[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





                     THE COSTS AND CONSEQUENCES OF
                    DODD-FRANK SECTION 1502: IMPACTS
                        ON AMERICA AND THE CONGO

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                         INTERNATIONAL MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               ----------                              

                              MAY 10, 2012

                               ----------                              

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-124





[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]






                     THE COSTS AND CONSEQUENCES OF
                    DODD-FRANK SECTION 1502: IMPACTS
                        ON AMERICA AND THE CONGO

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                         INTERNATIONAL MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 10, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-124



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]







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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

           James H. Clinger, Staff Director and Chief Counsel
        Subcommittee on International Monetary Policy and Trade

                  GARY G. MILLER, California, Chairman

ROBERT J. DOLD, Illinois, Vice       CAROLYN McCARTHY, New York, 
    Chairman                             Ranking Member
RON PAUL, Texas                      GWEN MOORE, Wisconsin
DONALD A. MANZULLO, Illinois         ANDRE CARSON, Indiana
JOHN CAMPBELL, California            DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota          ED PERLMUTTER, Colorado
THADDEUS G. McCOTTER, Michigan       JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan

















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 10, 2012.................................................     1
Appendix:
    May 10, 2012.................................................    45

                               WITNESSES
                         Thursday, May 10, 2012

Calder, Bruce, General Manager, Claigan Environmental Inc........    22
Dizolele, Mvemba Phezo, Distinguished Visiting Fellow, Hoover 
  Institution on War, Revolution and Peace, Stanford University..     9
Lamar, Stephen, Executive Vice President, American Apparel & 
  Footwear Association...........................................    18
Lola, The Most Reverend Nicolas Djomo, Bishop, Diocese of 
  Tshumbe, the Democratic Republic of the Congo; and President, 
  Catholic Bishops' Conference, the Democratic Republic of the 
  Congo..........................................................    21
Pudles, Steve, Chairman, Board of Directors, IPC--Association 
  Connecting Electronics Industries; and Chief Executive Officer, 
  Spectral Response LLC..........................................    17
Seay, Laura E., Assistant Professor of Political Science, 
  Morehouse College..............................................    13
Vargo, Franklin, Vice President, International Economic Affairs, 
  National Association of Manufacturers (NAM)....................    15

                                APPENDIX

Prepared statements:
    Manzullo, Hon. Donald........................................    46
    McDermott, Hon. Jim..........................................    48
    Waters, Hon. Maxine..........................................    50
    Calder, Bruce................................................    52
    Dizolele, Mvemba Phezo.......................................   158
    Lamar, Stephen...............................................   169
    Lola, The Most Reverend Nicolas Djomo........................   174
    Pudles, Steve................................................   179
    Seay, Laura E................................................   187
    Vargo, Franklin..............................................   193

              Additional Material Submitted for the Record

Miller, Hon. Gary G.:
    Written statement of the Automotive Industry Action Group 
      (AIAG).....................................................   213
    Written statement of Kennametal Inc..........................   215
    ``A Critical Analysis of the SEC and NAM Economic Impact 
      Models and the Proposal of a 3rd Model in view of the 
      implementation of Section 1502 of the 2010 Dodd-Frank Wall 
      Street Reform and Consumer Protection Act,'' prepared by 
      Chris Bayer, Tulane University, dated October 17, 2011.....   218
    Written statement of the Retail Industry Leaders Association 
      (RILA).....................................................   254
    Written statement of the SBA Office of Advocacy..............   258
    Written statement of the U.S. Chamber of Commerce............   261
McCarthy, Hon. Carolyn:
    Written statement of Ntama Byalira Bahati (Jacques), Africa 
      Faith and Justice Network Policy Analyst...................   263
    Written statement of Bennett Freeman, Senior Vice President, 
      Sustainability Research and Policy, Calvert Investments....   267
    Written statement of Peter Rosenblum, Columbia Law School....   268
    Written statement of Earthworks..............................   270
    Written statement of The Enough Project......................   272
    Written statement of Free the Slaves.........................   276
    Written statement of Global Witness..........................   278
    Written statement of David Schatsky, Principal Analyst/
      Founder, Green Research....................................   280
    Written statement of the International Corporate 
      Accountability Roundtable (ICAR)...........................   283
    Written statement of the Social Investment Forum (SIF).......   286
    Written statement of the National Association of Evangelicals 
      (NAE)......................................................   298
    Written statement of Hon. Howard L. Berman, a Representative 
      in Congress from the State of California...................   299
    Written statement of SYNERGIE, A Platform of 35 Women's 
      Rights Groups Standing up for Victims of Sexual Violence...   301
    Written statement of STAND...................................   303
    Written statement of the Group of Experts on the Democratic 
      Republic of Congo..........................................   305
    Written statement of United to End Genocide..................   308
McDermott, Hon. Jim:
    Partial list of companies going conflict free................   310
    Executive Order 13126 and the List of Forbidden Products for 
      Federal Acquisition Starting in 2001.......................   314
    Partial transcript of a Foreign Affairs Committee Markup held 
      on April 28, 2010..........................................   317
    List of States, Cities, and Companies going conflict free....   349
Waters, Hon. Maxine:
    supplychain article..........................................   350
Dizolele, Mvemba Phezo:
    ``The Democratic Republic of Congo: Taking a Stand on 
      Security Sector Reform''...................................   351

 
                     THE COSTS AND CONSEQUENCES OF
                    DODD-FRANK SECTION 1502: IMPACTS
                        ON AMERICA AND THE CONGO

