Conflict Minerals Rule in the US: Repeal or Reform?
| Case Code: BENV041
Case Length: 17 Pages
Pub Date: 2021
Teaching Note: Available
| Price: Rs.500
Countries: United States
Themes: Public-Private Partnerships , Public Policy, Business Ethics
Abstract Case Intro 1 Case Intro 2 Excerpts
In response to the 2008 global financial crisis , the administration of the then US President, Barack Obama, proposed a legislation officially called the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in June 2009. The purpose of the Act was to impose regulations on the financial industry, including new rules for credit rating agencies and heightened regulation of banks and other financial institutions. The legislation was named after its proponents Senator Chris Dodd and US Representative Barney Frank...
Taming the Problem Collaboratively
In addition to promoting transparency at the US consumer end, the Conflict Minerals Rule catalyzed a number of local initiatives in Congolese civil society to improve best practices and responsible mining (See Exhibit VI and Exhibit VII). The law contributed significantly to reducing the influence of the armed groups in eastern DRC. According to an independent study by the International Peace Information Service (IPIS), only 21% of 3T miners worked at sites experiencing interference by armed groups in 2013-15, down from 57% in 2009 and 2010. As of 2016, the IPIS found that over three-quarters (79%) of 3T miners surveyed in eastern Congo were working in mines where no armed group involvement had been reported..
Good intentions gone wrong?
Section 1502, however, came in for sharp criticism from various quarters as some reports suggested that it had led to a number of unintended consequences since its passage, notably a de facto embargo on Congolese minerals. Some buyers on the international market pulled out of the region altogether and sourced their minerals elsewhere. This was because the easiest way for companies to report being conflict free was to avoid minerals from the entire conflict zone. Rather than engaging in costly due diligence to identify the sources of minerals and running the risk of being considered a supporter of rebel violence, some US companies stopped buying minerals altogether from the conflict zones mapped by the US State Department..
In 2015, 1, 272 companies filed form SD with the SEC. The SEC filings revealed that only 1% of the companies were able to declare their products as conflict-free and that nearly 80% of companies failed to meet the requirements of the Rule. One of the main reasons for lack of compliance, according to analysts, was the heavy burden of tracking complex and interconnected global supply chains..
Repealing the Conflict Mineral Rule
In early February 2017, a draft Executive Memorandum which revealed President Trump’s intent to repeal Section 1502 for a period of two years due to the high administrative costs involved and the negative impacts on communities in the DRC was leaked to the public. The Memorandum stated that the disclosure requirements of the Conflict Minerals Rule contributed to instability in the region and threatened US security interests..
On May 4, 2017, The Financial Choice Act 2.0 was passed by the House Financial Services Committee. The bill included the repeal of Section 1502 and was headed to the US House of Representatives for consideration. On September 14, 2017, the US House of Representatives approved the bill. The bill was sent to the Senate on September 25, 2017. Analysts said that as no further action had been taken by the Senate since then, the future of the Conflict Minerals Rule remained uncertain..
Exhibit I: Mineral Resource Map of the DRC
Exhibit II: Mineral Production in DRC (2002-2014)
Exhibit III: Illustration of Mineral / Metal Supply Chain
Exhibit IV: Flowchart Summary of the Conflict Minerals Rule
Exhibit V: OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas
Exhibit VI: Annual Rates of Rape and Sexual Violence Perpetrated by Armed Groups in Eastern DRC
Exhibit VII: Annual Registered Incidents of Sexual Gender-based Violence in Eastern DRC
Exhibit VIII: Companies Submitting Conflict Minerals Report (2013-2018)
Exhibit IX: Estimated Compliance Costs
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