Congo-Kinshasa: Being Frank About Conflict Minerals

There are grounds for optimism that the Dodd Frank Act will contribute to the Congressional objective of promoting peace and security in eastern Democratic Republic of Congo.

Section 1502 of the 2010 US Dodd-Frank Act is lauded by its advocates as a progressive regulatory framework which will help prevent company complicity in a vicious cycle of mineral-fuelled conflict in eastern DRC. Critics have derided Section 1502 as an unworkable burden on business and claimed that it will harm local livelihoods in one of the world's most underdeveloped regions. Whatever the intended - and unintended - consequences of the groundbreaking legislation, Section 1502 will introduce significant additional compliance costs. Given that the minerals covered under the Act feed into a wide array of consumer goods from mobile phones, to jewellery and to coffee machines, the legislation is important to consumers as well.

There are concerns that Section 1502 will not be effective in stemming the flow of mineral revenues to armed groups, given widespread cross-border smuggling into states with a weak regulatory framework (such as Rwanda and Burundi) and into countries not covered by the legislation (such as Kenya). The prevalence of endemic corruption in the region and the massive technical challenge of ensuring effective traceability policies may also mean mineral revenues continue to perpetuate conflict.

In addition, the brief November 2012 capture of Goma (the capital of North Kivu and a regional trade hub) by the M23 rebel group, and the continuing presence of the insurgents in the region, will make it even more difficult for companies to source minerals from eastern DRC. With the M23 rebels threatening to expand their campaign and even march on Kinshasa, the extremely uncertain outlook could make responsible mineral sourcing from large parts of North Kivu unviable for the foreseeable future.

Although the Dodd-Frank Act was passed in 2010, it took the US Security and Exchange Commission (SEC) until August 2012 to publish its controversial final rules implementing the legislation. With the Act due to come into force from January 1 2013, an estimated 6,000 companies listed with the SEC will need to be transparent about the source of columbite-tantalite (or 'coltan'), cassiterite, wolframite, gold and their derivatives (namely tantalum, tin and tungsten) used in their products and manufacturing processes.

While it will not become illegal for the affected companies to use minerals which perpetuate conflict in DRC, the reputational damage of making such a disclosure in annual reports due from May 31, 2014, should act as a significant deterrent. As a result, the transparency requirements will cascade down supply chains from US-listed companies to suppliers across the world.

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