Dodd-Frank Section 1502 requires publicly traded companies to report on their use of conflict minerals originating from the Democratic Republic of Congo. These minerals finance armed groups and human rights abuses in the region. The law aims to curb this by requiring due diligence on mineral sourcing and disclosures to the SEC. Implementation of the law impacts thousands of companies globally and across industries and requires changes to supply chain tracking and management systems. Estimates of the costs for companies to comply range from billions to tens of billions of dollars.

1. Dodd-Frank Section 1502:
Significance and Public Policy Implications
Photo credit: Resource Global
Payson International Development Colloquium Series
February 27 2013
Chris Bayer
PhD Candidate
Tulane University

2. DISCLAIMER
This presentation may have
been prepared on electronic
equipment that contains
conflict minerals
2

3. That sausage quote
The Prussian minister-president Otto von Bismarck
once said:
"Je weniger die Leute darüber wissen, wie Würste
und Gesetze gemacht werden, desto besser schlafen
sie nachts."
"The less people know about how sausages and laws
are made, the better they sleep at night."
3

4. No country for old men,
or anyone really
• The Second Congo War (1998-2003) and the
instability in its aftermath have killed an
estimated 5 million people, mostly from disease
and starvation
• Deadliest conflict since World War II
• Approximately 400,000 women were raped in
one particularly horrific year - 2006
Source: Robinson, Simon. The Deadliest War In The World. Time Magazine. May 28, 2006.
http://www.time.com/time/magazine/article/0,9171,1198921,00.html
4

5. For-profit belligerence
• For almost two decades now, the Congolese
government has essentially competed for
control over mines with armed groups
– domestic militias
– foreign armies
– own military
• as there are criminal networks within the Congolese
armed forces (FARDC) accused of conducting their own
mining “operations”
• The DRC is often described as a failed state
5
Source: VOA. http://www.voanews.com/content/tracing-congos-conflict-minerals-101654353/124667.html

6. USDS reports:
• “armed groups and military units in some parts of the region
have killed, raped, tortured, and abducted numerous civilians
and burned and looted their villages in mineral rich areas,
particularly near mines.
• “They have also forced civilians, including children, to mine”
or forced civilians to provide them with funds derived from
the sale of mining
• “Profits from the illicit sale of these minerals are then used to
continue the cycle of conflict, facilitating the purchase of
small arms used to commit abuses, and reducing government
revenues needed to improve security.”
– Robert Hormats
Under Secretary of State for Economic, Energy and Agricultural Affairs
Source: Huffington Post. http://www.huffingtonpost.com/bob-hormats/ending-the-conflict-miner_b_585403.html
6

7. Conflict Mineral Proceeds
• The Enough Project estimated that local militias
made about $180 million from trading in these
minerals in 2009 alone
7

8. 8

9. 9
Source: USDS. https://hiu.state.gov/Products/DRC_ConflictMinerals_2012May23_HIU_U540.pdf

10. An epic looting saga
• Atlantic slave trade starting shortly after the
Portuguese rounded the Gulf of Guinea in 1491
• Kongolese King Affonso I in 1526 wrote to the
King of Portugal: ‘Each day the traders are
kidnapping our people – our land is entirely
depopulated’
• Under the reign of King Leopold II from 1885 to
1908, ivory, rubber, and minerals were
extracted under the threat of losing ones hands
if quotas were not reached
• Second Congo War involved eight African
nations, as well as at least 25 armed groups
• After the fighting, Zimbabwe (Mugabe) for The Atlas of War and Peace,
example was rewarded with daily flights full of Earthscan 2003
minerals
• All along, Congo (Brazzaville) has exported
diamonds derived from the DRC – itself having 10
no domestic production

11. The ghost of
Rwanda 1994
• The 1994 genocide still haunts the region
• After the genocide, an estimated 2 million Hutu spilled
into the Congo
• To this day, between 6,000 to 10,000 (Hutu) Interhamwe
troops fight under the FDLR banner
• Paul Kagame (Rwanda) seems determined:
• (1) to “neutralize” every last one of the Hutu Interhamwe,
• (2) to provide security for Tutsi residing in Kivu, and
• (3) access (and possibly annex) the very lucrative North and
South Kivu districts 11

