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SEC Battles African Warlords Under Dodd-Frank Minerals Mandate

Humanitarian groups accuse warlords in Congo of enslaving, raping and murdering residents in the aftermath of the country’s civil war. That misery, they say, is funded by “conflict minerals” torn from Congo’s rich mines. Photographer: Tom Stoddart/Reportage by Getty Images
Humanitarian groups accuse warlords in Congo of enslaving, raping and murdering residents in the aftermath of the country’s civil war. That misery, they say, is funded by “conflict minerals” torn from Congo’s rich mines. Photographer: Tom Stoddart/Reportage by Getty Images

June 23 (Bloomberg) -- The U.S. agency that regulates financial disclosures is taking on a new mission: combating human-rights crimes on another continent with high-stakes paperwork.

The Dodd-Frank Act, passed a year ago, requires the Securities and Exchange Commission to order an estimated 5,994 public companies to report whether they obtain any of four metals from the Democratic Republic of Congo.

Humanitarian groups accuse warlords in Congo of enslaving, raping and murdering residents in the aftermath of the country’s civil war. That misery, they say, is funded by “conflict minerals” torn from Congo’s rich mines.

“It is the source of the money for this unending mayhem,” said Representative Jim McDermott, who sponsored the legislation and once served as a U.S. foreign service officer in Congo, known as Zaire before 1997. He said the SEC is “already an arm of foreign policy,” citing its efforts to curb bribery overseas by U.S. companies.

In the waning hours of the Dodd-Frank debate last year, the financial regulatory overhaul bill underwent high-speed additions and subtractions. Among those was Section 1502, which ordered companies to declare how they acquire the gold, tin, tantalum and tungsten used in their products.

The proposed rule will reach into the operations of tech giants such as Apple Inc., jewelry makers such as Tiffany & Co., aerospace firms such as Boeing Co., retailers such as Wal-Mart Stores Inc. and, by extension, into virtually every cell phone, wedding ring, jet engine and even, according to American Apparel Inc., into the lights that flash in the soles of children’s sneakers.

Humanitarian Mission

It also, in effect, puts the SEC in the middle of a humanitarian crisis little connected to the regulator’s core mission of protecting U.S. investors and free markets.

“We’re in a globalized economy where you can’t ignore things anymore,” said Adam M. Kanzer, managing director and general counsel for New York-based Domini Social Investments LLC. “Because the corporations are involved, the SEC has clear authority, and I don’t think it’s overreaching at all.”

Some officials say they are concerned that the SEC could eventually be asked to play a role in other conflicts.

“There are many compelling issues around the world that we as a nation can decide to confront,” SEC Chairman Mary Schapiro said in an e-mailed statement. “Whether disclosure laws should be one of the tools employed in the process is something that Congress can determine.”

‘Do Its Best’

If Congress orders it, she added, the agency will “do its best.”

The director of her corporation finance division, Meredith Cross, told securities lawyers at a conference earlier this year that the rule is outside the agency’s usual purview.

“The SEC has three principal statutory mandates: investor protection, capital formation and fair and efficient markets,” said Jeffrey W. Rubin, who leads the American Bar Association’s securities regulation committee. “None of these are mentioned in 1502 of Dodd-Frank.”

Congo is not a major supplier of most of the metals: It produces less than 1 percent of the world’s supply of gold and tungsten, and about 4 percent of tin, according to 2009 data from the U.S. Geological Survey. Its contribution to tantalum is greater, supplying about 13 percent.

Human rights organizations say that in a country as poor as Congo, the proceeds from sales are an important source of money. Most of the metals are shipped to factories in Asia, which can complicate efforts for companies in the U.S. and Western Europe to track their origins, according to The Enough Project, a human-rights group sponsored by the Center for American Progress, a Washington policy organization that promotes Democratic causes.


Under the proposal, a company that can show that it acquired tin for its circuit-board solder or tantalum for its capacitors from somewhere besides Congo or its nine neighboring countries in Central Africa can report itself in compliance. If a company can’t demonstrate that its metals originated outside Congo, it won’t qualify as “conflict-free.”

“It was our intent to enact law that used transparency and liability to affect a company’s standing in the marketplace,” Senator Dick Durbin, an Illinois Democrat, said in a February letter to the SEC also signed by fellow Democrat McDermott of Washington.

Friars Weigh In

One indication that the SEC is in new territory is in the incoming public comment letters. Instead of the usual mix of securities industry groups, public companies and law firms, the comments on conflict minerals include statements from Franciscan friars, the International Justice Mission, a global anti-slavery group called “Free the Slaves” and Human Rights Watch, the New York-based advocacy group. There are also comments from affected parties in central Africa.

“We cannot continue to suffer any longer,” leaders of three mining cooperatives operating in Congo under the acronyms COMIMPA, COMIDER and COCABI, said in a letter. They argued that the mines are critical to the local economy: “Do we now have to choose between dying by a bullet or starving to death?”

Officials from some of Congo’s nine neighbors also weighed in. Burundi energy and mining minister Moise Bucumi wrote that many “artisanal workers” depend on the mines for their livelihood.

The SEC has already taken on other overseas oversight, including cross-border accounting, and regulates as many as 970 non-U.S. firms. Still, before voting to propose the SEC take on conflict minerals, Schapiro said that “expertise about these events does not reside in the commission or its staff.”

Twice Delayed

The SEC has twice delayed the conflict-minerals rule -- first by extending the comment period, then by postponing adoption of the rule beyond Congress’ April deadline. Schapiro has said she’s shooting for “late summer” to finish it.

John Prendergast, a former director of African affairs for the National Security Council, told lawmakers in November that he’d been to Congo and the SEC moves had “shaken” the armed groups. “Every minerals trader, every military official that I talked to knows exactly what’s going on in Washington,” he said.

Tin industry group Itri Ltd. of St. Albans, England, said in a March statement that some companies may sever ties to Congo, calling the SEC rule a “de-facto embargo.”


“If a boycott happens, that won’t help the regular people in Congo,” Kanzer said. “They don’t want the rest of the world to abandon them to this war.”

Mining companies elsewhere in the world expect to reap some benefit from a flight of customers from Congo. Bryan Ellis, chief executive officer of Perth, Australia-based Global Advanced Metals, said in an interview that the change is sure to help his company, one of the leading producers of tantalum. He doesn’t expect an end to Congo mining, though.

“One of the things you can be certain of is the DRC will not close down,” said Ellis, who also participates in the Electronic Industry Citizenship Coalition, an industry group that has organized its own “conflict-free” designations. “There are people out there who will continue to take material out of the DRC and continue to use it.”

Robert D. Hormats, undersecretary of state for economic affairs wrote in a March 17 letter to Amnesty International USA that the U.S. State Department has set aside $11 million to run its strategy there, which he said would “help bring us closer to ending the human suffering in the region.”

McDermott said he doesn’t see why the agency can’t handle the new challenge.

“That’s like saying, God, you can’t learn anything new,” he said. “That kind of argument is not very useful.”

To contact the reporter on this story: Jesse Hamilton in Washington at

To contact the editor responsible for this story: Lawrence Roberts at

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