Conflict Minerals: How Dodd-Frank is affecting mining in the DRC

Posted in Mining Northern Africa Southern Africa Central Africa Western Africa Eastern Africa Blog post

The Dodd-Frank Act’s scope extends beyond financial regulation to touch on ‘conflict minerals’ sourced from the Democratic Republic of Congo. While the intention was noble enough, the affect on the DRC has been severe.

It has been five years since the Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into US federal law. The legislation was a response to the 2008 economic recession. Its purpose – to ‘promote the financial stability of the United States by improving accountability and transparency in the financial system…and other purposes’ – includes imposing regulations relating to named ‘conflict minerals’ under Section 1502.

Conflict minerals here are tantalum, tin, tungsten and gold, so called because they are deemed to be mined in conditions of armed conflict. The statute requires publicly-owned US businesses to disclose to the SEC if conflict minerals are sourced from the DRC, which involves an onerous investigation and intensive paperwork. Minerals must be labelled ‘DRC conflict free’, or the company must adhere to a further list of requirements. In fact, this section has proved so burdensome that of the companies affected, 89 per cent hired one full-time employee to manage the conflict mineral issue alone, and 6 per cent hired at least five to six new workers. The estimate is that the extra paperwork has cost companies about US$8 billion since the inception of the law.

The reality of this provision is that it creates a preference for companies to stay away from the DRC. According to a recent report by the National Center for Policy Analysis, “Dodd-Frank has engineered a de-facto international ‘boycott’… American companies have reduced operations or left the DRC altogether to avoid compliance costs and the stigma of conflict minerals. The exodus has exacerbated an already unstable situation.

The intention behind the legislation is noble enough: the Congolese President visited Washington, D.C. in 2007 and stated that there is still lingering conflict in the eastern half of the country because the rebels are profiting from the sale of minerals used in popular products, such as game consoles and cell phones. The purpose of section 1502 was to curb this profit, and help end the conflict.

In reality, this boycott has worsened conditions in the DRC, especially in the eastern half, where 11 million people relied on artisan mining for survival. One view is that before Dodd-Frank, rebels and miners had a shared interest in protecting the mines. After the enactment, conflict increased as interests were divided and the rebels became “roving bandits.” The upshot is that the legislation appears to have entrenched rebel power as the non-rebels are left more desperate and poor.

It light of the overwhelming evidence that this aspect of the Dodd-Frank legislation has been costly and largely ineffective, the US might need to reconsider section 1502.


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