                              ----------                              


                         Thursday, May 10, 2012

             U.S. House of Representatives,
                      Subcommittee on International
                         Monetary Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Gary G. Miller 
[chairman of the subcommittee] presiding.
    Members present: Representatives Miller of California, 
Dold, Manzullo, Huizenga; McCarthy of New York, Moore, Carson, 
and Scott.
    Also present: Representatives Waters, Miller of North 
Carolina, and McDermott.
    Chairman Miller of California. This hearing will come to 
order. Without objection, all Members' opening statements will 
be made a part of the record.
    I ask unanimous consent that Mr. Miller of North Carolina, 
a member of the Financial Services Committee, be permitted to 
sit as a member today of the Subcommittee on International 
Policy and Trade for the purpose of delivering a statement, 
hearing testimony, and questioning the witnesses.
    We are limiting the opening statements to 10 minutes. And I 
believe Mr. McDermott has shown up.
    Would you like to be heard today also? Unless the Minority 
side objects, I think we can agree to that.
    Without objection, it is so ordered.
    We have agreed the opening statements will be 10 minutes on 
each side. I will start with my opening statement.
    Today's hearing is entitled, ``The Costs and Consequences 
of Dodd-Frank Section 1502: Impacts on America and the Congo.'' 
This hearing will explore the impact Section 1502 will have on 
American companies and whether or not it will have a desired 
effect of reducing violence in the eastern region of the 
Democratic Republic of the Congo (DRC).
    The hearing comes a bit late, in my opinion, as a law was 
passed prior to any congressional hearing on this matter--no 
legislative hearings were held on the requirement to contain 
the Section 1502 before it was enacted. In fact, this provision 
was added in the middle of the night by the Dodd-Frank 
conference committee between the House and the Senate.
    The House never passed any bill or held any hearings or 
explored the issue of the policy provisions that were 
ultimately included in the Dodd-Frank Act. Congress did not 
have an opportunity to consider the sections implemented and 
whether it would help in the conflict in the DRC, and what 
effect it would have on the DRC and the companies and minerals 
and manufactured goods that come from this area and go to 
regions and manufacturers in the United States.
    Although bills similar to Section 1502 were introduced 
earlier, they were never heard. So we are going to do the 
legislative due diligence that should have happened then. This 
is what the American people expect of us, and is absolutely 
critical in this very important issue. We owe it to the 
American companies. We owe it to the people of the Congo to 
ensure that policies we pass have the intended consequences and 
don't have unintended consequences, as we are hearing are 
happening today.
    While it is puzzling to me that Section 1502 falls 
completely outside the scope of the Dodd-Frank Act, that 
legislation was passed as a result of the financial crisis to 
add stability to the financial system. Section 1502 does 
nothing to ``provide for financial regulatory reform, to 
protect consumers and investors, to enhance Federal 
understanding of insurance issues, or to regulate over-the-
counter derivatives markets,'' which were the stated purpose of 
the Dodd-Frank Act. Section 1502 does nothing to address the 
cause of the financial crisis.
    Additionally, Section 1502 will cause regulation by the 
SEC. This is a complex matter beyond the SEC's normal area of 
expertise. The SEC's mission is to protect investors; maintain 
fair, orderly, and efficient markets; and to facilitate capital 
formations. This Section does not protect investors or provide 
information about the financial health of companies. So 
development of this well-intended law--and I will say it was a 
well-intended law--seems quite irregular.
    And its impacts on companies are expected to be massive. We 
have been hearing from a number of companies and trade 
associations expressing concern about the costs and magnitude 
of this provision. Now is not the time to be placing additional 
burden on the American companies.
    I am incredulous that Congress would pass a mandate down on 
businesses that the National Association of Manufacturers 
estimates to be between $9 billion and $16 billion. While the 
provision only applies to the SEC-listed companies, the truth 
is it will affect non-SEC companies and small businesses all 
over this country.
    Companies like Kraft Foods, over 100,000 suppliers and 
50,000 products that contain those minerals, not necessarily 
from the region, but if the those minerals are included, they 
have to review them as if they were from that region.
    And it is a system where you have to prove yourself 
innocent, not simply prove you are not guilty. You have to 
prove that none of those minerals came from that region, which 
is a very expensive process, and it is a process that is going 
to be difficult to implement.
    There are over a million parts in a Boeing plane supplied 
by almost as many suppliers that include these minerals. These 
suppliers are small businesses and they are job creators in 
this country.
    I am going to be very clear to my colleagues. This hearing 
is about denying or downplaying the violence in the eastern 
Congo because it is massive and it needs to be dealt with. Just 
because a law is enacted with good intentions and is meant to 
address human rights abuses does not mean the law is the right 
approach to fixing the problem. The costs of implementing a law 
are still relevant even when the law is meant to address human 
rights issues.
    So today's hearing is about the consequences of this law on 
American companies, which must comply with it. We also want to 
learn how Section 1502 is having its intended effect of helping 
to reduce violence in the Congo. And if it is helping to reduce 
the violence, we want to know that. But if it is not, and it is 
adding to unemployment and the burden on those people, we also 
want to know that.
    During the NCC roundtable on Section 1502, and based upon 
reports coming out of the Congo from the United Nations, 
Section 1502 may have had the unintended consequence of 
creating a de facto embargo on the conflict material minerals 
covered in this section: tin; tantalum; tungsten; and gold.
    Companies that source these minerals are now sourcing them 
elsewhere, to the detriment of legitimate mining companies in 
the rest of the Congo. This de facto embargo not only affects 
the Congo, but Section 1502 also includes the Congo's 
neighboring states.
    The de facto embargo has apparently spread to much of 
central Africa. We are also told that the de facto embargo has 
spawned a growing black market trade in these minerals, which 
we have heard are going to China.
    This hearing is not to say that what is going on there in 
human rights is not a problem; it is. But our concern is, are 
we hurting the people that we say in this legislation we are 
trying to help?
    I yield back the balance of my time and recognize the 
Ranking Member, Mrs. McCarthy.
    Mrs. McCarthy of New York. Thank you, Mr. Chairman. And 
thank you for having this hearing. It is very important that we 
discuss what is going on in the Congo.
    The conflict that has plagued the eastern divisions of the 
Democratic Republic of the Congo, or the DRC, began over a 
decade ago. There are many factors that contribute to the 
political instability, fueling the conflict in that particular 
region, such as ongoing human rights abuses, widespread 
poverty, and constant conflict over control of state agencies 
and fiscal resources. Armed groups continue to compete for 
dominance over land rights, agriculture commodities and mineral 
reserves, and mining and trade.
    Conflict minerals in the eastern DRC region are mined under 
extremely poor and dangerous labor conditions in mines that are 
controlled by armed groups and state security force elements. 
The main minerals at issue are referred to as the ``3 TGs,'' as 
the chairman had mentioned: tin; tantalum; tungsten; and gold. 
These minerals are used to manufacture products ranging from 
electronics and cellphones to food containers and jet parts.
    The sales of these minerals provide direct and indirect 
profit to the controlling armed groups and allow them to grow 
and extend their reach. The Congo conflict and instability has 
been a constant focus in Congress through hearings and 
legislation aimed to mitigate the factors fueling the conflict, 
particularly between trade and the conflict in the DRC.
    One such effort is a provision included in the Dodd-Frank 
Act, Section 1502, that requires SEC-regulated firms that use 
the ``3 TGs'' in products to publicly report whether those 
minerals are from the DRC. And if so, what due diligence 
standards they exercise to ensure that the purchases do not 
benefit armed groups.
    The SEC issued a proposed rule in December 2010 and the 
final rule should have followed in April 2011. However, due to 
the complexity of this issue they have repeatedly extended the 
commentary period, causing a delay in final adoption. Absent a 
final rule, there has been progress on conflict mineral 
migration strategies in several ways.
    For example, the creation of the conflicts smelter program, 
which supports conflict-free mineral processing through a 
vetting system that evaluates and confirms that they are clean 
minerals. As well, the Department of State and the USAID 
launched a public/private alliance for responsible mineral 
trades made up of nonprofits and industry trades to help 
establish a credible broad spectrum conflict-free minerals 
supply chain system.
    Industry associates and individual companies have piled the 
due diligence programs based off of the OECD guidance that 
provides recommendations for supply chain and a code of conduct 
for sourcing minerals from these conflicts areas.
    I am hopeful that today's hearing will provide a 
constructive conversation on overall compliance of Section 
1502, as well as the benefits the provision has had on the DRC 
region thus far, absent a final rule.
    I thank all the witnesses for being here. And I know some 
of you have certainly traveled a long distance to be here.
    I would also like to commend Representative McDermott, as 
well as the members of the full Financial Services Committee, 
for participating in this hearing. The Members joining us today 
have been leaders on human rights and good governance issues, 
and I look forward to their participation.
    Mr. Chairman, I ask unanimous consent to submit into the 
record a number of statements and letters from human rights, 
religious, and civic society groups, and investor interests, as 
well as a statement from Foreign Affairs Committee Ranking 
Member Howard Berman. All of these organizations support a 
strong and quick implementation of Section 1502.
    Thank you.
    And with that, I yield back my time.
    Chairman Miller of California. Without objection, it is so 
ordered.
    Mr. Manzullo is recognized for 2 minutes.
    Mr. Manzullo. Thank you, Mr. Chairman, for holding this 
hearing. I only wish we would have had a similar legislative 
hearing on this topic prior to Section 1502 becoming law.
    As someone who also serves on the Foreign Affairs 
Committee, I am well aware of the situation in the eastern 
region of the Democratic Republic of the Congo, but I also know 
that oftentimes unilateral trade sanctions backfire on the very 
people that we try to help.
    In addition, Congress passed the buck to the SEC to resolve 
complex issues through rulemaking. We need the flexibility of 
this new law so that it becomes practical to implement, but 
still maintains the goal of the legislation. It is also in the 
interest of the advocacy groups, because U.S. small businesses 
have legal standing to challenge the SEC rule if it does not 
change in court, because the rule currently violates the 
Regulatory Flexibility Act.
    The SEC did not perform an adequate economic analysis on 
the impact of this proposed rule on small businesses. If the 
SEC ignores the advice of the SBA's Office of Advocacy to 
submit a new, more accurate, economic analysis, then the 
affected small businesses will successfully overturn this rule 
in Federal court.
    I am probably one of the few Members of Congress who spends 
60 to 70 percent of his time on manufacturing issues, studying 
supply chain management sourcing. I actually went to 
warehousing school to determine how the final product finds its 
way into the showroom. And I spent my time analyzing extraction 
of minerals and petroleum and gas feed stocks, which are the 
basis of most manufacturing, all of which through export 
controls.
    With over 2,000 factories in the congressional district 
that I represent, many of them using tin, it is absolutely 
impossible for these companies to fill out a statement showing 
