Wall Street watchdog SEC can’t end violence in Congo
By; Karen E Woody
A civil war has raged in the Democratic Republic of Congo for more than 15 years, resulting in the deaths of millions and displacing millions more.
Fueling the violence has been the illicit sale of minerals such as tin, tantalum, tungsten and gold, which are in abundance in certain parts of Congo, where most of the fighting has taken place. Those minerals are commonly found in consumer goods, including most electronics such as smart phones and computers, as well as non-electronic products such as packaging, automotive parts and even those children’s shoes that light up when they walk.
Hoping to put an end to the violence, Congress added a provision to the 2010 Dodd-Frank Act requiring public companies to disclose whether or not minerals in their supply chains are linked to militia groups in Congo or the surrounding region.
That essentially put the Securities and Exchange Commission (SEC), Wall Street’s watchdog, in charge of achieving a humanitarian foreign policy goal. But can a financial regulator whose main charge is protecting investors really be responsible for achieving such an aim, however laudable? And do so through consumer disclosure?
Free speech concerns
So far, oddly, the main challenge to the provision has been about free speech.
The DC Circuit Court’s August decision upheld its earlier finding that the provision is unconstitutional because it violates the right to free speech by corporations.
Specifically, the court stated that requiring companies to label their products as “not conflict free” essentially forces them to “confess blood on their hands.”
The implications of the ruling could extend well beyond the conflict minerals provision. It has the potential to limit drastically the government’s ability to require corporate disclosure to consumers. This could prompt companies to challenge other mandated disclosures that force them to “taint” their own products.
These future challenges might address required disclosures about gas emissions, safety records and credit card fees, among others.
A fundamental problem
But more fundamentally, the contentious debate over corporate speech has obscured the bigger problem with the conflict minerals provision: the SEC is the primary agency currently tasked with reaching the congressional goal of reducing violence in Congo.
The fact that the fate of the provision turned on its First Amendment implications is likely due to a misconception about the goal of the conflict minerals provision. The goal of the provision is not, as some have suggested, to inform the American public that certain consumer products may be helping finance a war in Congo.
Instead, the stated congressional intent of the provision is to “further the humanitarian goal of ending the extremely violent conflict in the Democratic Republic of Congo.”
In other words, the real goal is the reduction, and hopeful end, of the violence in Congo that is fueled by money from the illicit mineral trade.
This goal is inappropriately tasked to the SEC, insofar as the justification for the conflict mineral provision relates to foreign policy, a role well outside of the SEC’s mission and expertise.
And in fact, the SEC is failing to meet the elusive goal of this provision.
In mid November, a congressional subcommittee met to address the effectiveness of the conflict minerals disclosure requirement.
According to testimony from witnesses, far fewer companies filed conflict minerals reports than the SEC originally estimated would file. Approximately 1,300 companies filed, rather than the 6,000 the SEC predicted would need to file. Of those companies that filed, 67% reportedthat they were unable to determine if they had conflict minerals in their supply chains.
Testimony from other witnesses, including the Rwandan minister of mines, described the provision as a “failure” that harmed the wrong people. For example, the nine neighboring countries of Congo are lumped together with Congo in the provision, and have the burden of proving that their minerals do not stem from a conflict area or mine.
In practicality, this means that there is a de facto embargo against any minerals from Congo, as well as from its nine neighbors.
Scope of the SEC
I also offered testimony at the hearing as an expert on the mandate and role of the SEC, particularly in enforcing the conflict minerals provision.
I highlighted that the SEC was founded in 1934 and bestowed by Congress with a three-pronged mission: (1) protecting investors; (2) maintaining fair, orderly and efficient markets; and (3) facilitating capital formation. The focus of the mandate is the creation and preservation of market integrity.
In other words, the SEC was created to help assure investors that their investments are safe.
Markedly absent from this congressional mandate is any administrative authority or charge to effect international, diplomatic or human rights-oriented goals. By charging the SEC with achieving goals of foreign affairs, as it has with the conflict minerals provision, Congress has doomed the SEC to fail at accomplishing the provision’s stated goals.
Congolese soldiers rest while being deployed against the M23 rebels near Bunagana, north of Goma.
Protecting investors, not consumers
If the goal of the conflict minerals provision simply was to disseminate information and educate consumers about the presence of conflict minerals in their electronic devices, that goal could be easily met by the existing disclosure requirements embedded in the law.
Yet even if that were the goal, which it is not, the SEC would not be the appropriate regulator of the disclosure requirements.
The SEC’s mandate is investor protection, not consumer protection. Unlike the Consumer Financial Protection Bureau, the Environmental Protection Agency or the Federal Trade Commission, the SEC is tasked with protecting the financial assets of investors, not the American public at large. By way of example, its constituency is Apple stockholders, not iPhone owners.
In sum, the conflict minerals provision is not, and should not be, about consumer protection. It is a provision with an explicit (and noble) goal – assisting an emergency humanitarian crisis occurring in Congo.
Whether the required corporate disclosures are compelled speech or not seems ancillary to the more problematic issue that the SEC is the primary agency currently tasked with accomplishing the humanitarian and diplomatic task of reducing violence in Congo.
To be sure, the SEC’s regulatory scope has increased post-Dodd-Frank, but I would argue that it does not, and should not, include consumer protection or diplomacy.
Karen E Woody is Assistant Professor of Business Law and Ethics in the Kelley School of Business, Indiana University, Bloomington