Dodd-Frank and Unintended Consequences

While the  Dodd-Frank Wall Street reform act, passed in 2010, was mostly concerned about financial reform, it included a provision, Section 1502, chiefly through the efforts of Congressman Jim McDermott, aimed at increasing transparency about mining activities in the DRC by forcing US companies to disclose whether the sources of their mining activities were in certain areas of the DRC or unspecified neighbouring companies.

The result has been devastating to say the least. David Aronson’s op-ed in the NY Times last summer details some of the unforeseen damage on the mining industry in the eastern part of the country:

The law has brought about a de facto embargo on the minerals mined in the region, including tin, tungsten and the tantalum that is essential for making cellphones. The smelting companies that used to buy from eastern Congo have stopped. No one wants to be tarred with financing African warlords — especially the glamorous high-tech firms like Apple and Intel that are often the ultimate buyers of these minerals. It’s easier to sidestep Congo than to sort out the complexities of Congolese politics — especially when minerals are readily available from other, safer countries.

While a recent UN report acknowledges some successes of the legislation, it notes that the falling production due to the law has led to “”rising unemployment and worsened poverty among the tens of thousands of people who depend on artisanal mining, with a consequent sharply negative impact for the economies of the affected regions as a whole.” (para. 368)

Indeed, Prof. Laura Seays of Morehouse College, in her recent paper on the effects of the bill, notes that

Local civil society activists engaged in the mining sector estimate that 1-2 million Congolese artisanal miners and those who work in other aspects of the mining sector are currently out of work.  Multiplied by the 5-6 direct dependents that each miner has, section 1502 has inadvertently and directly negatively affected up to 5-12 million Congolese civilians. Many miners cannot feed their children, their children are not in school this year because they cannot pay tuition fees, and those who are ill cannot afford medical treatment.

Eric Kajemba, director of Observatoire Gouvernance et Paix (OGP), a local NGO based out of Bukavu, DRC, believes that while good-intentioned, the law did not take consideration of on-the-ground dynamics. He notes some of the problems of implementation in an interview with Jason Stearns last summer:

No. The motivation behind the law is very good – to impose transparency. But the implementation has been the problem. We are not in a country with a functioning government, you cannot just assume that certification and due diligence can spring up overnight. Plus, there were efforts under way already by other actors to impose transparency; ironically, the Dodd-Frank law slowed these efforts down, as they were financed by the minerals trade.

No, I agree with the law, but it should have been implemented in stages, over two or three years. It was too strict, too abrupt: no tagging, no sale! But there were initiatives like that of the German Federal Institute for Geosciences (BGR) and the International Tin Research Institute (ITRI) – and other initiatives at the local level that may actually have been undermined in the short term by the law.

With the ability to make laws that have such an immense impact on the lives of ordinary Congolese citizens, this issue perhaps highlights the disproportionate power lawmakers in the US wield over people to whom they hold no loyalty, and the deadly costs that individual misjudgement on their part can have on communities thousands of miles across the ocean.

Given the overly simplistic manner in which the issue was framed (“the purpose of this bill is to cut off funding to people who kill people”) in order to garner support amongst the public and Congress it is perhaps not surprising that the provisions turned out so unfit – the requisite measure of meticulousness and caution was simply not applied. a bill with such far-reaching implications deserved a far more comprehensive analysis than was actually committed , including input from all actors involved, particularly representatives for the local communities in the Eastern Congo who were going to feel the brunt of its effects. Indeed, the OGP and the BEST have sent a letter to the SEC recommending just this, in addition to several other prudent measures before the provision properly comes into force.

It remains to be seen whether these efforts will have any substantive effect on the implementation of Section 1502.

Deep K.

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One Response to “Dodd-Frank and Unintended Consequences”

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