The Securities and Exchange Commission voted 3-2 on Wednesday for a set of rules forcing public companies to disclose use of minerals from the Democratic Republic of Congo and adjoining countries. The rules written by the SEC followed Congressional requirements imposed by the 2010 Dodd-Frank financial regulatory overhaul.
The so-called “conflict mineral” requirement – aimed primarily at users of tantalum, tin, gold and tungsten – is intended to make companies accountable for buying minerals sold to fund fighting in the DRC as part of efforts to discourage human rights abuses in that war-torn country.
In voting against the rules, the commission’s two Republican members said the SEC had not fully assessed how effective the rules would be in the African countires and said the cost of the rules would be disproportionately carried by small businesses.
US manufacturers and companies that supply them will be required to file reports under the rules starting in May 2014 disclosing where they obtained minerals associated with human-rights abuses in the central African region. Metals certified as scrap or recycled would be considered conflict-free under rules.
Separately, the SEC also voted 2-1, with two commissioners recusing themselves, for another set of rules also required by Dodd-Frank that will mandate reporting of payments made to US or foreign governments for oil, natural gas and mineral extraction, processing and export or licensing of related activity.
Daniel M. Gallagher, the Republican commissioner dissenting, said the rules would put US companies at a disadvantage to foreign competitors who aren’t required to make such reports. The US Chamber of Commerce and American Petroleum Institute had been among groups vigorously resisting intial versions of the rules.
The vote on the regulations had originally been required by Congress within nine months of the passage of Dodd-Frank and had been long delayed, prompting 58 members of Congress, both Democrat and Republican, to send a letter earlier this summer to Mary L. Schapiro, the SEC chairman, asking for an explanation.
In opening the SEC vote on the rules, Schapiro said the commission had received “significant public input” on the rules including more than 400 letters and had held extensive meetings with stakeholders, including corporations, associations, human rights and public policy groups, the investment community and the US and foreign governments.
“In response, we incorporated many changes from the proposal that are designed to address concerns about the costs,” Schapiro said. “I believe the rule we are considering today faithfully implements the statutory requirement as mandated by Congress in a fair and balanced manner.”
Activists who promoted more reporting requirements said the final conflict minerals rule exempts companies that are considered to not have direct control over product manufacture including some of the largest retailers of gold, including Walmart, Best Buy and other big box stores. They said this exclusion represented a weakening of the draft rule, which had applied to these now-exempt retailers.
“We are disappointed about the free pass that’s been given to big box stores and other large retailers,” said Payal Sampat, international program director at Earthworks, a mining and energy industry watchdog group based in Washington. “These companies have tight control over their manufacturers when it comes to product cost and quality. Why, then, are they off the hook when it comes to human rights violations or corruption?”
Earthworks offices noted that the final rule relating to payment disclosure will require companies in the oil, gas, and mining sectors to publicly report on payments – including royalties, bonuses and infrastructure improvements - they make to foreign governments.
SEC staff members said the conflict minerals rule was expected to costs $3 billion to $4 billion to implement industry-wide and that ongoing annual costs would be between $206 million and $609 million. The rules on disclosure of payments by resource extraction issuers will cost $1 billion to implement and $200 million-$400million annually.
Phil Burgert is managing editor of ResourceInvestor.com. He can be contacted at firstname.lastname@example.org