Event Summary: CONFLICT MINERALS and HUMAN RIGHTS: The Dodd-Frank Act’s Reforms and Reporting Requirements

On June 16, 2015, the African Affairs co-hosted a panel discussion on conflict minerals and human rights, as related to the Dodd-Frank Act, specifically Section 1502 of the Act requiring the SEC to adopt rules requiring publicly traded companies who get tin, tungsten, tantalum and gold from the Democratic Republic of the Congo (the “DRC”) or an adjoining country, to disclose the source and chain of custody of these possible “conflict minerals” to aid in preventing their use which fuel conflict and finance armed groups committing horrendous human rights abuses.

The panelists:

Michael R. Littenberg, a partner in the New York office, specializes in corporate finance and ongoing securities law compliance, mergers & acquisitions, and venture capital transactions. As part of his practice, for more than 25 years, Michael has been active in advising public and private companies on supply chain matters, including relating to, among other areas, conflict minerals and other commodities and human trafficking. Michael was recently listed as one of the Top 15 Conflict Minerals Influence Leaders by Assent Compliance.  Michael also is listed in Who’s Who in Securities Law and in New York Super Lawyers for securities and corporate finance and was voted by his peers to New York Super Lawyers Top 100 Lawyers in the New York Metro area (multiple years). 

Zorka Milin is a senior legal advisor with Global Witness, an international organization which investigates and campaigns to prevent natural resource-related conflict, corruption and associated environmental and human rights abuses. Zorka is also currently serving as a visiting fellow at Yale University’s Global Justice Program and with the Information Society Project at Yale Law School, and sits on the board of the Academics Stand against Poverty network.

Holly Dranginis is a policy analyst at the Enough Project focusing on economic drivers of violence and war crimes accountability in the DRC and the Central African Republic. Specializing in international criminal law, she makes frequent trips to the Great Lakes region, publishes policy reports, and advises policymakers. Among the high-profile cases Holly has worked on are the cases against former President Charles Taylor and former-Guatemalan President Montt. Holly helped successfully litigate a case against the Guatemalan government on behalf of victims of sexual violence, forced disappearances, and torture. She was a consultant to then-ICC Chief Prosecutor, and later led a program in Northern Uganda supporting conflict affected communities. Holly, a Fulbright scholar in Guatemala, was a legal consultant to victims of murders, targeting young women.

The Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was enacted in 2010 after findings that armed groups and members of the Congolese national army used the mining sector and its associated trade to finance their illegal operations. Section 1502 of the Act includes the requirement of annual reports by U.S. listed companies to undertake due diligence to check if tin, tungsten, tantalum or gold are funding armed groups or fueling human rights abuses in the DRC and its neighboring countries. These companies must publicly disclose their due diligence efforts to the SEC in annual reports. 

In creating the report, the Organization for Economic Cooperation and Development, with significant input from companies, governments, and international organizations created a five-step framework on an internationally-accepted standard of risk-based supply chain due diligence. This five-step framework is known as OECD Due Diligence Guidance and is the framework for companies to adhere to in order to mitigate the risk of using conflict minerals.

More information on Schulte Roth & Zabel’s Conflict Minerals Resource Center, a leader in compliance for private companies complying with the Act can be found here.

The 2014 Reports

The first year of reporting deadline was June 2, 2014 and upon their disclosure, Global Witness and Amnesty International reviewed over 100 of those reports and issued an assessment on companies’ due diligence and the transparency of their reports. Their findings were published and an overview of their findings can be found here. In the first year of reporting, they found that 79% of the companies did not meet the minimum requirements of the Act; however 21% of the companies did meet the requirements, thus showing it can be done.

Overview of the 2015 Reports

The second year of reporting was due June 1, 2015, just days before the panel discussion. Zorka described the reports as “underwhelming”, still being vague; however, Michael seemed more optimistic. He said there was an increase in the quality of reporting. There was more disclosure regarding smelter refineries, seeming that companies pressured suppliers to get more information. Generally, electronics industry did a good job reporting.

Although the 2014 reports ranged in content and amount of disclosure, for this year’s reporting companies were able to look at other companies’ reports and analysis to better their own reports. In addition, the panelists agreed the reports were more meaningful this year because in the 2014 reports there were lots of lists, but this year there were analysis and descriptions instead of long lists. Because of practices in the 2014 reporting, this year more companies included the “reasonable country of origin” designation, although it is not specifically required. This is good because it is a more meaningful disclosure to the public and shows that companies are receptive to more than the literal requirements the Act sets forth.  Rather, as Michael put it, they are using the requirements of the Act as a ‘jumping off point” to write a meaningful report. Another trend was that companies organized their reports in relation to the five-step framework format. This allows the public to more effectively evaluate disclosures.

As a general rule, the discussions were more substantive. In 2014 reports were generally two to three pages long; however, many of the 2015 reports are four to eight pages long. Companies seemed more proactive and followed up on their suppliers to determine and evaluate indirect suppliers. The process of due diligence even caused some companies to remove, or put on probation, suppliers who were not complying.  This will lead to suppliers ensuring their products are conflict-free. The panelists also saw companies were participating in multistate initiatives to reduce risk.

What to Expect in the 2016 Reports

Although the 2015 reports still don’t say a lot because companies are “risk mitigating”, after two years of disclosure, the panelists feel that risk-mitigating strategies will be ramped up. Part of the Act’s purpose is to identify best practices and general trends – due diligence leads to practice which leads to improvements. And that will help decrease the use of conflict minerals.

Discussions during the Q&A

A concern brought up by the audience included how the Act was affecting artisanal miners as there are reports stating these miners are joining militias because the Act is putting them out of business. Holly was quick to respond that those statements are “anecdotal” and thus not really an issue. In all her work relating to conflict minerals, no one has seen this happen. Of course it does not mean it does not happen; however, to determine whether an artisanal miner will join a militia is much more involved than just disclosures from the Act. Holly used that question to describe her hope for the future of the Act. She would like to see more focus on help in providing livelihood transitions for miners who are affected by the Act. Holly said the Act was never meant to be a “panacea” for the conflict in the DRC; rather the Act is just about transparency.

There was also discussion about how many of the reports mainly focused on the three t’s (tin, tungsten, and tantalum) and that there should be more focus on the other conflict mineral, gold. The problem lies in that gold is small and so it can be easily transported, even in people’s pockets. This is opposite of the other minerals that require greater mining operations and are transported in large trucks. However, armed groups control one-half of the gold mines and so there should be a focus on this area.

A final question also arose whether monetary penalties should be imposed on using conflict minerals; however, the panelists seemed in agreement that it is not necessary. The harm to a company’s reputation by using conflict minerals, as viewed by the public and other companies in their industry, is sufficient.

More information about the Act and a call for change can be found on ENOUGH’s website here.