the source of the minerals that they get. You can't do it, 
because most are bought from brokers, and oftentimes the 
brokers buy these on the open market. And so, it is the type of 
law that has passed, well-intentioned, but nobody thought about 
the details, and nobody thought about the tremendous impact it 
is going to have upon our manufacturing sector.
    Thank you, Mr. Chairman.
    Chairman Miller of California. Thank you.
    Ms. Moore, you are recognized for 3 minutes.
    Ms. Moore. Thank you so much, Mr. Chairman.
    I do want to thank all of our witnesses for taking the time 
to come here to share your perspective on conflict minerals and 
ways to best implement Section 1502. And I hopefully trust that 
this committee supports disclosure and transparency in U.S. 
capital markets, and thereby the empowerment of investors to 
make sound investment decisions.
    I also trust that we share the goal to stem the plague of 
violence that has engulfed eastern Congo. I am so sympathetic 
to the industries' concerns expressed in their comment letters 
to the SEC regarding the rulemaking and implementation, and I 
share their desire to have the SEC issue a final rule. Those 
folks who are starting to comply with Section 1502 are already 
seeing successes, and we should reward those companies which 
are investing and complying with Section 1502.
    And a final rule, I think, would serve investors by 
providing the transparency that they expect when making an 
investment, to know whether or not and to what extent the 
companies in which they are investing rely on minerals sourced 
from an unstable or unreliable black market, thus making the 
value of those companies vulnerable to the whims of murderous 
warlords.
    When we talk about the costs of these regulations, I want 
to make sure that we include in that equation the full parade 
of horrors that have occurred in the Congo since 1996. Most are 
too awful to recount. But I do want to make sure we focus on 
the correct frame when we are discussing the costs of conflict 
minerals, and not just the dollars and cents and extra 
paperwork and extra compliance officers among our 
manufacturers, or the costs of extracting these materials from 
the ground.
    We are talking about some of the most wretched and vile 
mass abusements of humans documented today. Millions of murders 
and rapes, rampant instability and de facto slavery, and the 
loss of generations of hope and productivity.
    We are talking about wedding days that end in the 
calculated execution of the bridal party, the savage rape of 
the bride, and the beheading of the groom, all as a part of a 
larger campaign of terror to control mineral resources. This is 
the life in conflict mineral zones. In fact, the Democratic 
Republic of the Congo is the most dangerous place in the world 
to be a woman, we are told.
    I utterly reject attempts to say that 6 million lives are 
not factored into the costs--and the modest costs--of due 
diligence to outsource the war on women, or to support a notion 
that this committee's jurisdiction over markets does not 
include requiring the disclosure to investors of reliance on 
black market or terrorist activity. I simply reject the concept 
of see no evil, hear no evil, disclose no evil securities law 
disclosure regime within the United States.
    Some have suggested that conflict minerals are outside the 
realm of what the SEC should be worried about. They are wrong. 
Investor protection is absolutely the job of the SEC. The 
Foreign Corrupt Practices Act was enacted to protect investors 
and the integrity of markets. Section 1502 was enacted for the 
same reason and in the same spirit.
    The fact is that Section 1502 is working for investors and 
for the people of the Congo. Businesses have already moved 
swiftly to secure supply chains and to ensure smelters are 
taking care to avoid smuggled conflict materials. In fact, I 
understand the Conflict Smelter Program has completed the 
certification review process for 23 refiners, and many more are 
moving in that direction.
    Motorola, for example, is creating a closed supply chain. 
Chemat is also working on a closed supply chain. Kester, who 
supplies 50 percent of the solder wire, a major source of tin, 
has completed full traceability of their supply chain. Intel 
announced that it will have a conflict-free chip in 2013.
    Chairman Miller of California. The gentlelady's time has 
expired.
    Ms. Moore. Models exist.
    Thank you so much, Mr. Chairman.
    Chairman Miller of California. I yield myself 2 minutes.
    I think what the gentlelady has said is honest and 
appropriate. The problem is the Democratic Republic of the 
Congo is controlled by warlords and thugs. Women are still 
being raped when they go in the fields. You have an incredibly 
high unemployment rate in this region. And it is not like the 
United States, where if you lose your job in one town, you move 
to the next town to get a job. There are no jobs in the next 
town.
    So if you say we are going to shut down business 
opportunities for people in the Congo, then somehow we need to 
address whether we are hurting the very people we are trying to 
help by creating huge unemployment in the regions, and are we 
hurting the nations around the Democratic Republic of the Congo 
by this embargo?
    The problem we have is, let us take something like an order 
that goes into tin or gold. When an American company goes to 
buy something that has tin or something that has gold in it, 
you don't--you have to go prove in some way that none of the 
ore in the tin or the gold came from the Democratic Republic of 
the Congo. And if you can't prove that, you are guilty. That is 
not reasonable.
    Yes, there are atrocities occurring. Nobody is arguing that 
there aren't. Nobody is downplaying that. But does taxing 
American companies solve the problem in the Democratic Republic 
of the Congo? I question that. Do we need to do something 
there? Are human rights issues paramount? They absolutely are. 
I applaud the Bishop who is here, who knows the region, and the 
individuals who know the region.
    But to say we are going to make life more difficult for 
people trying to gain employment by making it more difficult 
for them to have a job, and then implementing this complex 
burden on American companies to have to prove something isn't 
true that they don't know even exists in a product is very 
difficult, too. So these are issues we need to deal with.
    I would be happy to yield 1 minute to Mr. Scott.
    Mr. Scott. Thank you very much, Mr. Miller.
    I am very interested in this. And I visited the Congo. I 
saw it firsthand. I went to heart of the matter, which is Goma. 
And if you have ever been to Goma, you know what I am talking 
about. And on that point, I would like to thank all those 
volunteers who go in there.
    The number one treatment in the hospital of Goma is not for 
cancer, it is not for heart disease, and it is not for 
tuberculosis. It is not for any of those things. The number one 
treatment is for sexual violence. Sexual violence, not sexual 
attacks, but violence against women.
    And this is why it is important for us, in Section 1502 of 
the Dodd-Frank Act, to require disclosures by all issuers who 
use conflict minerals in their manufacturing processes or in 
their products. And according to this section, companies must 
disclose specific due diligence, measures that they have taken 
to ensure that minerals that are imported from the Congo did 
not contribute to conflict.
    Chairman Miller of California. The gentleman's time has 
expired.
    Mr. Scott. Thank you, Mr. Chairman.
    I just urge us to be very mindful that we are still that 
shining city and that shining light on the hill and the world 
looks to us to do the right thing. And the right thing is 
making sure--
    Chairman Miller of California. And I am not trying to cut 
off my good friend. He knows that. We have votes called. I want 
to let Mr. McDemott--we will extend your time a little bit to 
allow him to have 1 minute also. So I am trying to be generous 
to my friend, sir.
    Mr. Scott. Sure. You are.
    Thank you very much, sir.
    Chairman Miller of California. Mr. McDermott for 1 minute.
    Mr. McDermott. Mr. Chairman, I want to thank you for 
allowing me to participate in this and I will use my time to 
ask for unanimous consent, first of all, to have the markup of 
the conflict minerals bill in 2010 from the Foreign Affairs 
Committee entered into the record.
    This bill was heard and was extensively worked. Many 
companies were heard from and the record exists. And in fact, 
this bill was written bipartisanly. If you read Ms. Ros-
Lehtinen's remarks at the Foreign Affairs markup, it is a very 
strong endorsement of this bill. So it was not as though there 
were no markups on this.
    Second, I ask unanimous consent to submit for the record 
the Executive Order from the White House, EO13126, which is a 
list of the products and countries that business already must 
look at. They cannot accept carpets from Nepal and Pakistan. 
They can't take coffee from Cote d'Ivoire, and so forth. It is 
in the record.
    Third, I would ask unanimous consent that a list of 
colleges, States, and cities that have already enacted this and 
have begun to implement this in their purchasing agreements be 
entered into the record.
    Chairman Miller of California. The gentleman's time has 
expired.
    Mr. McDermott. And finally, the companies which are already 
going conflict-free--we have a partial list and I ask unanimous 
consent to submit that for the record.
    Chairman Miller of California. Without objection, it is so 
ordered.
    Mr. McDermott. They don't want a conflict-free question to 
become a boycott.
    Chairman Miller of California. Thank you.
    I am going to attempt to introduce the witnesses prior to 
going to vote. If I completely botch these names, I absolutely 
apologize beforehand. I am going to make an attempt.
    Mr. Mvemba Dizolele is a distinguished visiting fellow at 
Stanford University's Hoover Institute, and is currently an 
adjunct professor at Johns Hopkins University. He is a native 
of the Congo, and a veteran of the U.S. Marines, someone who 
has been abducted and held in prison by Congolese security 
police. He has a profound understanding of the complex security 
situations in the Democratic Republic of the Congo today.
    Dr. Laura Seay is an assistant professor of political 
science at Morehouse College in Atlanta, Georgia. Her areas of 
concentration include African politics, conflict, international 
affairs, and a particular focus on Sub-Saharan Africa and the 
Democratic Republic of the Congo. She has been studying central 
Africa since 1996 and conducting extensive fieldwork in the 
Kivu province of the Congo.
    Mr. Frank Vargo--I think I got that one right--is vice 
president of international economic affairs for the National 
Association of Manufacturers. NAM is the Nation's largest 
industrial trade association representing small and large 
manufacturers in every industrial sector in all 50 States. NAM 
is particularly well-suited to assess the cost of regulations 
passed by Congress, so I am pleased Mr. Vargo is here today to 
help us understand how in the Dodd-Frank provision, we 
considered all costs to American businesses are estimated to be 
between $9 billion and $16 billion.
    Mr. Steve Pudles is chief executive officer of Spectral 
Response, an employee-owned electronic manufacturing service 
company located in Lawrenceville, Georgia. Mr. Pudles has also 
served as chairman of the board of IPC, a global trade 
association representing all facets of the electronic industry. 
Mr. Pudles, thank you for being here today and sharing how this 
provision has affected your industry.
    Mr. Stephen Lamar is executive vice president of the 
American Apparel & Footwear Association, a national association 
of apparel and footwear industries, as well as their suppliers. 
Mr. Lamar has several years experience working in the Executive 
Branch in the Commerce Department's International Trade 
Administration. Members of this panel may be surprised to see 
him seated here today, because the connection between conflict 
materials and apparel and footwear is not obvious. We look 
forward to hearing about how the Dodd-Frank provision is 
affecting your industry.
    The Most Reverend Nicholas Djomo Lola, a Bishop of the 
Diocese of Tshumbe, is the president of the Catholic Bishops' 
Conference of the Congo. Bishop Djomo oversees all of the 
Conference's national pastoral, human developments, and peace 
and justice activities.
    Mr. Bruce Calder is the general manager of Claigan 
Environmental. He has managed material compliance programs for 
many companies and is a regular speaker at the U.S. and 
Canadian Business Forum.
    We will now adjourn this hearing to go vote, and we should 
be back in just a few minutes. If you will be patient with us, 
we have two votes, and we will be right back.
    The committee is temporarily adjourned.
    [recess]
    Chairman Miller of California. The hearing is reconvened. I 
would now like to recognize Mr. Dizolele for a 5-minute opening 
statement.

