One of the most basic issues is whether Section 1502 really has a place in Dodd-Frank. Since it is now law, the issue could be considered academic except that the opposite sides of the argument define where critics and supporters of the act, as well as their cases, stem from.
Intent vis-à-vis the conflict in the DRC aside, supporters of the legislation believe the section is well situated. Section 1502 helps protect investors against investment risk—in this instance, the potential legal liabilities and reputational risk to which a company may be exposed from its use, or sourcing, of conflict minerals.
On the other hand, critics believe not only that its intention falls outside the scope of Dodd-Frank as a reformative legislation, but that it places a large burden on a wide range of U.S. and foreign companies. Some also argue this is much more a foreign policy issue than a domestic, financial issue.
Apart from all this, there is the matter of the act’s use of the SEC, and its regulatory authority, in this context. That there is substance to this concern is evident from the fact that the SEC has still not promulgated any rules two years after the legislation’s enactment.
While there are a number of issues associated with this section, following are just three of the knotty ones.
The Conflict Minerals
Although the act names only gold and those minerals from which the metals tantalum, tin and tungsten can be derived and their derivatives, the secretary of state can, in certain circumstances, add “any other mineral or its derivatives.” The scope, therefore, of what constitute conflict minerals could widen considerably. Hypothetically, it could include oil in South Sudan or Angola, or cobalt and copper from Zambia.
In addition, would the secretary of state be obliged under Dodd-Frank to include diamonds across the region, since diamonds are being produced by mines under the control of a “qualifying” “armed group” in some new civil strife in, say, Angola, whether the conflict is anywhere near the DRC, or not? And does this apply to any mineral?
What about niobium, also produced from coltan? As a derivative, is it also a conflict mineral? Although not mentioned by name, strictly speaking, it would appear that it should be so considered.
A quick look at the map above shows that the DRC “shares an internationally recognized border” with no fewer than nine other “adjoining” countries:
- South Sudan
- Republic of Congo
- Central African Republic
Some deft use of a map shows that these countries together cover a huge tract of the African continent, stretching from the border of Tanzania and Mozambique on the Indian Ocean, to that of Angola with Namibia, and up to the border of Sudan and South Sudan.
One of the single most important issues, especially for these African countries, will be what the SEC decides (if it does) with regard to certification: Is it going to be on a national or regional level? That is, will a small, confined incident, in say, the southeast of Tanzania affect certification for the whole of the country in this respect?