Sunday, March 10, 2013

The (other) Group of Experts' Amicus

Three Africanists, Marcia Narine,  Jendayi Frazer and J. Peter Pham[1], have filed an Amicus brief on behalf of the Chamber of Commerce motion seeking to bar implementation of the conflict minerals regulation.While none of the three, pace the brief's description, is what I would deem a Congo expert (in the sense that Rene Lemarchand or Crawford Young or Georges Nzongola are), they are well established figures in the American administration of Africa's political affairs. Narine is a visiting assistant law professor at the University of Missouri, Kansas City; Frazer is a former assistant secretary of state for the continent under Bush fils, and Phan is the director of the Ansari Africa Center at the Atlantic Council. The group insists that they are not writing to support the petitioners' commercial interests but to emphasize the "unfortunate impact of the SEC’s rule for the people of the DRC." Make of that what you will.

Briefly put, the experts argue that the SEC failed to consider whether its final rules would advance Section 1502’s stated objective of weakening armed groups in the DRC; they claim that this failure constitutes a fatal violation of the agency's obligations. (Specifically, of the Administrative Procedure Act and the agency’s heightened obligation under the Securities Exchange Act of 1934 to analyze the economic impact of its rules --I am cribbing here from the WSJ).  They further argue that the SEC compounded its error by ruling in a way that is particularly likely to harm legitimate economic activity in the region and exacerbate the very conflict the law is meant to attenuate.

Although the experts summarize other researchers' findings on the SEC ruling's impact on eastern Congo, the preponderance of their brief is taken up with the question of whether the SEC considered the rule's impacts sufficiently to meet the obligations both statute and prior precedent impose on it.  I find this surprising, given that the scholars were presumably brought in for their expertise on the situation in Africa rather than for their knowledge of the arcana of securities law.

Nor, ultimately did I find their legal arguments compelling. I'm not a lawyer, of course, so take this for what it's worth: a big fat ZERO. But it seems odd to me to blame the de facto embargo of the minerals on the SEC ruling, given that the former preceded the latter.  What brought the embargo about was the publicity campaign waged by Enough and Global Witness, not anticipation of the SEC regulations. Furthermore, I get the impression that the petitioners would ask the SEC to issue findings that would require it to effectively ignore the plain intent of the statute it is obligated to implement. Congress issued a finding that the minerals were fuelling the war in the preamble to 1502. Much as every intelligent observer knows the situation is more complicated than that, and much as every intelligent observer knows that DF-1502 is likely to do (and has already done) far more harm than good, it is the law of the land. You and me and the fishes in the deep blue sea may believe it to be bad law, but the SEC can't  ignore Congress' intent, no matter how stupid or mistaken Congress was. Cops don't get to pick and chose what laws they get to enforce. Or so this non-lawyer thinks.

WRT the situation on the ground, the experts make the following points:

1) Caused Irremediable harm to miners
For thousands of Congolese whose livelihoods depend on mining, these developments have added a terrible new dimension to the existing crisis. Many miners are out of work; some mine sites appear to have been abandoned. Miners are often the sole breadwinners for entire families, and no other careers are available. Their already-impoverished families have slipped further below subsistence levels. Numerous legitimate local exporters have shut their doors as they cannot find buyers. Of the 29 provincial exporters in business in 2010, only five are still in business.

2) Interrupted ongoing traceability schemes
The decimation of the legitimate market for Congolese minerals has also upended existing methods intended to prevent armed groups from benefiting from mining. ... 
Before 2010, Congolese miners, government officials, non-governmental organizations, and industry groups were collectively developing measures to increase the traceability of tin, tantalum, and tungsten. One project to implement tracing had started in North and South Kivu. Those measures included “tagging” minerals from legitimate mines not controlled by armed groups as a means of certification. More recently, however, these traceability programs have met with skepticism from stakeholders and have been undermined by corruption. Stakeholders have been reluctant to invest in transparency measures that take time to implement when the legal market for minerals from the DRC is collapsing.
As a result, there are only a handful of mines in the DRC with traceability schemes underway, and the prospect of expanding those programs to other mines is doubtful.
The collapse of the market for anything but verifiably “conflict-free” minerals has also had the perverse effect of further undercutting traceability programs and encouraging smuggling. Pressure to produce certifiably “conflictfree” minerals has created more incentives to corrupt traceability initiatives, for instance by using stolen “conflict-free” tags. And the less reliable traceability programs become, the less companies may invest in them, shrinking the legitimate market yet further.

3) Benefited the very groups the law was meant to sanction
The FDLR, Mai-Mai, and dozens of smaller, splintered-off armed groups have instead thrived, not least because of the ease with which many of them can exploit the underground market. The eastern provinces are still strongholds for dozens of armed groups. Many have “continue[d] and even expand[ed] their mining operations” by relying on smuggling networks to sell those minerals on the black market or to “launder” them into purportedly “conflict-free” minerals.

The Experts summarize their case thus:
In sum, since 2010, the legal market for tin, tantalum, tungsten, and gold from the DRC has shriveled, and the eastern provinces hardest-hit by conflict have been disproportionately harmed. Miners and their families are more susceptible than ever to the predations of armed groups. There is little market for minerals whose origins cannot be verified, and companies have voiced wariness about the investments and effort required to make verification processes work. The conflict rages on, and armed groups have taken advantage of opportunities to smuggle or launder minerals at the expense of independent mines and exporters. And infighting among armed groups, offensives by the Congolese army, and deals to consolidate armed groups into the Congolese army have produced bewildering changes in control over individual mining sites and surrounding trade routes.
All of which seems to me to constitute a much more powerful case against Dodd-Frank 1502 than the legal arguments the experts put forth in the preponderance of the brief. (And I note, as I get ready to close this blog entry up, that the SEC more or less maintains what I suggested above, that it simply isn't authorized to second guess and recalibrate policy decisions made by Congress.)

Link Library:

For the NAM/Chamber opening brief calling for a review of the SEC's final order, see here. For quick reviews of the NAM/Chamber challenge to the SEC ruling, see here, and here and here.
For the Congo experts' amicus brief, see here. For Amnesty International's motion to be allowed to intervene, see here. I hope that at some point AI gets into the substance of the Experts' claims about the negative impacts of the law on the people of eastern Congo. It would be useful if one or another of the advocates finally set forth their defense of the law in the face of the mounting criticism against it. (And can someone tell me why AI is the lead intervenor for the SEC as respondent, rather than the Enough Project or Global Witness, whose baby the law actually was?) For a review and summary of the experts' brief by Ning Chiu of Davis Polk & Wardwell LLP, see here. For a review of the law's impact on the DRC by Celia Taylor of, see here, and for a similar analysis from Dynda Thomas of Squire Sanders, see here.

[1] Author of this unfortunate op-ed: To Save Congo, Let it Fall apart.

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