SEC Conflict Minerals Rule Unfair, Rwanda Minister Says

Stay current on changes and developments in corporate law with a wide variety of resources and tools.

By Che Odom

Nov. 17 — Rwanda's minister of natural resources told a House subcommittee Nov. 17 that the Securities and Exchange Commission should amend its conflict minerals rule to more precisely address the changing conditions of countries covered by the regulation.

“We recognize that there have been past cases of illegal transportation and trade of minerals from neighboring countries into Rwanda,” Evode Imena told members of the House Financial Services Committee's subcommittee on Monetary Policy and Trade during a hearing to examine the rule's impact.

But with recent intergovernmental pacts and new regulations in the Republic of Rwanda, the country “has the capacity for robust enforcement against smuggling and trafficking of minerals,” he said.

Critics and supporters of the rule provided testimony and answered questions from subcommittee members, pointing out ways the rule has failed and succeeded, and making recommendations for improvement.

Rep. Bill Huizenga (R-Mich.), who chairs the subcommittee, said he hoped the hearing would provide insights into the unintended effects of the rule, which may “actually be harming the very people it was intended to help” by worsening poverty in the covered countries.

Attempts to reach the SEC for comment were not immediately returned Nov. 17.

Reporting Requirements 

In August 2012, the SEC approved its final rule on conflict minerals, as required under Section 1502 of the Dodd-Frank Act.

This year, about 1,260 companies filed Form SD to indicate whether their products contain tin, tantalum, tungsten or gold that may have originated from the conflict zones of the Democratic Republic of the Congo (DRC), Republic of Congo, Angola, Zambia, Tanzania, Rwanda, Burundi, Uganda, South Sudan and the Central African Republic.

The 10 countries have “divergent interests and different needs” but are “put in the same box under the current enforcement regime,” which is unfair and not good for foreign companies hoping to do business in Rwanda, Imena said.

The SEC should readdress the unique situations in each of the covered countries, and recognize that Rwanda is no longer a conflict zone, he said.

Partly Unconstitutional

The disclosure requirement, adopted by a divided SEC, has faced criticism from the start, with many corporate interests saying compliance would be costly and burdensome.

Earlier this year, critics recorded a victory when the U.S. Court of Appeals for the District of Columbia Circuit concluded, for the second time, that part of the rule violates the First Amendment. The appellate court panel found that requiring companies to disclose whether raw materials in their supply chain are “conflict free” is unconstitutional compelled speech.

On Nov. 9, the entire D.C. Circuit declined to rehear the decision.

Rule ‘Overextends' SEC Mandate

While Imena stopped short of calling for a repeal of the rule, Karen Woody, an assistant professor of business law and ethics at Indiana University, told members during the hearing that it should be repealed because the SEC is the wrong agency to address the issue.

“The SEC was created to help assure investors that their investments are safe,” Wood said. The commission's mandate says nothing about “international, diplomatic or human rights-oriented goals,” she added, noting that the rule is designed to help end atrocities of war in Africa and has nothing to do with financial regulation.

“Assigning the SEC with oversight of conflict minerals disclosure is well beyond the SEC mandate and overextends the agency in ways that could prove harmful to its sole mission: investor and market protection, and capital formation,” Wood said.

Support for Disclosures

Per-Olof Loof, chief executive officer of KEMET Electronics Corp., told lawmakers that the conflict minerals rule is doing its job, enabling his company to purchase materials it otherwise would not.

Loof said his company will not buy conflict minerals because his customers will not purchase products made from them.

KEMET, which supplies the military, automotive and telecommunications industries, buys conflict-free tantalum from the DRC because it is of higher quality than can be found in many other parts of the world, Loof said. He also noted that KEMET only began buying from the DRC after Dodd-Frank was passed and procedures for tracking source materials began.

“When the Dodd-Frank Act passed, I sensed a business opportunity,” Loof said. “Section 1502 could be the impetus for developing, in the DRC, an innovative and socially sustainable source for conflict-free tantalum ore.”

Rule Can Be Salvaged

Jeff Schwartz, a University of Utah law professor who has been researching the impact of the conflict minerals disclosures, told subcommittee members that the rule, in its current form, is a failure, but he has hopes that it may be salvaged.

So far, Form SD filings have not provided “sufficient insight into conflict mineral supply chains or company due-diligence efforts related thereto, for consumers and shareholders to discern which companies are committed to conflict-free sourcing,” he said.

Instead of focusing on the tracking of source materials, the rule should ask companies to list all smelters and refiners in their supply chains, along with the countries of origin for the minerals processed at those facilities, he said.

“This could be accomplished through SEC interpretive guidance or an amendment to the current regulations,” he said.

Schwartz pointed to Boeing Co. and Intel Corp. as examples of companies that have done a good job in providing disclosures that may be of use to consumers and shareholders.

To contact the reporter on this story: Che Odom at

To contact the editor responsible for this story: Yin Wilczek at


Request Corporate on Bloomberg Law