12. M23
– named after March 2009 peace
treaty, was created by former
rebel troops who claimed the
peace treaty was not implemented M23
– primarily made up of Tutsis
– opposes the Hutu FDLR militia
– are supported by Rwanda
(Kagame)
– has quite effectively leveraged
discontented and unemployed
population in eastern Congo
– control several mining areas in
the territories north of Goma
– sights increasingly on gold – less
“cumbersome” than 3T 12

13. Conflict minerals:
Not the cause – but a factor
• In a 2001 report on the Illegal Exploitation of Natural
Resources in the Congo, the United Nations implicated
MNCs as "the engine of the conflict in the DRC"
• A 2002 UN Panel of Inquiry revealed that a systematic and
intimate relationship exists between economics and
military activity in the DRC
– Tantalum “permitted the Rwandan army to sustain its presence
in the DRC.
– “The army has provided protection and security to the
individuals and companies extracting the mineral.
– “These have made money which is shared with the army, which
in turn continues to provide the enabling environment to
continue exploitation”
13
Source: UN Panel of Inquiry, 2001: Para 130, IHS

14. Cui Bono?
• Not so much the miners
– Wages are kept artificially low through informal / child / forced
labor: the miners earn between $1-5 a day working either for an
armed group or for someone who pays off an armed group
• Very much so the intermediaries (war lords, soldiers,
smugglers), consolidators and exporters (of neighboring
countries)
– The prices of the minerals vary, but in the case of tantalum, for
example, the ore can fetch up to 50 times that which miners earn
• Ongoing exploitation of minerals throughout the Congo wars
kept mineral supplies up and thus international prices lower
• A status quo, mineral-consuming industries were perfectly
content to perpetuate – even throughout the Congo wars
14

15. Catch 22
• Conflict Mineral proceeds flowed into the informal
market or benefitted neighboring countries bypassing
state coffers
– precluding at least the chance for the Congolese state to
become strong enough to assert control over the eastern
regions of the country and its rich natural resources
• Traditional state authority gave way to foreign military
and domestic military might emboldened and enriched
by mineral extraction
• How to get into a virtuous cycle of payment of
royalties/taxes -> state projection of power and security ->
investor confidence -> FDI -> formalizing of informal sector
-> more state revenue?
15

16. The Campaign
• A critical mass of support for conflict-free
minerals gained traction in 2008
• Largely led by civil society organizations such as
the Enough Project, Global Witness, Raise Hope
for Congo, Conflictminerals.org and Congo Siasa
16

17. July 21, 2010
17

18. D-F Section 1502
2010 Dodd-Frank Wall Street Reform and
Consumer Protection Act Title XV: Miscellaneous
Provisions – Section 1502 Conflict Minerals (P.L.
111-203)
“It is the sense of Congress that the exploitation and
trade of conflict minerals originating in the
Democratic Republic of the Congo is helping to
finance conflict characterized by extreme levels of
violence in the eastern Democratic Republic of the
Congo, particularly sexual- and gender-based
violence, and contributing to an emergency
humanitarian situation therein…”
18

19. Main purpose
• “… we understand Congress’s main purpose to have
been to attempt to inhibit the ability of armed groups
in the Covered Countries to fund their activities by
exploiting the trade in conflict minerals.”
– per the SEC
• “Covered countries” being the “adjoining country” – as
a country that shares an internationally recognized
border with the DRC, which presently includes Angola,
Burundi, Central African Republic, the Republic of the
Congo, Rwanda, South Sudan, Tanzania, Uganda, and
Zambia
Source: SEC. Final Rule. http://www.sec.gov/rules/final/2012/34-67716.pdf 19

20. 3TG
• “Conflict minerals” are defined as tin, tantalum,
tungsten, gold and their derivatives, commonly
referred to as “3TG”
– Guilty until proven innocent: under the law the term
"conflict minerals" refers to all 3TG regardless if their
provenance
• The DRC accounts for approximately:
– 15-20% of global tantalum ore production
– 6-8% of global tin ore production
– 2-4% of global tungsten ore production
– .3% of global gold production
Source: BSR; Tiffany 20

