DI's Summary Review of the U.S. Conflict Mineral Law and Rule: A Letter to the SEC

March 16, 2017

by Chris N. Bayer, PhD

In response to Acting Chairman Piwowar's January 31, 2017 call for comments on the Commission's Conflict Minerals Rule, DI took the opportunity to ask and answer the question what Dodd-Frank Section 1502 – and the SEC Rule by extension – has or has not accomplished in the way of the legislative intent.


What follows is a summary of the main points of the letter:


1. The issue of conflict minerals is in fact material to "a reasonable investor"

  • 456 issuers discussed “conflict minerals” in their 10-Ks for reporting year 2015.


2. The DRC itself issued a moratorium on mining after the passage of Dodd-Frank

  • After the passage of Dodd-Frank, the Congolese President Kabila himself seized the moment issuing a ban on all mining and mineral exports in North and South Kivu and Maniema for a period of 6 months.


3. Other governments and multilateral organizations have also passed legislation or issued rules/guidelines on conflict


  • Notably the E.U., California and Massachusetts, OECD (comprised of 35 member countries) and China.


4. Affected issuers have by-and-large complied with the SEC Rule

  • Compliance with the SEC Rule was generally robust: for reporting year 2015, Form SD-only filers averaged a 7-point compliance score of 95% and conflict mineral report (CMR) filers averaged 79% on a 15-point compliance score.


5. Significant compliance with the letter and the spirit of the law and rule has resulted, inter alia, in unprecedented pre-         competitive industry collective action

  • 340 companies and counting are now CFSI members, and the CFSI and partner programs are currently auditing the majority of the world's 525 3TG smelters and refiners, the majority of which have been verified to be conflict free.

  • Tantalum leads the pack, with 100% of worldwide tantalum smelters in the industry currently verified conflict free or in the process.

  • The tin and tungsten smelters are almost tied at second place, while gold refiners however lag behind.


6. Compliance and collective action however do not automatically translate into peace and security in the DRC

  • Almost half of issuers (47%) specified that they recommended or required all their suppliers to source 3TG through SORs that were verified to be DRC conflict free.


7. Identifying and containing the bad apples

  • Further stag hunt-type cooperation is required between governments and corporations through concerted and tech-savvy supply chain engagement – not only to make sure blood minerals are not sold on the U.S. market, but that the considerable efforts result in impacts ultimately felt in the DRC. 


8. Impact on the ground

  • Significant improvements are visible in the 3T sector and could even indicate that a tipping point has been achieved with respect to conflict-free mining of those 3 minerals.

  • However, gold verification remains a formidable challenge.


9. The cost of the legislation to U.S. issuers

  • Based on the extrapolated survey data, the costs of 1,300 issuers to comply with Dodd-Frank Section 1502 in the lead-up to the first filing deadline was US$ 709.7 million, US$ 545,962 per issuer on average.


10. The cost of in-region assurance

  • Downstream subsidies of audit programs, inter-program audit recognition, and bringing down the assurance cost through Blockchain-enabled trustable instance are all surely part of the solution. 

11. U.S. national interests

  • U.S. national security interests are upheld through continued engagement, which in holistic terms would include private sector due diligence on minerals that remain integrally linked with stability in the DRC.


The letter then makes 3 core recommendations, and closes with a quote out of Joseph Conrad.

Give it a read!