  STATEMENT OF MVEMBA PHEZO DIZOLELE, DISTINGUISHED VISITING 
   FELLOW, HOOVER INSTITUTION ON WAR, REVOLUTION AND PEACE, 
                      STANFORD UNIVERSITY

    Mr. Dizolele. Chairman Miller, Ranking Member McCarthy, and 
members of the Subcommittee on International Monetary Policy 
and Trade, thank you for the invitation and honor to testify 
before your committee today.
    This hearing is the most important and pertinent discussion 
yet on Section 1502 of the Dodd-Frank Act and its consequences 
for the people of the Democratic Republic of the Congo. Today, 
I speak before you as a Congolese and a concerned U.S. citizen 
and consumer. I own two laptops, a smartphone, and several 
electronic devices, which may or may not contain minerals from 
the Congo.
    I would like also to thank our friends in the many 
organizations that promoted Section 1502. I know that it 
galvanized people in the campaign to raise awareness on the 
continued conflict in the Congo. Thanks to their work, many 
more people know about the Congo today.
    The views expressed today in this statement are mine and 
mine alone. The best way to access the costs and consequences 
of Section 1502 is to look at its premise, claims, and impact 
on institution-building in the lives of Congolese.
    In essence, Section 1502 seeks to bring peace to eastern 
Congo by regulating mineral trade through U.S. law, cleaning up 
the supply chain, and reducing malicious to financial through 
financial means. Such a regulation will de facto curb the 
violence in human rights abuses.
    This approach to conflict resolution, however, is not 
grounded in the sound fundamentals of political economy and 
public policy; Section 1502 may work in the short run, but it 
is not sustainable.
    Mineral trade in eastern Congo is part of the wider world 
economy, which can only be regulated either by the most 
powerful armed groups working in collusion, the biggest armed 
group imposing its way on the smaller ones or their backers, 
seeking to maximize profit and preserve their own interests.
    As such, Section 1502 builds on a weak foundation and 
requires a buy-in of the very negative actors it seeks to tame. 
This approach prevents basic peace-making models and rewards 
criminals and would-be spoilers.
    Proponents of Section 1502 build their case on the most 
widely accepted narrative of U.S-Congo policy, which defines 
the predicament as a humanitarian crisis with a binary prism of 
social violence and the so-called conflict minerals. Section 
1502 oversimplifies the problem, and makes American taxpayers 
believe that if only the challenges of sexual violence and 
conflict minerals were solved, then the Congo would get back on 
track and peace will follow.
    But this narrative is wrong and it has led to several 
ineffective initiatives, which have effectively turned U.S.-
Congo policy into a Kivu policy. The Kivu's represent no more 
than 1/15th of the Congo. Their problems stem from the failure 
of the state to discharge its duties, and should be treated 
only as a part of the comprehensive national policy-making
    This binary prism also reflected biggest image of the Congo 
and disenfranchises the Congolese people before the world, 
casting them as incompetent and incapable to solve their own 
problems. It then becomes imperative that they be rescued from 
their hopeless situation by the good people of the world. As a 
result, the Congolese have been excluded from the policy 
discussions around Section 1502.
    This was evident last October when no Congolese was invited 
to speak at the SEC's public roundtable on Dodd-Frank Section 
1502, which was held here in Washington, D.C. The truth is that 
no one understands mining in the Congo better than the 
Congolese.
    By failing to engage the Congolese in an honest dialogue on 
the relationship between conflict and mining, proponents of 
Section 1502 failed to spur a national ownership of the 
initiative through a true partnership with the Congolese. The 
Congo may be a dysfunctional state, but the Congolese are among 
the world's most resourceful peoples.
    Over the past several years, they have quietly and 
effectively undertaken landmark initiatives that are positively 
changing the mining landscape in their country. These 
initiatives include the Ndandula report, which exposed the OPEC 
exploitation of mineral resources and led to the comprehensive 
review of mining contracts. As a result, several western 
companies, including Canada's First Quantum, lost the 
exploitation title.
    Pressured by a local civil society organization, the 
parliament pushed for the restructuring of the Chinese barter 
investment deal, reducing its terms and downgrading its value 
from $9 billion to $6 billion. The Senate recently published a 
report by the Moussambani Commission, which audited the mining 
sector and documented millions of dollars of financial loss by 
the Congolese state incurred due to mismanagement and bad 
governance.
    Today, as we discuss Section 1502, the Parliament, the 
Federation des Enterprises Congolaise, which is the equivalent 
of the U.S. Chamber of Commerce and civil society 
organizations, is supported by international groups such as the 
Open Society Foundation, are engaged in discussions setting the 
guidelines for the new mining code that will be enacted in the 
near future.
    The current mining code, which was written over a decade 
ago as part of a World Bank project, disproportionately favors 
foreign investors at the expense of the Congolese state and the 
Congolese people. So far, the proponents of Section 1502 have 
marched to their own beat, antagonizing corporations, 
inculpating consumers, and ignoring Congolese initiatives.
    If they really want to effect positive change in the 
Congo's mining sector, there is an opportunity here for them to 
join the debate on policymaking in Kinshasa to ensure that the 
new mining code addresses their concerns. This is the best way 
to empower the Congolese, strengthen the local institutions, 
and induce national ownership of the transparency they seek.
    This conflict, which has indirectly caused the deaths of 
over 6 million Congolese, has gone on for too long, and is now 
a scourge on the face of the planet. As we struggle to solve 
this calamity, we will be better served by looking into the 
Congo's early history.
    Between 1885 and 1908, the Congo, then known as the Congo 
Free State, was the private estate of Belgian King Leopold II, 
and was the theatre of yet another holocaust, driven not by 
mineral exploitation, but by the world's hunger for another 
commodity. The Industrial Revolution demanded rubber, and more 
of it. Business' insatiable need for rubber and King Leopold's 
immeasurable greed pushed the Belgians to design one of the 
world's most repressive forced labor structures.
    The king's agency established a quota system, which 
required that each village produce a specific amount of rubber 
over a specific time. Forced public troops were then used to 
enforce the quota and demand taxes of the population.
    Failing to meet the quota or tax requirement led soldiers 
to chop off limbs of the unlucky Congolese who fell below the 
mark. Villages were torched, women raped, and the people left 
to starve to death or die of disease. By 1924, over 10 million 
Congolese had perished under the yoke of the Leopoldian regime.
    The similarity to the current situation is eerie. Like the 
conflict minerals, which are primarily exploited in the east, 
rubber was only exploited in some areas of the Congo Free 
State. Both problems were symptoms of larger systemic and 
regime perversions, thus subjugating an entire country.
    But there is a big difference between the approach the 
activists took to expose and denounce King Leopold's crimes, 
and the way we choose to deal with the calamity today. At a 
time when there was no computer, no Internet, no fax, and the 
telephone was still a curious invention, a shipping clerk in 
Liverpool decided to expose the mighty king and launched a 
campaign that would not end until Leopold relinquished 
possession of the colony and the regime and the system changed.
    Working under great stress, those activists could have 
easily chosen the easy route to fundraising on behalf of 
victims: send them medicine and physicians to mend their 
wounds. They could have also elected to set a blood-free pre-
certification scheme to ensure that the rubber that reached 
Europe and America was clean.
    No. They knew that such a timid campaign would make them 
Leopold's accomplices' enablers, and prolong the suffering of 
the Congolese. Instead, they set out to destroy and change the 
repressive regime, and took the necessary time to accomplish 
their goal.
    Today, at the time of instant satellite imagery, Internet, 
Instant Messaging, and other technological advances, our 
activism is lackluster and devoid of moral courage in the face 
of the unnecessary suffering of the Congolese. We hedge our 
action and refuse to see the reality before us by covering our 
faces like little children hoping it will go away.
    Instead, we search for enemies where they do not exist. 
Last month, over 300 Congolese civil society groups and their 
international counterparts showed great courage and published 
the report on security sector reform in the Congo. This report 
calls for an end to the conflict through a comprehensive reform 
of security institutions, which include the military, law 
enforcement institutions such as the police and the courts, as 
well as customs and revenue agencies.
    Mr. Chairman, with your permission, I would like to submit 
a copy of that report for the record.
    Chairman Miller of California. Without objection, it is so 
ordered.
    Mr. Dizolele. Thank you, sir.
    In the Congo, businesses are not the enemies. Armed groups 
and their international local backers are. If we are serious we 
should go after them and help restore safe authority, so that 
the Congolese government can finally meet its obligation 
towards the people. This means that together we need to end 
impunity at all levels of the polity. Only then can the 
Congolese know real peace.
    The Congolese people want and deserve peace. We should 
empower them to that end. The Congolese government's inability 
to protect its people and control its territory undermines 
progress on everything else. A competent, professional 
military, which is organized, resourced, trained, and vetted is 
essential to solving problems from displacement, recruitment of 
child soldiers, gender-based violence, economic growth, and the 
trade in conflict minerals.
    In the absence of a strong Congolese state to protect its 
interests, Section 1502 will effectively certify the looting of 
the Congo's minerals, not only by its neighbors, but by 
everyone else.
    Thank you.
    [The prepared statement of Mr. Dizolele can be found on 
page 158 of the appendix.]
    Chairman Miller of California. Thank you.
    Dr. Laura Seay is recognized for 5 minutes.