21. 3TG
• Conflict minerals are as omnipresent as the ballpoint pen – and that is not
just a metaphor:
– Tin is found in solders, food can coatings, shoe soles, fluoride toothpaste
formulations, and chemical applications such as catalysts and stabilizers
– Tungsten, particularly resistant to deforming, is used in tools, aerospace
components, electric lighting, ballpoint pens, electronics, as well as
window heating systems, automobile horns, X-Ray machines, dental
drills, golf clubs, darts, and remote control racing cars
– Tantalum is present in automotive electronics, cell phones, computers,
superalloys for jet and power plant turbines, cutting tools, as well as
surgical implants and prosthetic devices
– Gold, the most malleable and ductile metal, is used in jewelry,
electronics, medical equipment, and aerospace, as well as sensors and
pregnancy tests
• Some products contain concentrated – others trace amounts
21

22. D-F Section 1502 directives
• Requires publicly traded companies in the U.S.
to submit a report to the SEC that includes:
– ‘‘(i) a description of the measures taken by the
person to exercise due diligence on the source and
chain of custody of such minerals, which measures
shall include an independent private sector audit of
such report submitted through the Commission…”
– ‘‘(ii) a description of the products, manufactured or
contracted to be manufactured, that are not DRC
conflict free…”
• Charges the SEC to operationalize the law in the
form of rules 22

23. Comptroller General’s charge
• Requires the Comptroller General to submit to the
appropriate congressional committees a report
that includes:
o An assessment of the effectiveness [of the law] in
promoting peace and security in the Democratic
Republic of the Congo and adjoining countries
• Which may be the closest thing Congress will get
to an official benefit appraisal
23

24. USDS’s charge
• D-F statutory law:
– USDS to submit a strategy to address the linkages
between human rights abuses, armed groups,
mining of conflict minerals, and commercial
products, which entails:
o preparing a “plan to promote peace and security” in
the Congo
o monitoring and stopping “commercial activities
involving the natural resources of the DRC that
contribute to the activities of armed groups and human
rights violations in the DRC”
o Producing “a map of mineral-rich zones, trade routes,
and areas under the control of armed groups in the
Congo”
24

25. Significance
• First time a corporate disclosure law has been
leveraged for a humanitarian purpose abroad
– Unprecedented
• Legal intervention which traverses business,
diplomacy and human development interests
• Global supply-chain ramifications
• Darwinian game-changer:
– The fittest is no longer the company with the most
cut-throat practices and most obscure supply chain
– But the company that is diligent, fosters a clean
brand, has control over its supply chain – and can
prove it 25

26. Significance (cont.)
• A law based on the following logic:
– a requirement to publicly disclose whether or not
conflict minerals were used, and that due diligence was
performed, would change corporate procurement
practices such that the liquidity of armed groups at the
producing end of the supply chain would be curtailed – if
not stifled
• A law in which the principle of the matter
apparently took precedence over cost/benefit
implications
– attempts were made by the SEC to calculate the cost,
whereas no attempt was made to estimate the "benefit"26

27. Implementation
In order to disclose required information, companies
must now perform five principal tasks:
1. Identify products/suppliers
2. Seek out and verify traceability information from those
suppliers
3. Strengthen internal management systems through
supplier engagement and risk management in view of
performing due diligence
4. Instituting the necessary IT systems (to collect supply
chain data and maintain auditable records for the SEC)
5. Auditing and reporting to SEC (and in some cases
commissioning CMR audit)
27

28. Affected industries
• Impacts thousands of manufacturers of all sizes
– ranging from Fortune 500 companies to
companies with $10 million in annual sales –
across multiple industries:
• aerospace
• healthcare
• automotive
• chemicals
• food
• electronics/high-tech
• jewelry
• Corporate interests which, in the aggregate,
exceeding trillions of dollars in revenue per year
28

29. Hourglass model of the mineral sector
29

30. The D-F S1502 play (in 10 acts thus far)
Act 1:In 2008 Enough!, Global Witness et al make
serious noise about the Congo, and drum up a
critical mass of awareness on the issue
Act 2: In 2009 the Congo Conflict Minerals Act is
introduced in the 111th Senate – but is not enacted
Act 3: Senators Sam Brownback (R-KS), Dick Durbin (D-IL)
and Russ Feingold (D-WI) succeed in adding Section
1502 to the Dodd-Frank Wall Street Reform Act of
2010
Act 4:The SEC comes out with proposed rules, with
a price tag of $71.2 million, clearly not having
considered the full cost implication
Act 5:NAM’s back-of-the-envelope estimation has the
rules cost $9-16 billion 30

