the violence was laudable but questioned how costly and onerous the rules would be for businesses. Some researchers normally sympathetic to the activists were unconvinced that the rules would help quell the conflict.
"You're not going to get militias to stop fighting because you cut off one source of revenue," said Laura Seay, assistant professor of political science at Morehouse College. "We need to stop pretending that will curb the violence. It won't."
Seay called the final version of the rules "a reasonable compromise" on a flawed law. "And as with most compromises, nobody is completely happy with it," she said.
Global Witness, one of the watchdog groups that pushed for the law, said the SEC had "caved in to industry pressure." After waiting years for the regulations, some activists were aggravated that for two to four years, companies would be allowed to say they couldn't determine where their minerals came from.
Activists were also worried that not all companies would face the same requirements. Companies that have no influence over the making of a product but merely buy it and stick a label or logo on it aren't covered by the regulations, they say -- an exemption that could let the most easily recognizable retailers off the hook. Companies that buy recycled metals don't have to probe as deeply into where they came from.The U.S. Chamber of Commerce said it is still analyzing the regulations, which it had earlier criticized as unworkable and ineffective. It has not ruled out filing a lawsuit.
"We had very strong concerns about the proposed rule," said Tom Quaadman, vice president of its Center for Capital Markets Competitiveness. "Some changes were beneficial, but there are still some challenges and issues."
Quaadman said the cost of implementing the law was still a major concern in light of industry estimates that pegged the figure at between $8 billion and $16 billion; the SEC estimates the cost at about $4 billion. Quaadman warned that some companies might simply quit doing business in Congolese minerals.
"Very legitimate companies and workers in Africa could be harmed as a result of this," he said.
After the U.S. law was passed, Congo President Joseph Kabila halted all mining in the country's eastern provinces for six months, saying that would break up the "mafia" controlling the trade. Activist groups said the blanket ban was unfortunate and not what they were seeking. The episode added to concerns that the push could lead to divestment from the developing country.
Although some fear the measures could do too much to crimp legitimate trade, others point out other countries aren't applying the same pressures as the U.S., limiting the effectiveness of efforts to cut off conflict funding. If anything, the efforts are still too porous and piecemeal, demanding a more global approach, said Melvin Ayogu, a fellow with the Mapungubwe Institute for Strategic Reflection in South Africa.
"Yes, there are lots of people making money in the DRC right now," Ayogu said. "But speak to the women who are abused every day. Speak to the refugees whose lives have been ruined."
The biggest question is how the new rules will actually affect companies and the conflict now that regulations have been hammered out. Watchdog groups must monitor whether companies are taking adequate steps to dub themselves "conflict free." Companies still aren't banned from using "conflict minerals" -- they simply have to say that they do. Whether investors and customers pressure them to do otherwise is an open question.
"It's a real opportunity for companies to look at themselves and say, 'Do I want to be a part of this?'" Global Witness deputy policy director Jana Morgan said.
-- Emily Alpert in Los Angeles