 STATEMENT OF LAURA E. SEAY, ASSISTANT PROFESSOR OF POLITICAL 
                   SCIENCE, MOREHOUSE COLLEGE

    Ms. Seay. Thank you, Mr. Chairman.
    Chairman Miller, Ranking Member McCarthy, and members of 
the subcommittee, thank you for this opportunity and the honor 
of speaking before you today. I do need to emphasize that I am 
speaking only as an individual and not for Morehouse College or 
in any official capacity in that way.
    The rules for adopting Section 1502 have yet to be 
released, but the policy is having unintended consequences and 
unanticipated consequences that I am not certain could have 
been foreseen by those who pushed for its passage and worked to 
make it happened.
    Beginning in September of 2010 the Congolese government 
placed a ban on all mineral exports from the Kivu and Maniema 
Provinces in eastern Congo. This ban lasted approximately 6 
months, through March of 2011. And it actually resulted in 
increased militarization of the mineral sector in the Congo.
    So there were some mines in the eastern Congo that were not 
militarized prior to the development of this ban, but the 
Congolese National Army used that as an opportunity to take 
over these mines, and to begin carrying out human rights abuses 
against people in those areas. A good example of this is the 
Kamituga mine in south Kivu.
    The Kabila government ended its ban on mining in March of 
2011, but it was quickly replaced by what has come to operate 
as a de facto boycott of the mineral sector in the eastern 
Congo. Since April of 2011 and continuing until today, many 
major purchasers of Congolese minerals have declined to 
purchase those minerals. They have made this choice because 
they believe that given the circumstances in the Congo, they 
cannot verify that the minerals they are sourcing are conflict-
free.
    So, rather than on mitigation strategies or on supply chain 
tracing, they have chosen instead to just withdraw from the 
Congo altogether. When Malaysia Smelting Corporation pulled 
out, they had previously been buying 80 percent of Congolese 
tin exports. After their decision to stop buying in April of 
2011, 10 exports from the Congo dropped by 90 percent.
    So what are the consequences of these issues, in that there 
is little reason to believe that either the ban or the boycott 
would have happened had it not been for the passage of Section 
1502? It provided the impetus to be seen as taking action for 
good or for bad. It has had devastating effects in mining 
communities in the eastern Congo. People lost their jobs, 
people who had been working in the mines.
    And I do want to emphasize that the conditions in the mines 
are absolutely horrific. None of us would want to work there. 
None of us would want our children to have to work there. But 
there are no other economic alternatives in the eastern Congo. 
Subsistence level agriculture does not provide a way to earn a 
living, and the only alternative is to join a militia. So for 
many Congolese miners, mining is the least worst choice of very 
limited, bad options.
    We don't know exact numbers on how many people have been 
put out of work. I am actually headed to the Congo next month 
to do some research on this and try to get some data. But it 
certainly ranges somewhere from the tens of thousands. Local 
civil society activists in the Congo have estimated that up to 
2 million people were put out of work by the ban and the de 
facto boycott.
    This had devastating consequences. Congolese have large 
families. Most people have five to six dependents. So we are 
talking, if those numbers that the civil society activists have 
come up with are accurate, this could have affected 10 to 12 
million people in a negative way.
    What else has happened as a consequence of these bans that 
stem from Dodd-Frank's Section 1502 passage? We have seen many 
miners move into the gold mining sector, which is completely 
unregulated, and where traceability is not yet possible. We 
just don't know how to do it in a way that will prevent 
smuggling.
    And according to the 2011 U.N. Group of Experts Reports, 
smuggling has increased. Minerals are still getting out. We are 
still seeing high export numbers from Rwanda, which does not 
have significant domestic mineral reserves, which is a strong 
indication that smuggling is still going on.
    And contrary to the promises made by those who pushed for 
the passage of Section 1502, violence in Kivu in the absence of 
this mining, and where armed groups are not making as much 
money as they previously were off of the mineral trade, 
violence is getting worse. And we have seen that most recently 
over the course of the past 3 weeks with a mutiny within the 
ranks of the Congolese Army by former members of the CNDP 
militia who have now re-christened themselves as something 
called M23.
    Quality of life has diminished. People cannot afford to pay 
their children's school tuition, to pay for health care, to pay 
for basic necessities. And in many of the most remote mining 
areas, basic necessities, even if people had money to buy them, 
are no longer available, as those necessities are not being 
flown in, because the planes would come in with materials and 
fly out with minerals and now they are not able to do that.
    Chairman Miller of California. Could the lady--
    Ms. Seay. To be fair--
    Chairman Miller of California. Could the lady conclude? Her 
time is--
    Ms. Seay. Yes, yes. To be fair, there has been positive 
change, though it is not clear that this is a result of what we 
think it is. The DCA mine was demilitarized. The Congolese Army 
withdrew from it, but the DCA mine is almost tapped out. They 
have just about hit the water table, and it is not clear that 
the Congolese Army would have left were that not the case.
    My written testimony contains several remarks on what I 
think went wrong. I agree with Mvemba that the gross 
oversimplification of the story is the major problem here. The 
mineral trade--the militarized mineral trade--is not the cause 
of conflict in the eastern Congo. It is a symptom of a much 
deeper disease. It is a problem that we need to clean up, but 
treating the symptom will not cure the disease. And instead, we 
need to focus on governance, security sector reform, and 
rebuilding the rule of law.
    [The prepared statement of Dr. Seay can be found on page 
187 of the appendix.]
    Chairman Miller of California. Mr. Vargo, you are 
recognized for 5 minutes.

  STATEMENT OF FRANKLIN VARGO, VICE PRESIDENT, INTERNATIONAL 
 ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS (NAM)

    Mr. Vargo. Thank you, Mr. Chairman.
    The National Association of Manufacturers (NAM), is the 
Nation's largest industrial association, and it is America's 
manufacturers who will be the most affected by Section 1502. 
Let there be no doubt that the NAM and America's manufacturers 
support the intent of the law to reduce the atrocities that are 
being committed. We believe the SEC's regulations can implement 
the law in a manner consistent with the goals, but without 
unduly burdening American industry, American competitiveness, 
or American jobs.
    But to do this, we believe modifications are necessary to 
their draft regulations, and we hope this subcommittee will 
agree and will communicate that to the SEC. We are pleased with 
the care with which the SEC has been proceeding, and we hope 
for rules that are consistent with the reality we face.
    First of all, it is vital that there be a phase-in period 
for the regulations. The currently existing extreme limitation 
of information about the source of metals and minerals makes it 
impossible for all but a very few companies to submit 
meaningful reports. For example, the Electronic Industry 
Citizenship Coalition, the EICC, has been working at this for 
years. Their Web site this week says that only 11 smelters have 
been certified as DRC conflict-free, all of them in Tampulu. An 
independent audit of the EICC concluded that despite their best 
efforts, ``companies cannot assert 100 percent sourcing 
certainty.''
    The draft rules unfortunately currently provide only two 
choices: you state with certainty that you are DRC conflict-
free; or even if you have done a lot of due diligence and you 
just don't know, you have to say no, they are not DRC conflict-
free. That would do terrible damage to company brands and 
investor relations and would do no good whatsoever to advance 
the humanitarian objectives in the DRC.
    During the phase-in period there must be a temporary 
category of indeterminate origin, but to utilize it companies 
would have to meet SEC requirements to demonstrate that they 
were undertaking a good faith effort, and were not just 
delaying.
    Second, once the rules are in full effect, there must be 
flexible due diligence provisions recognizing that companies 
have widely differing supply chains. Companies need, for 
instance, to be able to use contract flow-down provisions to 
comply. In particular, the OECD guidelines should be expressly 
stated by the SEC as a safe harbor for companies that implement 
those guidelines. But that should not be the only way to 
comply.
    I want to stress, this is an extremely costly requirement 
on American manufacturers. The NAM has estimated the cost at $9 
billion to $16 billion, 100 times larger than estimated by the 
SEC. The cost is not limited to listed companies subject to the 
SEC regulation, and hundreds of thousands of small, privately 
owned companies will be affected because they are in the supply 
chain.
    Our estimate is largely corroborated by the competently 
done Tulane University study called for by Senator Durbin. We 
are aware of a further report done by Claigan Environmental, 
who is testifying today. We have examined their report 
carefully and believe it is a severe underestimate, for several 
reasons.
    First, it assumes everyone can use the simple spreadsheet 
developed by the EICC, when most of our large companies say it 
is much too simple and unusable. The EICC spreadsheet template 
will hopefully work for companies with simpler supply chains, 
who are closer upstream to smelters, but it will not work for 
large diversified manufacturers. With millions of parts, they 
need a much more sophisticated, and unfortunately, more 
expensive system.
    Second, it seriously underestimates the number of companies 
in today's global supply chain, saying there are hundreds in 
the supply chain, when in fact there are thousands. One of our 
members has 100,000 companies in their supply chain. Mr. 
Pudles, who is going to testify next, has a $40 million 
company, not one of America's largest, but he sources from 
3,000 different manufacturers.
    The report also mistakenly believes smaller companies are 
legally bound to comply with Section 1502 so that companies 
don't have to have contractual obligations. Unfortunately, that 
is not true. They are not bound. The report also believes that 
once agreements are reached, no further action is necessary--
totally overlooking the fact that supply chains are not static; 
they are dynamic. Suppliers are always being added and dropped 
as companies seek more efficient supply chains with better 
prices.
    Finally, the report somehow concludes that analysis of the 
European Union's Restriction of Hazardous Substances directive 
shows that conflict materials compliance can be done cheaply. 
That is puzzling, because we use the same report. And we put it 
into our report to the SEC. That report says it costs an 
average of $2.5 million for companies to comply. So if we apply 
that to the number of companies the SEC says will be affected 
by Section 1502, that is a cost of $16 billion, even higher 
than our estimate.
    So there is no question this is an extremely important 
program and the SEC needs to get it right.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Vargo can be found on page 
193 of the appendix.]
    Chairman Miller of California. Thank you.
    Mr. Pudles?

