Why the EU Should Draw Lessons from a Failing Dodd-Frank

Opinion piece
12/03/2015 16:49

In their article “Revisiting the Conflict Minerals Rule”, Alex Bracket Estelle Levin and Yves Melin review and assess the impact of the Dodd-Frank conflict minerals rule, summarize the proposed European Commission rules for the EU, compare the EU proposal with the U.S.’s Dodd-Frank Act and critically review it in terms of its stated objective.

US-listed companies filed the first Dodd-Frank reports in June, reporting on whether they manufacture products that incorporate so-called conflict minerals, defined as gold, tin, tungsten and tantalum coming from the Democratic Republic of Congo and its neighboring countries. In the authors’ view, Dodd-Frank has failed to achieve its objective of reducing the financing through illegal trade of armed conflicts in Eastern Congo. It has also created a de facto embargo against minerals mined responsibly in the region, as a large proportion of companies appear to have chosen to avoid potentially problematic sourcing of conflict minerals from the DRC, and to a further extent Africa at large.

The embargo issue presents a particularly acute problem because of the disproportionate impact it would have on small miners who are typically less able to comply with supply-chain due diligence requirements. Factors contributing to this phenomenon include: the actual cost of compliance for companies, which is higher than expected and makes minerals originating from the African Great Lakes region less attractive in terms of pricing; the lack of an adequate commercial and governmental infrastructure; and insufficient buy-in from local government.

In March 2014, the European Commission proposed conflict minerals rules for the EU. The draft Regulation proposes the establishment of a non-binding self-certification scheme open to importers only of tin, tantalum and tungsten, their ores and gold in all conflict or high-risk areas of the world.

In the authors’ opinion, the EU proposal helps improve the ability of operators to perform due diligence of their supply chain, but it does not contain any meaningful incentives meant to foster responsible sourcing of minerals from conflict areas. If adopted as such, the proposed EU rules are likely to result in the same kind of embargo as the one Dodd-Frank created, but this time for the EU, and for potentially many more countries than those African countries targeted by Dodd-Frank.