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Freedom Fridays

March 9, 2018 - Good Intentions, Bad Results: Restrictions on Conflict Mining

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What are conflict minerals and how are they regulated?

Conflict minerals are materials that are extracted from an area of armed conflict and illicitly traded to finance armed groups.  Section 1502 of the 2010 Dodd-Frank Act requires companies that extract or otherwise use gold, tin, tungsten, or tantalum to audit their supply chains in order to confirm that they are not sourcing from conflict mines in the Democratic Republic of the Congo (DRC) or neighboring countries.

 

Why is this regulation aimed at stopping conflict mining a problem?

On its surface, the Dodd-Frank provision aimed at curbing conflict mining seems sensible, and I have little doubt that it was drafted with the best of intentions.  After all, who wouldn’t want to stop unconscionable trade practices?

The problem with this and many other regulations, however, is that it will almost certainly do more harm than good.  In the wake of Section 1502, many major companies, overwhelmed by the cost and complexity of compliance, simply stopped sourcing minerals from the DRC altogether.  Did such drastic action cause some conflict mines to shut down?  Possibly, although a number of Central Africa experts are skeptical.  What does seem certain is that countless more legitimate mines closed down, putting hundreds of thousands of miners out of work.  That is a real tragedy in a nation as poor as the DRC.

Needless to say, if a company does decide to continue to mine or source from the DRC, it will need to the raise the price of the minerals it offers on the world market to offset the costs of complying with Section 1502.  These higher costs, in turn, would end up getting passed down the supply and manufacturing chain, finally resulting in higher prices for consumers.

 

What am I doing about it?

A provision to eliminate Section 1502 was included in the Financial CHOICE Act (H.R. 7), a major Dodd-Frank reform package.  That bill passed the House of Representatives last year, with my support, and is currently awaiting action in the Senate.   Additionally, I will be supporting efforts to eliminate Section 1502 during this appropriations season.

 

What are they saying?

“Section 1502 of Dodd-Frank is an overly broad and burdensome regulatory requirement that has destroyed thousands of jobs across multiple African nations while failing to provide meaningful or reliable data on conflict mineral sourcing.  Working to stop violence surrounding the extraction of tungsten, tin, tantalum, and gold is an admirable goal; however, the SEC is ill-equipped to address societal ills. The unfortunate reality is that section 1502 has made the situation on the ground worse for the very people it was designed to help” - Congressman Bill Huizenga (MI-2)