The US GAO just published its latest report on the SEC conflict minerals rule to “assess, among other things, the SEC rule’s effectiveness in promoting peace and security in the DRC and adjoining countries. This report examines, among other things … what can be determined about the SEC disclosure rule’s effectiveness in promoting peace and security in the DRC and adjoining countries…”
The report paints a bleak picture:
“[The] conflict minerals disclosure rule has not reduced violence in the Democratic Republic of the Congo (DRC) and has likely had no effect in adjoining countries… GAO found no empirical evidence that the rule has decreased the occurrence or level of violence in the eastern DRC, where many mines and armed groups are located. GAO also found the rule was associated with a spread of violence, particularly around informal, small-scale gold mining sites. This may be partly because armed groups have increasingly fought for control of gold mines since gold is more portable and less traceable than the other three minerals. Further, GAO found that the number of violent events in the adjoining countries did not change in response to the SEC rule.”
The SEC isn’t the least bit in agreement, however:
“SEC staff strongly objected during the commenting process to language and conclusions in [GAO’s draft Report reviewed by SEC Staff] that asserted, without sufficient support, a causal link (whether sole or contributory) between DFA [Dodd-Frank Act] and the SEC Rule and violence in the DRC.”
In spite of SEC staff criticism of GAO’s study methodology and evidence used, GAO didn’t change their conclusions.
So who’s right? I asked a friend who has many years of personal on-the-ground experience in DRC and adjoining countries working in conflict minerals and human rights. He was more upbeat than GAO, pointing out that
“[Dodd-Frank] spurred long-term structural changes and made it harder to sell conflict minerals – though gold needs more work… And of course it caused the smelter auditing program to be created and two-thirds of the world’s smelters of these minerals have now passed those audits. That’s a supply chain revolution.”
In my opinion, the answer depends on how you define “effective.” If you think that only means a meaningful reduction in violence in the DRC, then the jury may still be out. If you judge the rule by whether corporate buying behavior changed, then it is hard to argue that the rule has been ineffective.
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