Dodd-Frank

A Rule Aimed at Warlords Upends African Mines


Michael Loch’s job has just become much more complicated. In the past year, the director of supply chain corporate responsibility for Motorola Solutions has made two trips to the Democratic Republic of the Congo, where rebel groups and government forces have been locked in a 15-year-long war that has killed millions and created a huge humanitarian crisis. Last month, Loch journeyed to a mine in southern Katanga province to comply with a new U.S. regulation that will soon require companies such as Motorola Solutions, Advanced Micro Devices, and Apple to make sure purchases of minerals commonly used to make electronic gear and gadgets—tantalum, tin, tungsten, and gold—don’t financially benefit Congolese warlords.

The Securities and Exchange Commission is still drafting the regulation, a corporate social responsibility provision buried in the Dodd-Frank financial reform law (it’s right there in section 1502). It is expected to take effect later this year. However, the rule is already creating headaches for U.S. companies and is pulverizing Central Africa’s mining sector as companies delay purchases until they can vouch for the minerals. Loch traveled with Katanga’s local mining minister to certify that tantalum from the mine that Motorola Solutions, a maker of communications equipment for governments and businesses, wants to purchase was in no way connected to the Congo’s armed conflict. Production at the mine had all but stopped, idling workers who dig for ore with hand tools. “This was a non-conflict mine in a non-conflict area, but it was being harmed by the U.S. legislation,” Loch says.

American executives are trying to figure out how best to comply with the new regulation. This month chipmaker AMD was set to tell suppliers they have two weeks to prove the solder (alloys used to fuse metal parts), capacitors, and diodes they supply to make its semiconductors aren’t being made with minerals from military-controlled mines in the Congo. “We’ve never tried this before,” says Tim Mohin, director of corporate responsibility at AMD and the official responsible for the survey. “You have to do some sleuthing down the supply chain.” Business lobbying groups are upset about the cost of gathering such data. “This has started to spread compliance costs and burdens throughout the economy, upon hundreds of thousands of businesses,” says Tom Quaadman, vice-president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness. The National Association of Manufacturers estimates the Dodd-Frank provision could cost companies between $9 billion and $16 billion to implement. The SEC puts the cost at around $71 million a year.

Given the expected regulatory hassles, companies are looking for mineral supplies in more stable countries. Legal exports (as opposed to black market transactions) of the minerals from the Congo, which supplies 13 percent of the world’s supply of tantalum, dropped more than 90 percent in April from a month earlier, according to the latest data. “Almost everything came to a standstill,” says Paul Yenga Mabolia, head of Promines, a World Bank program assisting the mining industry in Congo.

One beneficiary of the Dodd-Frank rule may be Australian miner Global Advanced Metals, which reopened a tantalum mine this year, says Chief Executive Officer Bryan Ellis. “When I mine, I have a direct relationship with one or two layers of the supply chain.” That’s in contrast with the variety of miners, middlemen, traders, and customs officials in Congo, Ellis says.

Meanwhile, American companies are working to certify their mineral sources. Ford Motor is now asking all its 1,400 suppliers to disclose whether they use any of the four minerals in their parts. That information will be added to an in-house database that tracks parts from mines to vehicle—keeping both African warlords and the U.S. government at a comfortable distance.

The bottom line: Congolese mineral exports are down 90 percent due to a new rule requiring U.S. companies to avoid indirectly financing rebel groups.

Drajem is a reporter for Bloomberg News in Washington.
Hamilton is a reporter for Bloomberg News in Washington.
Kavanagh is a Bloomberg News contributor.

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