Dodd-Frank Conflict Minerals Rules Cause Smuggling, Starvation, and Harm to U.S. Businesses

By Hans Bader of CEI.

"The 2010 Dodd-Frank Act effectively restricted U.S. business’s ability to obtain minerals from the war-torn nation of the Congo and surrounding countries. That caused massive unemployment and hunger in the Congo, and huge job losses in mining communities. By driving out Western buyers, it gave Chinese firms a virtual monopoly on some Congolese minerals. 

Dodd-Frank imposed costly auditing and reporting requirements on companies that use minerals such as tin, tungsten and gold, requiring them to report on their use of minerals not just from the Congo, but also peaceful neighboring countries like Tanzania, which are effectively punished merely for being next to the Congo. At least 6,000 companies are affected, including Apple, Ford, and Boeing, costing them billions of dollars.

African smugglers have benefited from Dodd-Frank, notes a recent article in Politico, as “clean miners” in the Congo, the world’s poorest country, simply can’t afford to comply with Dodd-Frank’s certification requirements.

As Politico reported,

the boycott prompted by the Dodd-Frank Act put thousands of eastern Congolese miners out of work. The World Bank has estimated that 16 percent of Congo’s population is directly or indirectly engaged in informal mining; in North Kivu in 2006, mining revenue provided an estimated two-thirds of state income. But revenues to the provincial government’s coffers fell by three-quarters in the four years before 2012, in part because of what officials called the “global criminalization of the mining sector” of eastern Congo, as encapsulated in laws like Dodd-Frank. The state’s loss is the smugglers’ gain: When the official routes are closed, the clandestine trade picks up the slack.. . .

 

Despite Dodd-Frank and the spate of efforts to curb conflict mineral violence in the early 2000s, it appears unlikely that the certification schemes will ever reliably cover the whole of eastern Congo’s mining trade. Clean miners have been squeezed, as the retreat of Western buyers has let Chinese competitors gain a near-monopoly on Congolese coltan, allowing them to dictate prices.  

The efforts to impose some control on the mineral trade . . . .does so at the cost of weakening the already precarious livelihoods of eastern Congo’s diggers and porters and their dependents.

This harm was completely predictable. As Walter Olson noted earlier,

Economic sanctions, when they have an effect at all, tend to inflict misery on a targeted region’s civilian populace and often drive it further into dependence on violent overlords. That truism will surprise few libertarians, but apparently it still comes as news to many in Washington, to judge from the reaction to this morning’s front-page Washington Post account of the humanitarian fiasco brought about by the 2010 Dodd-Frank law’s “conflict minerals” provisions. According to reporter Sudarsan Raghavan, these provisions “set off a chain of events that has propelled millions of [African] miners and their families deeper into poverty.” As they have lost access to their regular incomes, some of these miners have even enlisted with the warlord militias that were the law’s targets.

A 2011 account by David Aronson in The New York Times chronicled the “unintended and devastating consequences” off Dodd-Frank that he witnessed “firsthand on a trip to eastern Congo.” His finding was echoed by a more recent paper by law professor Marcia Narine, which noted that “the conflict minerals rule is a poor choice for human rights legislation” because of its “unintended and devastating consequences for the very beneficiaries it intends to help- the Congolese people.”
As Aronson noted in The New York Times,

The “Loi Obama” or Obama Law — as the Dodd-Frank Wall Street reform act of 2010 has become known in the region . . . has had unintended and devastating consequences, as I saw firsthand on a trip to eastern Congo this summer. The law has brought about a de facto embargo on the minerals mined in the region, including tin, tungsten and the tantalum that is essential for making cellphones.

The smelting companies that used to buy from eastern Congo have stopped.  . . .For locals . . . the law has been a catastrophe. In South Kivu Province  . . . The pastor at one church told me that women were giving birth at home because they couldn’t afford the $20 or so for the maternity clinic. Children are dropping out of school because parents can’t pay the fees. Remote mining towns are virtually cut off from the outside world because the planes that once provisioned them no longer land. Most worrying, a crop disease periodically decimates the region’s staple, cassava. Villagers who relied on their mining income to buy food when harvests failed are beginning to go hungry.

Meanwhile, the law is benefiting some of the very people it was meant to single out. The chief beneficiary is Gen. Bosco Ntaganda, who is nicknamed The Terminator and is sought by the International Criminal Court. Ostensibly a member of the Congolese Army, he is in fact a freelance killer with his own ethnic Tutsi militia, which provides “security” to traders smuggling minerals across the border to neighboring Rwanda. . .

In September 2014, the government admitted it itself “does not have the ability to distinguish” which refiners and smelters around the globe are tainted by a connection to militia groups. In short, notes Olson, “the government has demanded of business a degree of certainty that it cannot achieve itself.” For U.S. companies, attempting to comply with Dodd-Frank is a task of byzantine complexity, as a recent conflict-minerals flowchart posted by UCLA law professor Stephen Bainbridge illustrates.

As CEI’s John Berlau has noted in the past, the conflict-minerals rule has harmed American energy companies and put some of them at a serious disadvantage overseas, while also raising serious First Amendment issues."