31. The D-F S1502 play (in 10 acts thus far)
Act 6: The Chamber of Commerce argues that the proposed
rules are too burdensome and should be withdrawn
Act 7: Tulane, an impartial party, roped into this issue at the
behest of Durbin’s office, publishes its own study in
October 2011, critiquing the NAM and SEC cost
estimates and offers a 3rd economic cost model that
comes to $7.93 billion
Act 8: SEC issues final rules which become law-of-the-land
with its August 2012 vote, relying substantially on
Tulane’s cost drivers, and revising its initial price tag to
$3-4 billion, with the implied admission that their initial
cost estimate was far off the mark
Act 9: Industry gets to work
Act 10:U.S. Chamber of Commerce, NAM and the Business
Roundtable sue the SEC, requesting that the “rule be
modified or set aside in whole or in part” 31

32. The “Tulane model”
Task 3rd model estimation of costs
1. Strengthening internal $26 million for the 5,994 issuers; $5.14
management systems in view of billion for 1st tier suppliers to those
performing due diligence issuers, for a total of $5.17 billion
2. Instituting the necessary IT $884 million for issuers who are small
systems (to collect information companies; $1.68 billion for issuers who
and maintain auditable records for are large companies, for a total of $2.56
the SEC) billion
3. Commissioning CMR audit As only issuers are required to conduct
audits: $81 million for issuers who are
small companies; $126 million for
issuers who are large companies, for a
total of $207 million
Total $7.93 billion
(including internal company labor) 32

33. “Extraneous” costs of transparency
• Suppliers throughout the supply chain are customarily wary of divulging
their suppliers / sources
– Conversely, it gives issuers and top tier companies more information and
control over their supply-chain
• While the American market is the world’s largest, not all roads lead to
Rome
– Cons:
• American competitiveness is potentially “hurt” if the international playing field is not
level
• Non-US bound market supplying companies would not necessarily bear the due
diligence compliance burden
• EU has not passed a similar CM due diligence/disclosure law
– Pros:
• US-bound supply chains traverse the globe many times over – law has a huge multiplier
effect affecting more non-issuers lower down the supply chain than issuers
• Big companies are not however going to bifurcate their supply chains into: (1) US
bound (2) rest-of-the-world bound
• The law makes companies vulnerable to:
– Bad press from activists
• "Nobody wants bad press!”
– Lawsuits from shareholders 33

34. The core of the suit
1st Amendment:
The required disclosure to describe products as “DRC conflict
free” or “not DRC conflict free” violates the reporting
companies’ First Amendment rights by making them engage
in speech against their will
2. Violation of the Administrative Procedure Act (APA):
a. The SEC’s economic impact analysis – an obligation under
the Securities Exchange Act of 1934 – was “woefully
inadequate”
b. Benefits not understood
• The SEC itself “admitted it did not determine whether the
rule will provide any benefits to the people of the DRC” –
although it is “one of the costliest rules in SEC history”
Source: Chamber Litigation.
http://www.chamberlitigation.com/sites/default/files/cases/files/2012/Petitioners%20Opening%20Merits%20Brief%20--
34
%20NAM,%20Chamber%20of%20Commerce%20and%20BRT%20v.%20SEC%20(D.C.%20Circuit).pdf

35. Possible counter-arguments
1. Argument
• Uh, did you mean you’ll take the 5th ?
2. Argument
To a:
– SEC’s proposed rules were – compared with Tulane’s
model – off the mark by a factor of 100
– SEC allowed extensive review period – heard all
perspectives and referenced many
– Revised rules – incorporating Tulane’s cost factors – was
only off by a factor of 2
To b:
– It was the Comptroller General’s task to “determine
whether the rule will provide any benefits to the people
of the DRC”
– It was the SEC’s task to operationalize the law 35

36. SEC: Bring it ON!
SEC spokesman John Nester replied by saying:
“… we believe our legal interpretation and
economic analyses are sound and we look
forward to defending the rule that Congress
directed us to write.”
36

