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Friday, April 18, 2014
- After a 16-month delay, a U.S. government regulator charged with investment oversight has voted on rules that will now govern U.S.-listed companies operating in the extractive industry as well as those that use minerals whose sale may fuel violence in other countries, particularly in central Africa.
On Wednesday, the Securities and Exchange Commission (SEC), charged with overseeing U.S. stock exchanges, approved rules on the implementation of two widely anticipated provisions of a broad financial reform package passed by the U.S. Congress in mid-2010, known in part as Dodd-Frank.
“We have received significant public input on this rulemaking through the written comment process, which generated more than 400 letters,” SEC Chair Mary Schapiro announced Wednesday morning.
“In response, we incorporated many changes from the proposal that are designed to address concerns about the costs…The rules we are considering use the same process as proposed, but many of the mechanisms within the process have been modified in response to comments.”
The first provision, section 1502, is aimed at cutting off financial support for so-called conflict minerals, whose extraction and sale has been blamed in part for financing rebel groups in several countries, particularly those at the centre of the violence raging in eastern Democratic Republic of Congo (DRC). Indeed, the legislative text of section 1502 specifically notes the situation in the DRC.
In addition, section 1504 will require petroleum companies listed in the United States to offer annual reporting on payments made to the governments of other countries, in the hope that this additional transparency measure will cut down on instances of corruption.
While proponents of the provisions suggest that the SEC has no mandate to actually reject laws enacted by Congress, there has been much anticipation during the course of the SEC deliberations. There has also been mounting frustration from across the ideological spectrum as the SEC has failed to act, in part citing massive public response on the issue.
In June, nearly five dozen members of the U.S. Congress wrote a letter to the SEC, urging the agency to either act on the matter or explain the delay.
During the lengthy period of deliberation, activist and watchdog groups suggest, the SEC was ferociously lobbied by industry groups, resulting in certain elements of the two provisions being watered down. In the final ruling, for instance, manufacturers using scrap or recycled materials will not be required to do due diligence on their supply chains.
“Strong industry lobbying created significant confusion around several key issues,” Jana Morgan, with Global Witness, a Washington-based group that focuses on natural-resources exploitation, told IPS immediately after Wednesday’s vote.
“We are particularly disappointed that companies will be able to describe the country of origin for their minerals as ‘undeterminable’ for several years. This disastrous decision will allow companies to avoid dealing substantively with this issue. The original draft had no such allowance, so now we feel that Congress needs to look at whether this rule accords with the legislative intent.”
In general, however, watchdog groups applauded the SEC’s moves, particularly for refusing to include exemptions in either of the sections other than an extended phase-in period. Interestingly, the response from industry groups was also relatively muted.
“The [SEC] was clearly thoughtful and deliberative and made some constructive changes to the final rule,” Lisa K. Burgess, with the U.S. Chamber of Commerce, an industry lobbying group that had threatened to file a lawsuit to stop the SEC’s implementation of these provisions, told IPS. “However, clearly, challenges remain, and we will need to analyse the text of the rule to determine our next steps.”
Indeed, in the immediate aftermath of Wednesday’s vote, both industry and watchdog groups hastened to note that the full strength, or weakness, of the new Dodd-Frank provisions will be understood only after a careful examination of the final details.
“While we welcome the SEC’s rules that will finally bring these sections into effect, the devil is in the details,” Ian Gary, a senior policy manager with Oxfam America’s oil, gas and mining campaign, told IPS. “We’re in the process of thoroughly analysing the rules to determine whether they adhere to the statutory requirements and Congressional intent.”
Still, the knowledge of these looming provisions has already started to have an impact, even before they have been fully implemented. In part this could be attributed to the fact that Wednesday’s vote was narrow but fell along party lines. Hence the eventual outcome should not have surprised most close observers.
“The thing to remember about these industry groups is that they’re concerned with the bottom line,” Morgan said.
“The idea now is that this can become a brand issue, and there are already a number of investment groups that believe that this type of information is material to their decision-making.”
Already, for instance, several electronics companies have taken steps to ensure that raw materials for their products do not come from the DRC. Perhaps more importantly, the government of the DRC has also moved to integrate certain guidelines on due diligence into its own laws.
A recent report from the Enough Project, an anti-genocide group funded by the liberal Center for American Progress, a think tank here in Washington, found that Motorola, Apple, Intel and Hewlett Packard have each taken positive steps in this regard.
The report also castigated companies such as Sharp, Nikon, HTC, Canon and Nintendo for failing to do so.
“Going forward, it will be interesting to see whether companies come out with a ‘conflict-free product’ – Intel, for instance, has said that it will do so by 2013,” Darren Fenwick, an advocate on government affairs with the Enough Project, told IPS.
“Ultimately, this is an investor-protection issue. Would you want to invest in a company that could be supporting conflicts in other countries?”
In response to Wednesday’s vote, several U.S. investment groups applauded the decision.
At the same time, Fenwick cautioned, these new legal requirements are not meant to solve the DRC’s problems.
“This is about creating a window of opportunity,” he says. “Before [section] 1502, no one was talking about Congo. Now this discussion is widespread – and that’s good for the people of Congo.”