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January 9, 2017

Is The SEC’s Conflict Minerals Regulation Working? Growing Evidence Indicates It Is Not

In 2010, in an effort to cut off financing to armed groups in the Democratic Republic of Congress (DRC), members of Congress included a provision in the Dodd-Frank Wall Street reform bill that mandated that the U.S. Securities and Exchange Commission (SEC) write and implement a regulation requiring that U.S. businesses examine whether their products contain conflict minerals. 

Six years later, most companies affected by the regulation still cannot determine whether their products contain these minerals. Researchers at Harvard University examined companies filings to the SEC from 2014, 2015, and 2016 and found only about one percent of companies were able to declare their products “conflict-free beyond a reasonable doubt.” Nineteen percent of companies said they had “no reason to believe their products contained DRC conflict minerals” while the rest—80 percent—“admitted that they were unable to determine their raw materials’ country of origin.” The researchers also concluded that the supply chain was simply too broad to allow companies to source these minerals. They noted “the more global the company (in terms of the range of countries it operated in and the proportion of its sales made outside the U.S.), the less likely it was to declare its products conflict-free” and “the bigger and more dispersed the supply chain … the less likely the company was to declare itself conflict-free.” 

Last fall, the U.S. House Financial Services Committee (HFSC) passed a piece of legislation, the Financial CHOICE Act, that included a provision to repeal the SEC’s conflict minerals regulation. The Financial CHOICE Act didn’t make it through the last Congress, but sponsor HFSC Chairman Jeb Hensarling (R-TX) is expected to reintroduce it soon. MSCI recently wrote a letter to Chairman Hensarling urging him to make sure that the conflict minerals provision stays in the CHOICE Act. The letter argued that the provision “resulted in a costly and burdensome regulation that has harmed the U.S. industrial metals industry while doing nothing to help the countries it was designed to aid.” MSCI noted that:

  • A Government Accountability Office (GAO) study released in 2016 found U.S. companies continue to have significant difficulty fulfilling their disclosure responsibilities.
  • According to the American Action Forum, the regulation already has cost companies $4.7 billion and 2.2 million in paperwork hours.
  • Rwanda’s Minister of State in Charge of Mining, Ministry of Natural Resources and Government Evode Imena has said, “Rwanda has taken extensive steps and made great strides in improving accountability and transparency in the mineral supply chain” and “despite all that has been accomplished, our efforts to improve are hampered by the fact that Rwanda was lumped together with nine other countries in Section 1502 of Dodd-Frank.”
  • The Washington Post has reported that the conflict minerals provision “set off a chain of events that has propelled millions of miners and their families deeper into poverty …”
  • In a letter released in September 2014, officials in the Congo argued the U.S.’s efforts to stem the use of conflict minerals have done little to improve the lives of the people living in the Congo.

This growing body of evidence shows the SEC’s conflict minerals regulation is not working. As such, MSCI fully supports repeal of it and looks forward to working with the HFSC and lawmakers in the 115th Congress to pass legislation that includes repeal.