 STATEMENT OF STEVE PUDLES, CHAIRMAN, BOARD OF DIRECTORS, IPC--
   ASSOCIATION CONNECTING ELECTRONICS INDUSTRIES; AND CHIEF 
            EXECUTIVE OFFICER, SPECTRAL RESPONSE LLC

    Mr. Pudles. Chairman Miller, Ranking Member McCarthy, and 
members of the subcommittee, I am pleased to be here today to 
discuss the SEC's proposed rule on implementation of Section 
1502 of the Dodd-Frank Act.
    I am Steve Pudles, CEO of Spectral Response, an employee-
owned electronics manufacturing services company located in 
Lawrenceville, Georgia. We employ 135 people, providing 
services ranging from electronics assembly, to product builds, 
to third-party logistics. And our customers range from small 
startups to large publicly traded corporations.
    I am here today as well in my capacity as chairman of the 
board of IPC, the association connecting electronics 
industries. The IPC represents over 3,000 companies, the 
majority of which are small businesses like mine. IPC's members 
include companies that design, manufacture, and assemble 
printed circuit boards, which are vital to the operation of all 
electronics products.
    The subject of this hearing is critically important to IPC 
members who collectively manufacture products that incorporate 
all four of the key metals refined from conflict minerals. At 
the outset of my testimony, I would definitely like to 
recognize the good intentions of those Members of Congress who 
authored Section 1502.
    By all accounts, the human rights situation in the 
Democratic Republic of the Congo is grave. IPC supports the 
underlying goal of Section 1502, but quite frankly, I am 
concerned that the SEC's draft regulations will have unintended 
negative consequences.
    I am by no means an expert on the issues that plague the 
DRC. In my testimony today, I will discuss how the draft rule 
is likely to impact my business and the electronics industry. 
Members of the subcommittee, make no mistake, the regulations 
proposed by the SEC will impose a significant cost on my 
company and companies like mine.
    My company is not an SEC issuer. However, the forthcoming 
regulations will impact us through the due diligence needs of 
our customers, over a quarter of which are SEC issuers.
    Over the last several months, my customers have asked me 
about auditing my supply base. My company has over 15,000 part 
numbers. Determining and verifying the content and origin of 
minerals in each part is a Herculean task. I will have to hire 
additional staff, an audit company, lawyers and accountants, 
and purchase software for data management.
    A variety of cost analyses has been conducted on the 
proposed rule. An independent analysis of the costs conducted 
at Tulane University estimated total costs of $7.9 billion, 
which is over 100 times the SEC's estimate.
    An IPC survey of our members indicated median compliance 
costs in excess of $230,000 per year. This is a significant 
expenditure for companies like mine. As the leader of a small 
business, I work hard to keep my company profitable in 
difficult economic times.
    I am troubled that the SEC's analysis on the impact of the 
regulation significantly underestimates the impact and costs to 
U.S. manufacturers and negatively impacts our global 
competitiveness. Given a few key regulatory changes and a 
reasonable implementation period, we would greatly decrease the 
burdens associated with the regulations without undercutting 
their effectiveness.
    I would like to use the remainder of my time to highlight a 
few of these key recommendations, which are further detailed in 
IPC's comments to the SEC. The most valuable change the SEC 
could make is the inclusion of a reasonable phase-in period. 
This would give companies a transition period to understand the 
final regulations and examine the origin of conflict minerals 
in our supply chains.
    According to a United Nations report, the implementation of 
traceability systems in the DRC is severely lacking. A number 
of companies have sought to avoid conflict-associated minerals 
by altogether avoiding procurement from the region. A phased 
implementation of the regulations will better align regulatory 
requirements with the developing traceability and transparency 
systems.
    The requirement for each issuer to report on the same 
schedule as their annual SEC report will require my company to 
constantly reply to customer inquiries. The SEC can 
significantly reduce the burden on the supply chain by 
implementing a single reporting date.
    Moreover, many electronics companies use recycled materials 
in order to reduce the amount of virgin materials required in 
the manufacturing process. The final rule should include an 
alternative approach for recycled sources that is practical and 
does not overburden recycled materials so as to discourage 
their use.
    Additional suggestions which I do not have time to discuss 
in detail include reporting exemptions for products outside our 
control, provision of a de minimis level to focus on the 
significant uses of conflict minerals, and provisions of 
nonbinding examples of due diligence are detailed in my written 
testimony and IPC's comments to the SEC.
    In conclusion, on behalf of my company and IPC's over 3,000 
members, I urge the SEC to implement the requirements of 
Section 1502 in a manner that supports the goals of the statute 
without unduly burdening U.S. manufacturing industries or 
causing unnecessary disruptions of the legitimate minerals 
trade, which is vital to the livelihood of the people of the 
DRC.
    Thank you for the opportunity to address you today.
    [The prepared statement of Mr. Pudles can be found on page 
179 of the appendix.]
    Chairman Miller of California. Thank you.
    Mr. Lamar, you are recognized for 5 minutes.

STATEMENT OF STEPHEN LAMAR, EXECUTIVE VICE PRESIDENT, AMERICAN 
                 APPAREL & FOOTWEAR ASSOCIATION

    Mr. Lamar. Thank you providing us a chance to testify, and 
thank you for holding a hearing on this important issue.
    The American Apparel & Footwear Association is the national 
trade association of the apparel and footwear industries and 
their suppliers. Our members include publicly traded and 
private companies, as well as suppliers to both. Our industry 
employs about 4 million U.S. workers, about 3 percent of the 
U.S. workforce.
    Our industry is among the most globalized in the world. As 
a result, even the smallest companies have complicated supply 
chains that stretch across continents, countries, and 
factories. They have to manage a diverse array of compliance 
challenges covering labor, health, environment, product safety, 
and chemical management. We strongly support the goals of the 
conflict minerals provisions in the Dodd-Frank Act.
    Collectively and individually, our members have 
participated in similar kinds of initiatives to ensure that our 
sourcing does not inadvertently support undesirable practices, 
such as forced child labor toiling in the cotton fields in 
Uzbekistan, leather from cattle raised on illegally cleared 
rainforest land in Brazil, or wool from mules sheep in 
Australia.
    While we support the efforts to prevent conflict minerals 
from entering the global supply chains, we remain deeply 
concerned over several elements of this provision and their 
impact on our industry.
    Let me explain. First, the impact of Section 1502 on the 
business community is deceptively large. The fact that I am 
testifying here today on a bill that was largely intended to 
focus on the electronics industry is one indicator of that 
fact. Although the law initially targets about 6,000 publicly 
traded companies, it also affects those companies' suppliers, 
in many cases small, privately held businesses, as they are 
being increasingly notified by their customers that they will 
have to certify that their own supply chain is conflict free.
    Many companies in our industry initially thought they were 
not covered, but are only now finding out, in some cases in the 
past few weeks, that they are impacted. Many others still don't 
even know. Many businesses in our industry probably don't 
realize that their products may contain one of the four 
conflict minerals. When you think of a garment or a shoe, you 
think of the fabric, the fit, the design, or maybe the price. 
But you usually don't think of wearing tin unless perhaps you 
are watching the Wizard of Oz.
    Companies are now learning that tin, for example, can be a 
filler in certain PVC used in soles of shoes, or metal 
components in buttons, zippers, and heel tips. Other examples 
are the electronic components that you might see in a light-up 
shoe. Use of tin has actually increased in recent years to 
replace metals like lead or cadmium which had been targeted by 
recent product safety initiatives, including the Consumer 
Product Safety Improvement Act (CPSIA), which Congress passed 
in 2008.
    Second, the provisions have a major effect on those in the 
business community who are least able to effect change in the 
conflict zones in Africa. In our industry, the use of these 
minerals are de minimis, even after accounting for greater uses 
in recent years. Yet, the smallest apparel or footwear company 
will be equally liable as a company that is a major consumer of 
larger quantities of these minerals.
    Tin is confined in our industry to very, very small 
quantities that are encountered inconsistently across a great 
many styles and brands. Compounding this is the simple fact 
that fashion changes all the time. In one year, a company may 
find that four products out of thousands trigger Section 1502 
reporting. The following year may be zero and the year after 
that may be 20. Compare this to an electronics company that 
sources millions of the same components over several years with 
no design or input changes.
    Just as important, the electronic or accessory components 
that we might use in the manufacture included in a footwear 
item--in many cases, these will have been purchased off the 
shelf from a supplier which is itself many steps removed from 
the mines or even the smelters where the minerals originate. 
The bottom line is that the pressure to create and promote 
conflict-free mineral supply chains will not come from our 
industry, even if we could somehow declare ourselves to be 100 
percent conflict-free.
    While the apparel and footwear industries are leaders in 
social compliance in many areas, we simply don't have the 
purchasing power or business relationships to effect change in 
this area.
    Third, the costs associated with Section 1502 are enormous. 
Here again, we believe the costs are far larger than the 
authors expected. Some estimates put the costs at $8 billion or 
$9 billion, respectively. We think they can be far higher as we 
start including the impact on other industries like ours in 
those calculations.
    Fourth, the lack of tracing technology and infrastructure 
means that companies don't have a clear or affordable path 
forward for compliance. The draft regulations do not allow 
companies to simply declare that they do not know if they have 
conflict minerals in their supply chain because there are 
insufficient tools to answer that question properly. Yet, the 
reality is affecting most companies today.
    Our industry is still struggling to create verifiable and 
effective tracing technologies for materials that make up a 
central part of our supply chains, like wool or cotton, while 
learning that even greater challenges exist in the minerals 
industry, which account for far smaller parts of our sourcing.
    A couple of quick recommendations. We need to make sure the 
infrastructure and technology exists to allow companies to come 
into compliance. We need to make sure there is a comprehensive 
cost-benefit analysis that enables policymakers to understand 
how these regulations work well. We need to make sure these 
regulations are phased in to those industries where consumption 
of the minerals will have the biggest impact. We need to 
include things like a de minimis provision.
    And once the regulations are in place, we need to make sure 
there is flexible enforcement accompanied by education to make 
sure complicated supply chains have the time and the capability 
and the capacity to come into compliance.
    Thank you very much. I will conclude right here.
    [The prepared statement of Mr. Lamar can be found on page 
169 of the appendix.]
    Chairman Miller of California. Thank you.
    The Most Reverend Nicolas Djomo Lola, Bishop of Tshumbe, is 
recognized for 5 minutes.

