House Subcommittee Examines Dodd-Frank Conflict Mineral Provisions

The House Financial Services Subcommittee on International Monetary Policy and Trade took a look at conflict mineral provisions within the Dodd-Frank Wall Street Reform and Consumer Protection Act, during a hearing May 10. Section 1502 of Dodd-Frank requires companies subject to SEC reporting whose manufactured goods contain any gold, tantalum, tin, or tungsten to report annually to the SEC on whether those minerals “did originate” from the Democratic Republic of Congo (DRC) or adjoining countries.

In cases where minerals did originate in those countries, SEC registrants must submit a report that includes a description of the measures they took to exercise due diligence on the source and “chain of custody” of such minerals. Such a report must include an independent private-sector audit and a description of the products manufactured or contracted to be manufactured that are not DRC-conflict free, the facilities used to process the conflict minerals, the country of origin of the conflict minerals, and the efforts to determine the mine or location of origin with the greatest possible specificity

Subcommittee Chairman Gary G. Miller (R-Calif.) was highly critical of the statutes in his opening statement. Miller said the House never had an opportunity to hold hearings and explore the provisions that were added through the Senate version. "We're going to do the legislative due diligence that should have happened then," he said. 1502 falls completely out of the scope of Dodd-Frank and the provision falls outside of the SEC's role, he said.

NAM Estimates $9-16 Billion Cost to Industry

At least three major points are necessary to understand needs of industry as related to Section 1502, said Franklin Vargo, vice president-international economic affairs of the National Association of Manufacturers. First, the statute needs for a phase-in period that includes a category of “indeterminate origin,” he said. Second, there needs to be flexibility in determining due diligence. Third, government must understand the huge cost -- estimated by NAM to be $9-16 billion -- of complying with this rule, particularly if sufficient flexibility is not provided, he said.

Stephen Lamar, executive vice president at the American Apparel & Footwear Association, also voiced concern over the provisions. The "impact of Section 1502 on the business community is deceptively large -- much larger than we believe was intended," he said. "The fact that I am testifying here today -- on a bill that was largely intended to focus on the electronics industry -- is one indicator of that fact." Use of these minerals in the footwear industry is small, "yet the smallest apparel or footwear company will be equally liable as a company that is a major consumer of large quantities of these minerals. Nicolas Djomo Lola, president of National Bishops Conference in the DRC, said the provisions are already helping improve the dealing of such minerals the DRC.

The SEC proposed rules in 2010 to implement Section 1502. The agency lists Section 1502 on its website among "Upcoming Activity" for January-June 2012 under Dodd-Frank implementation accomplishments.

(See ITT's Online Archives 10072230 for summary of Dodd-Frank and the conflict mineral provisions. See ITT's Online Archives 12011211 for a summary of the SEC's implementation efforts on Section 1502.)