37. Has the train left the station?
• Many firms are striving for a conflict-free
supply chain, no matter what's going on in
Washington
– “A lot of companies feel it's good business and the
right thing to do” as lawyer Michael Littenberg points
out
• While others work with trade associations in
private to throw a wrench in the wheel
– See Global Witness’ list noir
Source:
http://www.law.com/corporatecounsel/PubArticleCC.jsp?id=1202576075043&Business_Groups_File_Challeng
e_to_SEC_Conflict_Minerals_Rule&goback=%2Eanp_4578112_1358531858799_1&slreturn=20130018125937
37

38. Upsides of DFCM implementation
Various U.S.-based companies are saying the following:
• Leveled playing field: same advantage / disadvantage
• Identified opportunities for consolidation (vertical integration) and
supply chain cost reduction
– Potential big savings cutting out middle-men
• Better risk management
– Pre-emptive identification of risk such as reliance on sole-sourced
suppliers
• Improved supply chain performance management in terms of
responsiveness and efficiency
• Better able to respond to customer requests for CM-related
information
• Data and standards with which to conduct future supplier
certification
• Stable supplier policies
• Confidence that company is positively impacting people around the
world
Sources: (1) KPMG. http://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/public- policy-
alerts/Documents/public-policy-alert-15-conflict-mineral.pdf 38
(2) Green Research. The Costs and Benefits of Dodd-Frank Section 1502

39. Early positive deviants
• Apple has announced it will require suppliers to
use audited, conflict-free smelters
• Intel has emerged as a leader for making the first
commitment to producing a conflict-free product
by 2013
• Microsoft and Motorola split from the U.S.
Chamber of Commerce for the Chamber’s efforts
against the regulation
39

40. Stakeholder responses to DFCM
40

41. Conflict Mineral Survey by
The Corporate Council – Nov. 26, 2012
4. How far along are you in preparing for conflict mineral compliance?
(Total responses: n=55)
(select only one)
n=10 (18.18%) We're still in denial
n=37 (67.27%) We've begun to analyze our products, but haven't begun
implementing systems
n=1 (1.82%) We've begun to revise our supply contracts to help
comply
n=3 (5.45%) We are very far along and don't believe compliance will
be a problem
n=1 (1.82%) Don't know
n=3 (5.45%) Not applicable
41
Source: http://www.thecorporatecounsel.net/survey/Nov12_total.htm?goback=%2Eanp_4578112_1358045947753_1

42. Source: Responsible Sourcing Network. What’s Needed: An Overview of Multi-stakeholder and industry Activities to
Achieve Conflict-free Minerals. http://www.sourcingnetwork.org/storage/Minerals_WP.F_print.pdf
42

43. Source: Responsible Sourcing Network. What’s Needed: An Overview of Multi-stakeholder and industry Activities to
Achieve Conflict-free Minerals. http://www.sourcingnetwork.org/storage/Minerals_WP.F_print.pdf 43

44. 3 promising market-based initiatives
 closed pipe system (SfH)
• Enhanced traceability / chain of custody
• Good business sense (vertical integration)
 bag-and-tag (ITRI)
1. Closing bag and weighing upon filling
2. Tagging (with bar code)
3. Weighing upon receipt
 conflict-free smelter
program
Source: http://solutions-network.org/site-solutionsforhope/ 44

45. Conflict-free smelter program status
Source: Conflict Free Smelter. http://www.conflictfreesmelter.org/index.htm 45

46. Is the law working – in the short term?
• The UN Group of Experts on Congo wrote to the
SEC in Oct. 2011 saying:
– “Dodd Frank and due diligence is working!”
– “Since the signing into law of the Dodd Frank act, a
higher proportion then before of tin, tungsten and
tantalum mined in the DRC is not funding conflict.”
Source: http://www.sec.gov/comments/s7-40-10/s74010-346.pdf 46

47. Is the law working (cont.)
The UN Group of Experts highlighted several more points:
• “Production of minerals has shifted to an extent to (largely) non-
conflict areas, such as North Katanga and Maniema”
• Conversely, the effect “in the Kivus, unsurprisingly, has been
increased economic hardship and more smuggling and general
criminalisation of the minerals trade. It has also had a severely
negative impact on provincial government revenues, weakening
governance capacity”
• Criminal networks continue to exist within the Congolese army
• Thousands of miners have found work in the neighboring provinces of
Maniema and northern Katanga
• The FDLR’s control of mines has decreased over the past year,
particularly in tin, tantalum, and tungsten mines
• Congolese army criminal networks have seen their profits in the 3Ts
fall over the past year
• Gold is still funding armed groups in the Congo (easier to smuggle)
Source: http://www.sec.gov/comments/s7-40-10/s74010-346.pdf 47

