Fisking the UN's Letter to the SEC

Fred Robarts, in his capacity as the Coordinator for the UN Group of Experts on the DRC, has written to SEC Chair Mary Schapiro asking that Dodd-Frank 1502 be implemented provided companies be allowed to put in place "mitigation strategies" that they can prove are working. These mitigation strategies are discussed in OECD guidelines, which state the following:

[Companies should take steps to] prevent or mitigate the identified risks by adopting and implementing a risk management plan. These may result in a decision to continue trade throughout the course of risk mitigation efforts, temporarily suspend trade while pursuing ongoing risk mitigation, or disengage with a supplier either after failed attempts at mitigation or where the company deems mitigation not feasible or the risks unacceptable.

To say that this is a little vague is an understatement. Nowhere does Robarts' letter get more specific about how to incorporate the guidelines--or even consider their adequacy to the situation. In fact, the longer I look at it, the less I think of the letter. To propose a new strategy for the SEC to consider this late in the game is a case of too little too late. First, it's not clear that the SEC even has the latitude to consider this sort of proposal: It cannot substitute its own judgment for Congress's directives. As I understand it, the only course available to it at this point is whether to allow companies a reasonable amount of time and latitude to implement the law--and if so, to determine what constitutes "reasonable." It cannot impose its own set of conditionalities on companies. Second, this proposal isn't nearly as thought out as it needs to be. What mitigation strategies, exactly? What would constitute proof that they are working? Who gets to verify a company's finding to that effect?  Third, I can't imagine that too many companies would be willing to enter the Congo under these conditions. As Wronging Right's Amanda Taub has argued, why would companies ever risk buying Kivu minerals, given the reputational and regulatory risks they would face?


But more than that, the entire letter is rife with errors, self-contradictions, mis-statements of fact, and unproven claims. If this were someone's random comment I wouldn't consider it worth responding to.  I'd give it a "C" in a sophomore political science class--if I was feeling generous. Unfortunately, because of its provenance, it will be seized upon by all too many as a vindication of their work. (As indeed it has.) It may be crap, but it's UN-certified crap, and it will carry a lot of weight accordingly.



In the be-grateful-to-small-favors department: Robarts is a sufficiently bad writer that he can't help leaking around the edges. Hence he admits that the law has caused "collateral damage" and, "unsurprisingly, increased economic hardship." 


It's the "unsurprisingly" that staggers me: I had always assumed that the advocates of DF-1502 never had any real idea of the extent of the harm it might do. If they did, what on earth were they thinking?


Here is the relevant extract from the letter, with my comments in bold italics: 

The first point is that requiring companies to exercise due diligence is effective. The Group's investigations in the DRC have shown that private sector purchasing power and due diligence implementation is reducing conflict financing, promoting good governance in the DRC mining sector, and preserving access to international markets for impoverished artisanal miners. [But this paper states several paragraphs further on that “The effect of this in the Kivus, unsurprisingly, has been increased economic hardship, and more smuggling and general criminalisation of the minerals trade. It has also had a severely negative impact on provincial government revenues, weakening governance capacity” How can both statements be true?] It is worth recalling here that artisanal miners are among the prime sources of recruitment for armed groups in the DRC. [It is also worth recalling that becoming a miner or a militia member are among the only options available to young men in the Kivus. If the former becomes unfeasible, for example because of an embargo, the latter becomes a comparatively better option.]

The second point is that since the signing into law of the Dodd Frank act, a higher proportion then [sic] before of tin, tungsten and tantaIum mined in the DRC is not funding conflict. [Misleading:This suggests that DF has helped push mineral production away from the war-economy and toward the legitimate market. In fact, it's simply cut off (virtually all) mineral production within the Kivus, legitimate or not. In fact, within the relevant provinces of Congo, conflict entrepreneurs are now earning a higher proportion of the available mineral profit because the trade has been pushed underground.] This is because:

·         Production of these minerals has shifted to an extent to (largely) non-conflict areas, such as North Katanga and Maniema. [Misleading. Production hasn’t “shifted” to those non-conflict areas: it was already taking place in those areas. What has happened is that production has largely ceased in provinces where conflict continues, even from those areas within the provinces where there is no conflict.]

·         The armed group Front Democratique pour Ie Liberation de Rwanda (FDLR) has less control over tin, tungsten and tantalum mines in the DRC's Kivu provinces then [sic] it used to. [But not because of anything related to Dodd-Frank. The FDLR were pushed out of mining regions by the Congolese army.]

·         Tin, tungsten and tantalum production levels have fallen in the Kivus, because companies aspiring to Dodd Frank compliance are not purchasing from there. So while criminal networks within the Congolese armed forces (FARDC) continue to infiltrate mineral supply chains in the Kivus, the overall amount of profit they receive from this has fallen. [But that’s because the total amount of the trade has plummeted. The proportion of the profit they receive from the remaining trade has increased. They are comparatively better off than legitimate businesses.]

As many other submissions have attested to, however, there are important challenges regarding Dodd Frank. The first is that because companies do not want to disclose the use of 'DRC conflict minerals' in their products -especially after the recent legislation in the State of California -they are only prepared to use materials which they are sure will not require them to make a disclosure. [Not accurate. Companies were avoiding DRC months before California legislation passed.] And because of the involvement of FARDC criminal networks in the Kivus mineral trade, this has led purchasers to boycott all Kivu mineral products. [Not accurate. Purchasers decided to avoid Kivu minerals because of the passage of Dodd-Frank, not because of the involvement of FARDC in the trade. See here or here.]

