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House Subcommittee Testimony Calls Conflict Minerals Rule a Failure

The Wall Street Journal's Emily Chasan reports:

Rules regarding conflict minerals are “a failure,” according to a Tuesday hearing of the House Financial Services Monetary Policy and Trade Subcommittee.

Under the rule, required by the Dodd-Frank Act of 2010, public companies are required to scour their supply chain for tin, tantalum, tungsten and gold linked to militia groups in the Democratic Republic of the Congo and surrounding region.

“Five years later I’m concerned this well-intended conflict minerals rule is actually harming the very people it was intended to help,” said Subcommittee Chairman Rep. Bill Huizenga (R., MI) as he kicked off the hearing on Capitol Hill.

Under the rule, more than 1,300 companies have filed conflict minerals reports with the Securities and Exchange Commission. But the subcommittee heard on Tuesday that the rule “is a failure in its current form, because the filings that companies have submitted to the SEC in response do not provide sufficient insight into conflict mineral supply chains,” according to Jeff Schwartz, a law professor at the University of Utah who testified on Tuesday.

While the rule had the best of intentions, Mr. Huzienga said it has resulted in fewer purchases of minerals from the region sending thousands of artisan miners into poverty.

“That was a provision that was put into Dodd-Frank that had no hearings in the House or the Senate,” Mr. Huzienga said. “We have laudable goals, unfortunately this is the wrong vehicle.”

A Government Accountability Office report published for the hearing found that 67% of companies were unable to determine whether the minerals in their supply chain came from the DRC and surrounding region. No companies could determine whether the minerals benefited or financed armed groups in those countries, the GAO said.

And according to Mr. Huzienga, the SEC has spent over 21,000 staff hours and $2.7 million on conflict minerals, a subject he says the agency has little experience with.

The DRC holds vast reserves of the targeted minerals, which are used widely in products from cell phones and engagement rings to auto parts.

Still, Kemet chief executive Per Loof testified that the conflict minerals legislation “has been very good for the tantalum industry.” In the wake of the Dodd-Frank legislation, Kemet opened its own industrial conflict free mine in the DRC to source its tantalum ore for electronic capacitors. The move ultimately led to cost savings, but the company has still spent about $110 million on investments in its supply chain related to conflict minerals, he said.