48. Caveat!
• Due diligence and “buying peace” through
targeted purchasing power is only ONE –
albeit a very important – measure among
many of what should be a broader portfolio of
policies and interventions to address this
multi-faceted problem
– Even if revenue doesn’t fuel the conflict, what’s
next?
• Otherwise, at best, this exercise will only serve
to shelve our moral "guilt" by having clean
cellphones 48

49. State Department’s approach
• Endorsement of OECD’s Due Diligence Guidelines
• Public-Private Alliance for Responsible Minerals Trade
(PPA)
– sponsored by USDS and USAID in partnership with leading
companies and civil society to support compliance with
Section 1502
– seeks to advance “on the ground” solutions in the DRC and
to demonstrate that it is possible to secure legitimate
minerals from the DRC
• Statement of July 2011:
– encouraged compliance with Section 1502
– noted possible U.N. sanctions for individuals or entities
that support the armed conflict and human rights abuses
in the DRC
Source: www.resolv.org/site-ppa 49

50. USAID
• Community Recovery and Livelihoods Project
(CRLP)
• A $20 million livelihoods project in eastern Congo
• Four-year program (2012-2016) in the Kivus and
Orientale provinces
• Focused on people affected by sexual violence
and the conflict minerals trade
• Aims to reach at least 80,000 people
• After all, durable peace does fundamentally hinge
on the development of sustainable livelihoods
50

51. Fixing the Congo - Security
• Assign a highly experienced United Nations envoy to the Congo by the secretary-
general to help broaden and strengthen the peace process
– Envoy could work with the African Union in constructing a process that involves civil society and
political parties from eastern Congo to deal with the war’s root economic causes
– Have carrots (e.g. FDI guarantees) and sticks (sanctions)
• Beef up U.N. presence that has the reach to stabilize the vast territories of the DRC
– 20,000 are apparently not enough to ensure a tenable peace
– Deploy the drones!
• Open International Criminal Court cases against parties responsible for
orchestrating or financing war crimes to help break the cycle of deadly impunity
• Conduct comprehensive demilitarization with livelihood programs for ex-
combatants
• Build capacity and pay salaries – and actually pay! – to military, police and civil
service, so that their livelihoods don’t depend on embezzlement and extortion
• Ethnic military integration of military and police as Kagame has done in Rwanda
– Introduce meritocratic systems to recruitment and promotions
• Deploy UN drones
51
Note: includes Willet Weeks and John Pendergast’s recommendations

52. Fixing the Congo –
sanction militia supporters
• Secure assurances by its neighbors that they will cease
relations with militias in the Congo
• Scale up sanctions, if Rwanda’s support of M23 rebels
continues
– It might take more than symbolic cuts to make a meaningful
impact
• Overall, Rwanda receives close to $900m annually from external
sources
• The US gives Rwanda annually $196m - of this amount only $200,000
was cut
• The UK withheld £21m of its budget support out of £75m pound
sterling it gives Rwanda annually
• Involvement of Eastern DRC earns them tenfold from illicit trade in
minerals
52
Source: http://www.inyenyerinews.org/amakuru-2/foreign-policy-in-rwanda-a-discussion-with-deo-lukyamuzi/

53. Fixing the Congo – markets
• Guarantee concessions and business licenses to Rwandan and Ugandan
companies
– Integrating economies such that war would be too expensive – à la the European
Coal and Steel Community (ECSC)
– Rwanda and Uganda are natural trading partners who also offer mineral processing
capacity
• Make vast investments in infrastructure, particularly roads, the dismal
lack of which incubates disorder
– Could be through state-guaranteed (EXIM) deals such as the recent $6-9 billion China
concessions-for-infrastructure deal
• Promote government-backed FDI
– Professionalize upstream supply chain sector
• Formalize the extraction of the Congo’s vast mineral resources through
regulation, transparency, equitable taxation, verified auctions, etc.
53
Note: includes Willet Weeks and John Pendergast’s recommendations

