Dodd-Frank conflict minerals fiasco, cont’d

[reposted from Cato at Liberty]

Economic sanctions, when they have an effect at all, tend to inflict misery on a targeted region’s civilian populace and often drive it further into dependence on violent overlords. That truism will surprise few libertarians, but apparently it still comes as news to many in Washington, to judge from the reaction to this morning’s front-page Washington Post account of the humanitarian fiasco brought about by the 2010 Dodd-Frank law’s “conflict minerals” provisions. According to reporter Sudarsan Raghavan, these provisions “set off a chain of events that has propelled millions of [African] miners and their families deeper into poverty.” As they have lost access to their regular incomes, some of these miners have even enlisted with the warlord militias that were the law’s targets.

Congress added the provisions to Dodd-Frank in a fit of moral self-congratulation over making sure Americans had the chance to be ethical and thoughtful consumers of such products as jewelry and cellphones (as well as thousands of other products, as it turned out, from auto parts to the foil in food packaging). Publicly held companies would be required to report on their supply connections to “conflict minerals” such as tin, tungsten, and gold mined in war-torn areas of the Democratic Republic of the Congo. Lawmakers assigned enforcement of the law to the Securities and Exchange Commission – a body with scant discernible expertise in either African geopolitics or metallurgy – and barbed it with stringent penalties for disclosure violations, to which are added possible liability in class-action shareholder lawsuits.

Reactions to this morning’s Post account frequently employ words like “unintended” or “tragic” to describe the effect on miners of the law, which people in the Congo soon came to call “Loi Obama” – “Obama’s law”.  Unintended and tragic? Maybe. But not unforeseen, because the signs that the law would backfire this way have been in plain sight for years now – as in this 2011 account by Prof. Laura Seay (via) of how “electronics companies now have a strong incentive to source minerals elsewhere, leaving Congolese miners unemployed.” Or this 2011 account by David Aronson in the New York Times of the “unintended and devastating consequences” that he “saw firsthand on a trip to eastern Congo.” Or this more recent paper by law professor Marcia Narine.

But although the evidence has been there for years, the will to believe in the law was too strong – a will fueled by anti-corporate campaigners who take it on faith that when brutalities in the underdeveloped world occur within two or three degrees of separation of the activities of multinational businesses, the right answer must be to blame and shame the businesses.

You might call it an expensive lesson for Americans too, if you assume that anything has been learned. A recent Tulane calculation found that the costs in business compliance have already topped $700 million, with billions more ahead should nothing change. Just this September, the U.S. government conceded that it “does not have the ability to distinguish” which refiners and smelters around the globe are tainted by a connection to militia groups. That is to say, the government has demanded of business a degree of certainty that it cannot achieve itself.  Courtesy of UCLA corporate law professor Stephen Bainbridge, here’s a flowchart of what complying might involve for a given business.

If the new Republican Congress wants to be taken seriously about fixing counterproductive regulation, it should make the repeal of this law an early priority. (& Bader)


  • The writing regarding the impact of Dodd-Frank’s conflict minerals provisions keeps being limited to publicly-traded US companies (technically, those filing reports with the SEC under 13(a) or 15(d) of the Exchange Act). That grossly under-reports the actual impact, even though those are the companies who must file with the SEC.

    The actual impact is to publicly-traded companies AND all other companies in their supply chain. When you include all the companies in the supply chains of publicly-traded companies, you increase the impact many-fold. Even if a publicly-traded company only has a hundred suppliers, those hundred suppliers have a hundred suppliers of their own.

    And a company who must file conflict minerals reports with the SEC has to get the conflict minerals data for their filing from their suppliers, who have to get it from THEIR suppliers. And the supply chain may go many levels deep.

    Publicly-traded companies are given an impossible task, and then they pass that impossible task down the chain to others, who while they might not be directly obligated under Dodd-Frank to file anything themselves, are nonetheless obligated to get the information upstream or else be cut-off from further sales.

  • Trevor et al,

    Dodd-Frank does not just effect publicly traded companies and “all others in their supply chain.” Even though the law is written to regulate them, the fact is that every company of every size has been driven out of the Congo by the default embargo of all minerals coming out of the nine central African countries.

    This default embargo resulted from every smelter in the world deciding that it wasn’t worth risking taking anything from the Congo that they could get somewhere else without the stigma created by the very wrong-minded Enough Project and other NGOs.

    And worse, it has resulted in driving ten million people who were living in poverty fully into utter devastation. I, and many others, were shouting about this in 2010 before this act of colonialistic arrogance was even implemented –