Nongovernmental organisation Global Witness is calling on companies to immediately implement Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires US manufacturers to disclose whether their mineral purchases have benefited abusive illegal armed groups in the Democratic Republic of Congo (DRC) and its neighbouring countries.
Section 1502 was adopted by the US Securities and Exchange Commission (SEC) on August 22, along with the complementary Section 1504, under which US companies will be required to reveal all payments they make to governments in an attempt to reduce bribery and corruption risks.
“We are encouraged that the Section 1502 rule was finally brought out and we believe that it will help to bring about some change. We do, however, believe that it was unnecessary for the SEC to grant a phase-in period, as minerals have been fuelling conflict in the eastern DRC for more than ten years,” Global Witness US office head Corinna Gilfillan tells Mining Weekly.
Global Witness is disappointed that the rule will allow companies to describe the origin of their minerals as ‘undeterminable’ for a period of two years – or four years for small companies.
“The minerals trade is fuelling violent conflict and human rights abuses in the eastern DRC and delays in implementing the law postpone the moment at which companies take responsibility for the impact of their purchases, jeopardising efforts to stop minerals funding conflict, and seriously undermining the aim of the law. 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. The incentive for companies to plead ignorance will be overwhelming,” says Global Witness.
Meanwhile, SEC staff made it clear that the Organisation for Economic Cooperation and Devel- opment’s (OECD’s) five-step due diligence framework is the benchmark against which companies’ due diligence should be measured.
“While it is disappointing that the final rule will not explicitly require companies to meet the OECD standards, the rule calls for companies’ due diligence to conform to a nationally or internationally recognised framework and the SEC stated that the OECD standards are the only such framework available,” Global Witness adds.
By meeting these standards, companies can provide assurances to consumers and investors that they are checking all along their supply chains and taking the necessary steps to ensure that their purchases are not funding conflict.
Communities in the DRC are also set to benefit from this rule.
“If companies exercise the OECD due diligence standards, they will be able to source clean minerals from the eastern DRC while making sure that they are not sourcing from armed groups. This will reduce funding to these warring parties, which will help reduce violence in the DRC,” Gilfillan explains.
Further, Global Witness will monitor companies’ compliance with this rule and companies that continue sourcing minerals without being fully aware of the minerals’ origin will face a serious reputational risk among consumers and investors, she says.
“It is in a company’s interests to move forward quickly with implementing this provision,” Gilfillan adds.
Section 1504 will require US-listed oil, gas and mining companies to disclose what they pay to governments as part of their yearly filings to the US SEC.
The provision requires disclosure of payments at country and project level.
Global Witness says that while some aspects of the rules appear to represent a step forward, a lot still depends on the detail as spelt out in the text, which is yet to be released.
“On first appearance, this SEC rule will shed some light on payments made by extractive companies to governments, enabling citizens in some of the world’s poorest countries to hold their government to account for how resource revenues are being used. However, despite suggesting that ‘project’ is a term understood and commonly used throughout the industry, we cannot understand why the SEC then failed to define it,” says Global Witness.
“That they will only define ‘project’ in their guidance is an enormous missed opportunity, which could provide ‘wriggle room’, allowing companies to continue to hide illicit payments,” the company adds.
Further, Global Witness welcomes the fact that companies will not be able to exempt themselves from reporting in countries where governments do not want revenues disclosed as exemptions represent a ‘tyrant’s charter’, according to the group.
“The SEC’s announcement on minimal requirements looks promising but requires further scrutiny,” Global Witness concludes.