54. Fixing the Congo – public sphere
• Strengthen state institutions in the context of
what is essentially a failed state
– Reinforce pillars of democracy
• Clean up corruption as was done in Georgia
EITI (http://eiti.org/node/284/reports)
– Revive democratic participation in Congo’s
communities and decentralize important functions to
local representative leaders
– Also focus on the provision of basic services
• Immigration / deportation
– After the 1994 genocide in Rwanda, largely by the
Hutus against the Tutsis, nearly two million Hutu
refugees fled a counter-offensive pouring across the
54
border into neighboring Congo

55. D-F Section 1502 a fluke?
• Some would posit it becoming law a fluke
because of the unusual circumstances in the
aftermath of the Financial Crisis of 2007-2008
• The SEC vote was a narrow 3-2 – two
commissioners did not approve the rule
• The law set a precedent in line with a greater
emerging pattern
Source: SEC. http://www.sec.gov/news/speech/2012/spch082212dmg-minerals.htm
55

56. A few milestones of disclosure law
• Securities Exchange Act of 1934
– to help the symmetry of information assumption along,
Congress crafted a mandatory disclosure process in which
companies make information public that investors would
find pertinent to making investment decisions
• Home Mortgage Disclosure Act of 1975
– provides to the public loan data that can be used to assist:
• in determining whether financial institutions are serving the
housing needs of their communities
• in distributing public-sector investments in identifying possible
discriminatory lending patterns
• Sarbanes–Oxley Act of 2002
– requires internal controls for assuring accuracy of financial
reports
– mandates enhanced financial disclosures
56

57. The two other 2010
“Specialized Corporate Disclosure” laws
• Section 1503 requires any reporting issuer that is a mine
operator, or has a subsidiary that is an operator, to disclose
to the SEC information related to health and safety
violations, including the number of certain violations,
orders, and citations received from the Mine Safety and
Health Administration (MSHA)
• Section 1504 requires reporting issuers engaged in the
commercial development of oil, natural gas, or minerals to
disclose in an annual report certain payments made to the
United States or a foreign government
– Under the new “Disclosure of Payments by Resource Extraction
Issuers” Rule adopted in late August 2012, issuers must disclose
all payments (or aggregation of related payments) of $100,000
or more to foreign (and U.S.) governments for such activities
57
Source: SEC. http://www.sec.gov/spotlight/dodd-frank/speccorpdisclosure.shtml

58. Global Compact
Global Compact, a 1999 UN-spearheaded multi-
stakeholder initiative resulting in the formulation of 10 CSR
principles:
Principle 1
• Businesses should support and respect the protection of
internationally proclaimed human rights within their
sphere of influence.
Principle 2
• Businesses should ensure that their own operations are
not complicit in human rights abuses.
– DO NO HARM! - Don’t do business with human rights
violators 58

59. Long-term engagement prospects
• Engaging the Congo is in our national interest
o DRC is under-leveraged – offers high return on the dollar
 e.g. the China deal: $ 6 billion worth of infrastructure in exchange for $50 billion dollars
worth of minerals – which translates to a profit of 833%
o One estimation has the DRC’s mineral deposits worth $24 trillion
o The Congo rainforest is the world’s second largest carbon sink
o If Afghanistan taught us anything is that the world can’t afford failed
states
• Relative security conditions a prerequisite for constructive
engagement
o Risk of engagement are high
 Security, in spite of the 17,000 UN troops in the Congo
 chaotic regulatory environment / broken contracts
o Not deterring China / India
59

60. Lessons thus far…
• Due diligence and ethical sourcing should be part of the day-to-
day corporate modus operandi
– Had the 3TG-based sectors done it all along, this law wouldn’t exist
• If you are an at-risk industry: try your level best to self-regulate
in order to reduce legislative and reputational vulnerability –
otherwise you could get Dodd-Franked
• If you are a concerned NGO: aggressive campaigning and
lobbying works
– Reputational risk is an incredibly big threat – especially in light of web 2.0
• U.S. consumer is increasingly aware
• ease and speed of voicing/spreading opinions is growing even faster
• Sunshine law as applied to international affairs is a shiny new
tool brandished by government (and civil society actors who
push for it)
• A “crisis” in the U.S. financial system was used to induce a
“crisis” in mineral-based industries – prompting decisive reform60

