Using Securities Disclosures to Advance Human Rights: A Consideration of Dodd-Frank Section 1502 and the Securities and Exchange Commission Conflict Minerals Rule

Abstract

This article considers how US securities disclosures might be used to further human rights interests. It focuses on Section 1502 of the Dodd-Frank Act. That section was enacted as an express reaction to human rights violations occurring in the Democratic Republic of Congo (“DRC”). Section 1502 requires certain companies to disclose their use of conflict minerals in their products, in the hope that such disclosure requirements would cause companies to stop using the minerals and thereby to force change in the DRC. The section thus serves as a potential model for future human-rights-based disclosure. This article explores that potential.

Notes

1. The closest parallel to the conflict minerals provision may be the power the SEC has under the Foreign Corrupt Practices Act (FCPA) to require disclosures of bribes paid by issuers to foreign governments—power some argue is also beyond the purview of the SEC. See Barbara Black (2012). Unlike Section 1502, however, the FCPA deals directly with the financial dealings of issuers—dealings that have a direct effect on their financial returns. Thus, to the extent that the FCPA extends SEC authority in unwarranted fashion, it at least touches on financial matters. Section 1502 does not share even this tenuous connection with the mission of the SEC.

2. Enough Project was founded in 2007 with the primary purpose of developing an American constituency around ending and preventing conflict in Africa. For more information on Enough, see http://www.enoughproject.org/.

3. Also known as an “issuer” or “public company,” a reporting company is any company subject to Section 13 or 15(d) of the Exchange Act that requires the filing of certain reports with the SEC.

4. The minerals are columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives, which are limited to tantalum, tin, and tungsten. The minerals are commonly referred to as 3TG.

5. See US SEC (2002), (discussing the SEC's rule-making process; hereinafter “Rulemaking Audit”). The SEC is subject to extensive reporting and procedural requirements under the APA, 5 U.S.C. §§551-559 (2012), the Paperwork Reduction Act of 1995, 44 U.S.C. §§3501-3520 (2012), the Regulatory Flexibility Act (RFA), 5 U.S.C. §§601-612 (2012), and the Small Business Regulatory Enforcement Fairness Act (SBREFA), 5 U.S.C.§§657, 801-808 (2012).

6. Various studies attach radically different costs to the Rule. An analysis released by the Tulane University Law School found that aggregate cost to comply could run as high as $7.93 billion, dwarfing the Securities and Exchange Commission's $71.2 million estimate of the costs for companies to comply with the reporting requirement. The study entitled “A Critical Analysis of the SEC and NAM Economic Impact Models” and the Proposal of a Third Model in View of the Implementation of Section 1502 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act” was prepared at the request of Senator Dick Durbin of Illinois, a cosponsor of the conflict minerals provision in Dodd-Frank.

7. While the long-term effect of Section 1502 and the Rule cannot yet be known, the immediate impact of the US decision to regulate conflict minerals was clear. In September 2010, Congolese President Joseph Kabila announced a ban on all mining in certain DRC provinces. This ban largely shut down mining activity in the region, led to led to increased militarization of the mining sector and negatively impacted the livelihood of many Congolese miners.

8. To understand the extent of that impact, consider this open letter addressed to President Obama and SEC Chairman Mary Schapiro from 50 South Kivu civil society organizations, dated July 5, 2011: “The abrupt cessation of the trade has had devastating impacts on our people. Millions of our artisanal miners have suddenly had their livelihood cut from under them. They find it increasingly difficult to pay school, health, or maternity fees. Some even report having difficulty providing food for their families. Mining enclaves have emerged over the past decade in places so remote that only planes can access them. The world's sudden refusal to buy these minerals means that the planes no longer service these communities. With nothing to trade, they are unable to provide themselves with basic necessities. Because artisanal mining was one of our own engines of growth, secondary economic impacts are being felt throughout the province. Even in our large towns, economic activity has diminished. Construction has slowed, and trade in everything has fallen. People with very little to begin with are now doing with less.” I would add one more reason for concern: Near-epidemic levels of livestock and crop diseases are currently devastating agricultural production in the region. Families who dispersed their risk by sending some members out to mine, while keeping others at home to farm, are being hit on both counts. And they have nothing else to fall back on (http://financialservices.house.gov/uploadedfiles/113-23.pdf).

9. For another quite critical assessment of the impact of Section 1502 on the Congolese people, see Christoph Vogel, Congo-Kinshasa: Eastern DRC - Stop Fixating On Conflict Minerals, available at http://allafrica.com/stories/201406241046.html?page=4.

10. Under rational basis review, a challenged law must be rationally related to a legitimate government interest. Rational basis is the most lenient form of judicial review, as compared with intermediate scrutiny that requires that the challenged law must further an important government interest by means that are substantially related to that interest. The most demanding form of review is strict scrutiny that demands the legislature must have passed the law to further a “compelling governmental interest” and must have narrowly tailored the law to achieve that interest (http://www.law.cornell.edu/wex).

11. Specifically, the court noted: “But here we think several aspects of the government's interest in country-of-origin labeling for food combine to make the interest substantial: the context and long history of country-of-origin disclosures to enable consumers to choose American-made products; the demonstrated consumer interest in extending country-of origin labeling to food products; and the individual health concerns and market impacts that can arise in the event of a food-borne illness outbreak” (American Meat Institute v. US Department of Agriculture 2014: 9).