In an attempt to curtail use of materials from the Democratic Republic of the Congo, the Securities and Exchange Comission would require more reporting by companies potentially using such materials. This from the SEC website:
Background: Title XV of the Dodd-Frank Wall Street Reform and Consumer Protection Act contains several specialized disclosure provisions. For example:
- Section 1502 requires persons to disclose annually whether any conflict minerals that are necessary to the functionality or production of a product of the person, as defined in the provision, originated in the Democratic Republic of the Congo or an adjoining country and, if so, to provide a report describing, among other matters, the measures taken to exercise due diligence on the source and chain of custody of those minerals, which must include an independent private sector audit of the report that is certified by the person filing the report. Certain aspects of this rulemaking will require consultation with other federal agencies, including the State Department, the Government Accountability Office, and the Commerce Department. Persons are not required to comply with these rules until their first full fiscal year after the date on which the Commission issues its final rules.
- Section 1504 requires reporting issuers engaged in the commercial development of oil, natural gas, or minerals to disclose in an annual report certain payments made to the United States or a foreign government. This information must be provided in an interactive data format, and the Commission must make a compilation of the information available online. Issuers are not required to provide their disclosures until their first annual report ending at least one year after the date on which the Commission issues its final rules.
Today we read these comments on progress of these rules:
Global Witness welcomes the long-overdue vote on implementation rules for Sections 1502 and 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act by the United States Securities and Exchange Commission (SEC). The rules were originally scheduled to be voted on 16 months ago. However, industry groups, notably the American Petroleum Institute, the U.S. Chamber of Commerce and the National Association of Manufacturers have aggressively lobbied the SEC to delay and water them down. Global Witness has consistently called on the SEC to issue strong rules that meet the intent of the law: to curb corruption and the trade in conflict minerals and give investors the information they need to assess their exposure to risk.
Regarding Section 1502, we are extremely disappointed that the rule will allow companies to describe the origin of their minerals as ‘undeterminable’ for a period of two years – or four years for small companies. The minerals trade is fuelling violent conflict and human rights abuses in eastern DRC and delays in implementing the law postpone the moment at which companies take responsibility for the impact of their purchases, jeopardising efforts to stop minerals funding conflict and seriously undermining the aim of the law. By allowing companies to say ‘I don’t know where my minerals are from’, the regulators are effectively inviting issuers to evade all of the substantive measures required by the law. The incentive for companies to plead ignorance will be overwhelming.
With respect to Section 1504, some aspects of the rule appear to represent a step forward. However, the devil will be in the detail as spelt out in the text which is yet to released. On first appearances, the SEC rule will shed some light on payments made by extractive companies to governments enabling citizens in some of the world’s poorest countries to hold their government to account for how resource revenues are being used. However, despite suggesting that “project” is a term understood and commonly used through the industry, we cannot understand why the SEC then failed to define it. That they will only define ‘project’ in their guidance is an enormous missed opportunity, which could provide ‘wriggle room,’ allowing companies to continue to hide illicit payments.
Regardless of what you think of these rules and whether or not they will have any impact, let us notice the big difference in the way the USA chooses to deal with mining and the way Canada chooses to deal with mining in not-nice-places.
These sections basically do what seems to be the essence of the US approach: demand full disclosure and let people decide. Ironically in Canada the attempt seems to be to pass national legislation that enables the government to decide, to censure, or to act—or worse to allow Canadian courts to become the last international report of law suites.
These SEC provisions are sure to be expensive to implement—a whole new industry of consultants will spring up. This link notes:
For starters, even the SEC estimates that this rule could cost industry $3-4 billion in initial costs, and roughly $200-600 million annually thereafter. As we continue to review the details of this rule, we will be focused on assessing the impact that it will have on manufacturers and their ability to compete globally. We will also be focusing on how this rule will impact the tens of thousands of small and medium manufacturers that make up complex supply chains.
One can only have sympathy with Republican claims about business-unfriendly regulators. I mean, why do we have to pay so much more to keep conflict minerals out of the supply chain. The estimated cost of doing so would pay to send battalions of mercenaries to the place to keep it lawful. Of course NGOs consider this all just so much fuss.
Here is more on the mere-fuss costs:
Conflict minerals — such as gold, tantalum, tungsten and tin — are found in such common consumer products as cell phones, game consoles and most products with integrated circuits (including automobiles). Griffin and his research team [at UC Davis in California] examined 206 companies from December 2010 through March 2012 and found those companies — half who had voluntarily disclosed before the law became mandatory — lost $6.5 billion in shareholder value due to declining equity values. Both disclosing and nondisclosing companies were affected because of the ripple effect in capital markets when uncertainties arise about a particular business practice — using conflict minerals, in this case. The losses experienced by the firms were similar to earlier predictions by academic researchers and company trade groups, Griffin said, but exceeded the SEC’s estimated compliance cost of $71 million.
So get prepared for yet another dip in the economy or yet another increase in the cost of cell phones, computers, and cars. All to be informed about where the minerals come from. Believe me it won’t significantly change things in the heart of darkness.
PS. After posting of the above, the SEC voted 3 to 2 to proceed. Predictably the three who voted to go ahead were Democrats and the two who voted agianst this madness were Republican. Now I like to think of myself as a Victorian Liberal, and here I cannot but go with the Republican perspective and against my better judgement look to Romney and Ryan to stop this madness of social correctness that increases costs to mining and other companies all in the interests of a single irredemable place.