61. More lessons …
• Legislative due diligence: to reduce ambiguity (uncertainty)
and discord (potential litigation), commissioning an
independent, 3rd party (preferably academic institution) to
conduct a 360° cost-benefit analysis before a law is passed
should be considered good public policy
• to help government agencies in their rule drafting
• to predict nature and scale of impact
• to plan according to projected impact
– Universities should pro-actively offer such services
– Could be commissioned by a tasked congressional committee
inviting experts representing a variety of stakeholders, with drafts
and public comments
• It truly is a chain: a new policy yank on the manufacturer end is
felt all the way down the supply chain
– Yes, even in China
• China for example “has stopped purchasing tantalum on the spot market,
because of the conflict minerals legislation... ”
61
Source: MetalMiner. http://agmetalminer.com/2011/01/20/tantalum-prices-about-through-the-roof/

62. Hitting that regulatory sweet spot
• If the impact of D-F Section 1502 proves to be
little, is there another approach that would
promise a greater impact to take the
“conflict” out of minerals?
and
• more generally speaking, how can one hit the
regulatory sweet spot on similarly complex
human rights / humanitarian issues
perpetuated through commodity extraction?
– incentivizing good behavior all around
– minimizing regulatory burden for the private as
well as the public sectors 62

63. Sector-specific regulation triage
Degree of regulatory burden & reputational risk
1st line:
1. Industry self-regulation and enforcement
(B2B accountability, trade association-led)
2nd line:
2. Public-private protocol – with SMART targets
(private certification, 3rd party oversight)
3rd line:
3. International gov.-backed certification scheme
(hard law, 3rd party supply chain audits)
4th line:
4. Verified corporate due diligence and disclosure
(hard law, 3rd party audits)
5th line:
5. Sanctions / blacklists
(backed by trade embargoes, GATT)
63

64. Conflict – commodity link
• In the last 60 years, at least 40 per cent of all
intrastate conflicts had a link to natural resources
– this link doubles the risk of a conflict relapse in the first five years
• as per the United Nations Environment Programme (UNEP)
• Since 1990, at least 18 violent conflicts have been
fuelled by the exploitation of natural resources
– whether ‘high-value’ resources like timber, diamonds, gold,
minerals and oil
– or scarce ones like fertile land and water
• With how many other armed groups, with “resource
imperatives” causing human rights violations, are we
indirectly doing business?
64
Source: UNEP. http://postconflict.unep.ch/publications/pcdmb_policy_01.pdf

65. Universality of the D-F Section 1502 principle
65

66. Violent conflicts in 2011
Source: Heidelberg Institute for International Conflict Research
66

67. 67
Source: USGS. http://afghanistan.cr.usgs.gov/hyperspectral-maps

68. Grassroots action
• Leverage your own sphere of influence
– talk about it and use social media
– it’s the critical mass that makes or breaks…
• Use your own purchasing power wisely
– check out: http://www.raisehopeforcongo.org/companyrankings
• What is Tulane’s investment policy on Conflict Minerals?
• Start a petition at change.org targeting a non-performing company, or
your favorite gadget manufacturer, recommending to:
– actually do due diligence and engaging the promising market-based
solutions that have emerged in the Congo
– pass on the costs to the consumer: “I’d be happy to pay the few extra
dollars/cents per unit knowing that the materials in my product was
responsibly sourced and produced”
• Recycle electronics
• Launch a “buy peace” campaign
– driving home the point that through purchasing power one can make
important contributions to peace
– Tulane did participate in the Conflict Free Campus campaign – kudos!
• Follow the issue 68
– e.g. through Google alerts

69. 69

70. Q&A
Q: Disclosure law acts as a de-facto sanction against entire
countries!
A1: That’s not what the UN Group of experts found in the Congo
A2: Lots of companies continue to responsibly source from DRC
using technology-enhanced traceability
A3: One can sub-nationally target and monitor good and bad actors
(companies, militaries, smugglers, etc.)
Q. Disclosure law opens the door for litigation – which is
expensive for everyone and is therefore not the best way to
"direct" or "move" corporate behavior
A: Indeed – sunshine law should be one of the last legal bids in the
array of public policy options
Q. Securing the conflict area, getting the diplomacy right
(esp. with Kagame and Museveni), and then applying as much
public health as possible would be a much more direct route
A: Yes, but that wouldn’t address the economics – the bloody money
trail 70