Friday, February 17, 2012

Does the SEC Matter?

So the SEC may be about to promulgate its final rules on how to implement section 1502 of Dodd Frank. I can't imagine that any of the decisions it is being asked to make will have much of an impact on conditions on the ground in eastern Congo. The passage of the law and the accompanying publicity about conflict minerals have accomplished exactly what the advocates set out to do: Discourage Western companies from buying minerals from the region.  The details of how companies are to prove their compliance with the law may be of profound interest to corporate lawyers, but I doubt very much that Bosco Ntaganda is awaiting word on whether companies need to "file" rather than "furnish" their reports, or that commanders of the 85th Army Battalion are keeping their fingers crossed that de minimis exemptions be granted to Tiffany's.

Advocates, of course, insist on the opposite: They say that the SEC's delay has enabled armed groups to continue to prey upon the Congolese people [1]. But nowhere do they explain how the SEC's rules will put a stop to those depredations, given that the rules are aimed at firms that have already withdrawn from the region.

I asked the advocates to explain what they anticipate the rules will accomplish on the ground, given that all legitimate commerce from the region has ceased. They've refused numerous requests to respond on point. So I'm left to speculate. One answer is that they see some continuing "leakage" from the smuggled mineral trade back into the supply flow feeding public firms. The rules might then force the companies to further tighten up their sourcing requirements. I think there's a bit of truth to that: certainly a fair amount of Congolese minerals continue to make it into the supply chain under false Rwandan or Ugandan labeling. How much I don't know. But I doubt that stopping that flow will significantly affect the conduct of the wars; it's more likely that the minerals will flow to other, non-Western buyers.

Alternatively, it could be that advocates believe that once the rules are in place Western companies will be eager to return to the region to source conflict-free minerals from it--and that the growth of the legitimate trade will help put an end to the wars. (Of course, a lot of us argued from the beginning that it would be better to put mechanisms in place BEFORE the embargo came into effect rather than after, if only for humanitarian reasons.) I have my doubts that Western companies, having pulled out of the region, will be in a hurry to return. Why should they? They can honestly tell anyone asking questions that they're doing all they can to prevent conflict minerals from entering their supply chain [2].

It's possible I'm wrong. It's possible that Western companies may chose to start buying again from the region, particularly if they are strongly encouraged by advocates to return and given assurances that they won't have their reputations savaged. But that will be a slow, incremental process at best, and it's hard to imagine how a trickle of licenced commerce will have much effect on the main actors competing for economic and political supremacy in the region.

[1] Full sentence from Amol Mehta, on behalf of several advocacy groups, 12/22/11 letter to the SEC: "Most importantly, for the Congolese people, further delays mean armed groups can continue for longer to prey upon and draw financing from the minerals sector, while fuelling instability and committing human rights abuses against civilian populations."

[2]  I doubt, furthermore, that setting up the sort of system envisioned by the law will be easy technically or politically. For example, imagine if one of the more highly regarded army units camp along a transport route, and in the usual way of things set up a few road blocks to levy a little improvement tax on the side. Does that cast an inviolate taint on any conflict mineral that passes through, since an armed group profited off it? Or what about a situation the latest GoE describes, where the militia don't so much tax the outgoing minerals but the incoming material the diggers and their families need to live on? Who gets to decide what to do in these cases and how will they make these decisions in the rapid time-frame that events demand?

No comments:

Post a Comment