The effect of this in the Kivus, unsurprisingly, has been increased economic hardship, and more smuggling and general criminalisation of the minerals trade. It has also had a severely negative impact on provincial government revenues, weakening governance capacity. [(a) True, but insufficient. “Increased economic hardship” is euphemistic, given the depth and extent of the suffering Dodd-Frank has caused. (b) True but inadequate. Simply acknowledging these facts isn't the same thing as refuting them. If DF is causing such harm to Congolese, why give it such enthusiastic support?]

Scrapping or weakening Dodd Frank is not the solution to this. [This needs proof, not assertion.] The solution is for SEC regulations to incorporate the UN Group of Experts and OECD due diligence guidelines' concept of mitigation. Mitigation allows companies purchasing from mines where FARDC criminal networks are in operation to continue purchasing provided they have put in place mitigation strategies and can prove they are working. [If the UN means to put forth “mitigation” as a serious solution to the problem at hand, it needs to work out the details in much greater detail. A simple reference to an OECD “concept” is inadequate.]

If the SEC makes this clear in its regulations, mineral supply chain tagging can be implemented in the Kivus, as it already has been in Katanga and Rwanda. [Soyons serieux for a second. We all know that large amounts of minerals have been smuggled out via Rwanda. Pointing to Rwanda as a “success” is simply disingenuous.] This would enable legitimate, traceable trade to flow from the Kivus, which would reduce the 'collateral damage' of the current de facto embargo to civilian populations, and increase revenues to legitimate state agencies. [Collateral damage is rather the point, I would think. When did it become   acceptable for human rights groups to cause collateral damage--a term we associate with the worst sort of military double speak?] And, as we have seen in Katanga, governance relating to minerals would be likely to improve too. [No one opposes implementing programs that will improve traceability. The question is what happens in the Kivus while these programs are being introduced. Should we allow trade to continue as we implement traceability mechanisms, or should we put the trade under an effective embargo until those mechanisms are in place?]

Another major challenge, as the Group's report will show, is that conflict financing from gold in the Kivus is continuing. The FDLR, other armed groups and FARDC criminal networks continue to derive considerable profit from the gold trade, increasing the risk of worsening conflict. This is happening, in part, because due diligence implementation in the gold sector has barely begun, and 'conflict gold' continues to have little difficulty reaching international markets.  [There’s no harm in attempting to put mechanisms in place to certify clean gold. Legitimate traders in the region might welcome that certificate of cleanliness. But the idea that we’ll ever be able to stop the illegitimate trade in gold is—well, ça fait rêver. The US, with all its might and money, can’t stop teenagers from selling weed within a mile of the White House. How will we stop Congolese warlords from selling gold to Lebanese, Chinese or Nigerian buyers in the middle of Africa?]

Again, the solution is not to weaken or abandon Dodd Frank. [Why not?] The solution is to continue efforts to implement due diligence in the gold sector. [How, exactly?] Progress has been made with the major industrial gold producers [irrelevant], but important international markets for gold still pay too little attention to where their product is coming from. [And given that these markets are global, largely unregulated, and trading in an entirely fungible commodity, how are we going to make them do so?]

An additional challenge is that criminal networks in the FARDC in eastern DRC are powerful and hard to dislodge. And thus far, it seems, the Government of the DRC has been unable to take them on. [Neither has Monusco, for that matter.] Due diligence is not going to solve this problem, which, first and foremost, requires action by the DRC authorities [Wait: didn't the letter state that "due diligence is effective at promoting good governance and reducing conflict financing? How can it be good at reducing conflict financing but not good at dislodging criminal networks?]. However, company due diligence will shed more light on the activities of these networks, thus increasing pressure on the government to take action. [How so?]

In conclusion, Dodd Frank has had a massive and welcome impact so far [facts not in evidence], requiring chain participants all over the world to take due diligence and conflict financing seriously [by withdrawing from the Kivus, at a terrible cost to the miners]. This should not and must not be thrown away or weakened. [Why not?]

What is required now is a correct calibration of the SEC regulations concerning disclosure so that trade can keep flowing from the Kivus, but in ways that lead to improvements in the situation, not a deterioration. [Does this constitute an implicit acknowledgement that the situation has been deteriorating? If not, what in the GoE's view would constitute a deterioration?]  The SEC should use as its reference the UN/OECD due diligence guidelines, as previously urged by ICGLR member states, the OECD, companies and NGOs. [Details, please.]

We must keep up the effort to have gold supply chains implement due diligence. [Good luck on that.]

We must keep up the pressure on the DRC authorities to prosecute and punish FARDC criminal networks involved in the minerals trade. [Monusco might want to lend a hand in this too.]

As stated at the outset, Dodd Frank and due diligence is working [facts not in evidence]. Retreat now will confuse all players in the market, unfairly and unwisely diminishing the efforts of those who are implementing due diligence, and playing into the hands of the cynical and those with other agendas who have thus far refused to implement due diligence in the hope that it will simply go away. [Translation: We’ve been negotiating with these assholes for a long time, so let’s keep DF in place—regardless of how many Congolese it harms.]


The UN's GoE clearly wants it both ways: it's under considerable diplomatic pressure to support Dodd-Frank, but it doesn't want to be saddled with the responsibility of supporting a policy that has immiserated Congolese. Hence its schizoid quality. (fortissimo:) Full speed ahead with Dodd-Frank! (Diminuendo:) But it's causing harm to the economy.  (Mezzo forte:) Therefore, allow companies to continue to buy from the Congo provided they can prove that what they're doing to mitigate the harm is effective! (Diminuendo:) We have no idea what we're talking about--we came up with this idea last night over a few beers. (Pianissimo:) We're hoping this lets us off the hook when the inevitable UN, World Bank or Oxfam report is published describing the amount of damage DF-1502 has caused the locals. Remember: Being the UN or an NGO means never having to say sorry to the indigenes. Now who's up for a gin and tonic at Orchids? First round's on us.