Two years leeway before companies have to identify origin of minerals they use in manufacturing process weakens new law
By Stella Dawson
WASHINGTON (TrustLaw) - The United States is giving manufacturers too long to report whether their products contain minerals from war-torn Democratic Republic of Congo, weakening a new law designed to crack down on corruption and violence, civil society groups said.
The Securities and Exchange Commission (SEC) on Wednesday gave large companies listed on a U.S. exchange two years leeway before they would have to identify the origin of their minerals, and small companies would get up to four years grace, providing what advocacy groups say was a big and unnecessary loophole.
“They have caved into industry pressure,” said Corinna Gilfillan, head of the U.S. office of Global Witness, an organisation that campaigns against resource-related conflict and corruption.
Some companies had argued that filing reports on mineral sourcing throughout their whole supply chain was burdensome and would take time to determine especially if they would be legally liable for an accurate filing.
But civil society groups said companies had known for over two years these regulations were coming, and by giving companies the option to report that minerals are of “indeterminate” origin would only help warlords in the conflict zones of eastern DRC to continue selling minerals to finance conflict, fueling the humanitarian crisis there.
“By allowing companies to say ‘I don’t know where my minerals are from’, the regulators are effectively inviting issuers to evade all of the substantive measures required by the law,” Gilfillan said.
The conflict minerals measure was one of two long-awaited sets of U.S. regulations implementing provisions in the July 2010 U.S. financial reform.
The second measure, which won guarded praise from civil society groups, spelled out requirements for how oil, gas and mining companies must disclose the amounts they pay to foreign governments for the right to exploit natural resources.
RESOURCE CURSE
About 50 countries in the world are rich in natural resources yet steeped in poverty with 1.5 billion people living on $2 a day, even though billion of dollars is flowing into government coffers from oil and mining contracts granted to foreign companies, according to Publish What You Pay, a coalition of advocacy groups.
The SEC rules are the result of over a decade-long campaign by civil society groups for global transparency standards that would require companies to disclose their payments and for governments to reveal their receipts as a way to improve accountability over the management of natural resources and address the poverty, corruption and violence that often plagues resource-rich nations.
Some $45 billion in foreign aid flowed into sub-Saharan Africa in 2009, even as the region exported $250 billion in minerals that year, Revenue Watch Institute said.
Simon Taylor, a lead voice in the Publish What You Pay campaign and director of Global Witness, said the SEC has failed to understand the seriousness of the problem in the DRC and will continue financing conflict.
“For people facing mass rape, mass violence and mass disruptions, this certainly is not going to help. If this was happening in upstate New York, would we be having this conversation today? I don’t think so, so why the double standard?” he said in an interview with TrustLaw.
However, the groups praised the SEC’s conflict minerals regulation for using the Organisation for Economic Co-operation and Development's five-step “due diligence” method for companies to check all along their supply chain and to verify that their purchases are not funding conflict.
OIL, GAS AND MINING
The regulation for extractive industry requires oil, gas and mining companies to report annually to the SEC every payment of at least $100,000 paid to a government to exploit natural resources. These payments would be reported by country and by project.
However, the SEC stopped short of defining what exactly constituted a project, simply saying that it would provide a guidance paper on the matter. Civil society groups said they wanted to examine the wording of that paper before commenting further.
Overall, though the extractive industries measure was welcomed.
Karin Lissakers, director of Revenue Watch, called it a “huge advance”, which would help set a global benchmark and provide momentum for similar legislation expected to be adopted by the European Union later this year.
“Sub-soil minerals are public assets that governments manage in trust for their citizens, but in dozens and dozens of countries they have failed to deliver benefits from these resources. Disclosure will make it possible for citizens to track what is happening with their money,” she said.
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