  STATEMENT OF THE MOST REVEREND NICOLAS DJOMO LOLA, BISHOP, 
   DIOCESE OF TSHUMBE, DEMOCRATIC REPUBLIC OF THE CONGO; AND 
PRESIDENT, CATHOLIC BISHOPS' CONFERENCE, DEMOCRATIC REPUBLIC OF 
                           THE CONGO

    Bishop Djomo. I want to thank Chairman Miller and Ranking 
Member McCarthy for the opportunity to testify today. I ask 
that my written testimony be entered into the record.
    I do not come as a businessman, nor a financial expert. I 
am a religious leader, a pastor, who is deeply disturbed by the 
type of violence and suffering that has dominated life in 
eastern Congo since 1996. This violence has destroyed families, 
villages, and communities.
    One prominent driver of the violence is the illicit mining 
committed by the many armed groups in the eastern Congo. To 
protect our people from the misery of minerals, the Church in 
the Congo publicly supported the passage of Section 1502 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act. I 
traveled to the United States last year to bring that message 
to the Congress, the State Department, and the Securities and 
Exchange Commission.
    Our message was simple. First, establish regulations that 
are robust enough to correctly show the origin of the minerals. 
Second, finalize the regulations as soon as possible and set 
specific dates by which companies start reporting. Third, 
include all companies. And fourth, ensure that key information 
provided by the companies is made available to the public and 
to Members of Congress.
    Since colonial times, our nation has fallen prey to the 
``resource curse.'' Throughout the Congo's long history, the 
Catholic Church has stood by the Congolese people. The Church 
is one of the largest and most trusted institutions in the 
country. Our network of schools, health care, and development 
centers is the largest, and frequently works where the 
government cannot.
    Our people in eastern Congo blame the insecurity fueled by 
illicit mining for their poverty. Eighty percent of people are 
subsistence farmers. The violence has caused massive 
displacement of people. No future development can occur without 
an end to the fighting. In addition, the illicit mines operate 
under deployable and dangerous conditions.
    Many international institutions are working to end illicit 
mining. These include the Organization for Economic Cooperation 
and Development (OECD), the European Union, USAID, and a Great 
Religious Region Group. Section 1502 of that plank places the 
first offload behind this other effort.
    In March of this year, the Congolese government passed a 
law that requires all mine and mineral trading companies in the 
Congo to carry out due diligence in line with OECD standards. 
This law is fingering various initiatives to educate traders 
and miners about due diligence. Now is the time to strengthen 
these efforts with regulations that will legalize mining 
operations.
    First, the business community can and will join us to 
protect the life and human dignity of the Congolese people by 
conducting legal, transparent, and accountable international 
commerce. We are confident that they do not want to be part of 
the misery that has plagued eastern Congo for years.
    We urge the U.S. business community to account for the 
gruesome social costs of the illicit mining as they calculate 
their costs for compliance with Section 1502. These 
calculations are not just cost estimates on a spreadsheet. 
There is a social balance sheet that places value on the lives 
that can be saved.
    We have full confidence in the goodwill of the Congress, 
the SEC, and the business sector to resist watering down SEC 
regulations through half measures that may save money, but cost 
lives. What the people of the Congo need and the U.S. 
Government and the American companies can provide are 
responsible actions that increase transparency and embody the 
moral values that made the United States a respected world 
leader.
    Thank you, Mr. Chairman, and Madam Ranking Member, for your 
kind attention.
    [The prepared statement of Bishop Djomo Lola can be found 
on page 174 of the appendix.]
    Chairman Miller of California. Thank you, sir.
    And Mr. Calder is recognized for 5 minutes.

      STATEMENT OF BRUCE CALDER, GENERAL MANAGER, CLAIGAN 
                       ENVIRONMENTAL INC.

    Mr. Calder. Chairman Miller, Ranking Member McCarthy, and 
members of the subcommittee, I am pleased to be invited here 
today to discuss the Securities and Exchange Commission's 
proposed rule on implementation of Section 1502 of the Dodd-
Frank Act.
    My name is Bruce Calder, and I am the general manager of 
Claigan Environmental. I am responsible for Claigan's conflict 
minerals program. We work with companies across industries on 
conflict minerals program management, cost management, and we 
provide compliance assistance and information to over 200 
small, medium, and large companies on conflict minerals.
    I would like to first start off by saying we have never, 
ever seen such widespread early adoption by industry of a 
transparency law. In 10 years of working with restricted 
materials compliance, including global regulations, such as 
Europe's hazardous substance law, its restricted chemicals law, 
and California's toxins and safe drinking water law, I have 
never, ever seen so many companies claim that they are going to 
be compliant, becoming compliant, and declaring they are 
committed before the final rule is even published.
    If you look at the 100-plus pages of our appendix, it is 
single pages of public declaration by companies committing 
themselves to being conflict free, and committing their 
suppliers to being conflict free. And you can flip from page to 
page to page and see company after company--U.S. companies, 
Chinese companies, Japanese, Korean, large, small--all 
committing themselves and their suppliers.
    Their issue right now is that they do not have a single 
clear rule to implement their desires and what they want to do. 
Being transparent on mineral sourcing not only can be done, it 
is being done. One key element to the success is the success of 
the conflict-free smelter program, a program that is 
implemented by industry in advance of a final rule making them 
implement.
    The conflict-free smelter program has completed the 
certification review process, including full country of origin 
traceability, for 23 refiners, plus there are another 32 in 
process. Kester, an Itasca-based Illinois company, which 
provides 60 percent of the solder wire in North America--solder 
wire being the main source of tin in electronics, and the 
solder being the main use of tin--has completed full 
traceability through the smelters which they moved through the 
certification process all the way back to the mine.
    So when we look at a circuit board, and you look at 
potentially hundreds of different components and many different 
suppliers who are in scope because of the tin solder they use, 
it only comes back to a handful of solder suppliers, of which 
Kester is one of the largest.
    We have previously submitted estimates on the costs of 
Section 1502 on the industry and the supply chain. One of the 
big elements, of course, always a big difference in the 
conversation, is why is ours different than other estimates? 
One of the most significant reasons is our cost estimates are 
based on actual industry programs, not projections, not 
extrapolations. This is what they are doing.
    It is also based on conversations with the SEC on what they 
intend. The SEC has done themselves and industry a disservice 
by not stating anything publicly in terms of rules since way 
back basically in 2010. The other piece, and it is very, very 
important, is the use of ``intentionally added.'' 
``Intentionally added'' is a very, very, very important piece 
of this.
    And the reason is over de minimis is steel. Tin exists in 
most common alloys of steel, but it is not supposed to be 
there, it is not intended to be there. It is a by-product. It 
is a part of the process. It is harmless and nobody has cared. 
If you put a de minimis value in, the actual amount of tin in 
our most common steels is well over any standard de minimis 
level, and it would bring almost all major steels in play.
    A lot of small suppliers who make products that have 
washers and screws, etc., suddenly will be in scope, and then 
we know if they have tin. They would have to set up a test lab. 
I have a test lab and it is a wonderful business, but I don't 
think that is fair. Going for ``intentionally added'' will keep 
most common alloys of steel, which significantly reduces the 
cost to industry, and particularly small business.
    The SEC's staff has indicated that the conflict-free 
smelter program would meet a lot of the due diligence required, 
especially third-party auditing, which would be excellent. We 
also assume, and in--to the SEC it makes sense, that the 
auditing will be more based on auditing to ensure that 
companies have done what they said they have done.
    And I think it is extremely important that companies who do 
good and wonderful things, who can't get all the way through to 
their smelter, should be allowed to say clearly and truthfully, 
they have done good and wonderful things.
    So, one of the last pieces on this is not if it will be 
implemented. These industries are implementing it. The biggest 
burden right now, especially on small companies, is they don't 
have to comply with the SEC's rules; they have to comply with 
the rules that each one of these companies at how they have 
extrapolated the law. What they really need now for cost 
containment is a single rule so they can meet one standard and 
the standard of every customer they have.
    Thank you.
    [The prepared statement of Mr. Calder can be found on page 
52 of the appendix.]
    Chairman Miller of California. Thank you. I appreciate your 
testimony.
    I now recognize myself for 5 minutes. Mr. Pudles, you 
represent business interests and you were very much aboveboard 
on that. Mr. Calder, you provide consulting services to 
companies regarding implementation of Section 1502; is that 
correct? And you are an expert on conflict material minerals?
    Mr. Calder. Yes.
    Chairman Miller of California. Just so everybody is clear, 
you make a profit on implementation of Section 1502? That is 
your business.
    Mr. Calder. Yes, that is so.
    Chairman Miller of California. Okay. I just--because we 
have business interests, I want everybody to know who is 
testifying before us today. And I think that is very important.
    Mr. Lamar, you talked about buttons in suits, so I am 
probably wearing a conflict button on my suit.
    Mr. Lamar. I don't know that.
    Chairman Miller of California. But if you don't know that, 
that means I probably am, because you have to say if I can't 
prove I am not.
    Mr. Lamar. That is the concern we have with the way the 
regulations are coming forward.
    Chairman Miller of California. And that is my concern.
    Mr. Vargo, you talked about if you can't certify, like I 
really can't certify and he can't certify, and Nordstrom's 
can't certify who sold me the suit. So what do you have to do 
if you are going to sell me this suit? What do you have to post 
if you can't certify that these are not conflict-free?
    Mr. Vargo. The way the draft SEC rule is written, you would 
have to say, this is not DRC conflict-free, and you would have 
to bear that on your Web site and the public would look and 
say, oh, this company is bad. It is not DRC conflict-free when 
there is no information and the company does its due diligence. 
We are not saying that you need an indeterminate origin 
category forever, just during the period that the 
infrastructure is being developed.
    Chairman Miller of California. That is a concern for me. 
And I know my good friends talked earlier about the fact that 
hearings were held, I believe in the Foreign Affairs Committee, 
but you never did anything. But the problem was legislation was 
enacted in this committee and we never heard anything. And that 
is a real problem for me.
    Mr. Dizolele, is life better and going to be better next 
year and the year after for people in the region because of 
what we are doing here?
    Mr. Dizolele. Mr. Chairman, my personal view with my 
extensive experience in the field is that even if this powerful 
chamber were to pass this legislation, implement it, give our 
friends on the other side of the debate a magic wand, the next 
day when women in Tubembe--this is in south Kivu--go back to 
the field, nothing would change for them.
    They will be raped, and they will be abducted, because we 
will not have dealt with the real problem, which is the 
presence of the militias. The militias will not disappear 
because of Dodd-Frank or Section 1502. We are not going after 
the source of the problem. We are putting a veneer on it.
    So the question really is, what difference does it make for 
the ladies in Tubembe? In my view, not much. In my view, the 
Panzi Hospital will stay open, because rape will continue. 
Maybe the American consumer will assuage his conscience. Maybe 
the activists will have felt that they have done something, but 
that is not the slam dunk.
    Chairman Miller of California. Ms. Seay, are minerals the 
only commodity used to fuel this conflict over there?
    Ms. Seay. Absolutely not. And I think that is a key point 
that goes back to the question you just asked Mr. Dizolele, 
which is, the armed groups in the eastern Congo have multiple 
sources of revenue. They tax every trade that there is: 
bananas; timber; charcoal; and traffic on the road.
    Are these sources as lucrative as the mineral trade? No. Do 
they find ways to make it more lucrative? Yes. They will raise 
taxes. And what we have seen is that militias don't stop 
fighting because they lose access to one stream of revenue. 
What they do instead is turn to preying on the population even 
more than they already were before.
    Chairman Miller of California. And are more people 
unemployed than they were before this started?
    Ms. Seay. I think we can say that more people are 
unemployed in the mining sector, for sure, as well as in 
sectors in mining communities. So for example, if a miner 
doesn't have money he can no longer afford to pay the grocer 
for basic goods. And so, that person is also in trouble 
financially.
    Chairman Miller of California. And Mr. Dizolele, when that 
miner is unemployed, where do they go to get a job?
    Mr. Dizolele. Sir, in the DRC, we have a lot of statistics. 
And statistics often do not even reflect the beginning of it. 
In the DRC, we don't talk about unemployment, we talk about 
underemployment. The underemployment is about 82 percent. This 
means people don't have jobs. They leave every morning, because 
they have to do something to feed their families, but they 
don't have any jobs. And so, one of the little jobs that is 
lost is not going to be replaced.
    You cannot just move to move from Katutu neighborhoods and 
say I have lost my job in Katutu and I am going to go to Nguma 
and find a new job. We are talking about the DRC and we are 
talking about the eastern Congo. This is not Switzerland or 
America.
    Chairman Miller of California. So their life is worse than 
it was before this implementation in many cases, because they 
have no job now. Women are still getting raped in the fields, 
which is horrible. It is inexcusable.
    And maybe the Foreign Affairs Committee should have done 
something on that, rather than passing the burden onto the 
business sector in this country about what do we do in a region 
like that that is abusing their people and allowing it to 
happen.
    My time has expired.
    I yield 5 minutes to Ranking Member McCarthy.
    Mrs. McCarthy of New York. Thank you, Mr. Chairman.
    I want to thank everybody for their testimony. You have to 
realize that this committee really has a very daunting task in 
front of us. Obviously, we want to make sure that our 
businesses are able to continue doing business without added 
costs. But we also have a situation for the people who are 
working in these mines, and the children.
    Now, the rules for Section 1502 have not really been 
implemented yet, so we are not exactly sure where we are going 
to be going on this. I know that when people got together on 
the blood diamonds, there were a lot of outcries that people 
wouldn't be able to afford the diamonds, diamonds that are used 
for other things besides wearing on a ring. And yet, they have 
come through the years to be able to make sure that those 
diamonds are certified now and not coming and hurting people.
    That is going to be the problem that we are going to be 
facing here. To come up with a solution, hopefully work with 
the SEC. Obviously, they are having a difficult time with this, 
because they have not come out with the final rules.
    But Mr. Calder, reading your testimony, your cost analysis 
on company compliance with Section 1502 varies from some of the 
other estimates that we have heard and read in the testimonies. 
Please explain some of the cost differences, such as large 
versus small companies, and what factors and methodology are 
being used to compile your cost analysis that are different 
than the other cost estimates that have been done.
    I know a lot of the larger manufacturers are trying to do 
the right thing. They have started going to the smelters to 
basically get it certified. They have already started ahead 
before Section 1502. But it is the small companies that 
probably will be facing a burden.
    So if you could quickly answer that question for me?
    Mr. Calder. One of the big things about having a final rule 
is it will allow the small companies to comply to one rule 
instead of many. One of the really big burdens the smaller 
companies have is they have to try to comply to an 
interpretation to each company. And it is already out of the 
barn.
    Now these companies know their products could have 
benefited from slave or child labor, they are not turning back. 
It is in place. So the best thing to do for small businesses is 
give them one single rule, then give us the GE they can give to 
any customer they have, so they can move forward and move 
effectively.
    Mrs. McCarthy of New York. Bishop, in your testimony, and I 
know you weren't able to read your whole testimony, when you 
talk about the people, obviously that is very heartfelt because 
you are there. You are working with the people who are in the 
mines.
    But the question came up, if we cut back completely and 
there is no work, you mentioned agriculture, but you also 
mentioned in your testimony that the areas where the mines are 
has already killed the land. So agriculture wouldn't be 
possible there. And we are probably talking about a very long-
term solution.
    But with that being said, if the rule is put in place, what 
would the people do as the adjustment comes through to be able 
to make a living? Are outside groups going to come in and 
support them? Will those that are the gangs, as we call them, 
terrorists, if you want to call them, the armed, how are we 
going to--that is not going to be up to this committee, 
unfortunately.
    But with that being said, how does that change, and how 
long would it do it? What kind of suffering would come more to 
your people?
    Bishop Djomo. [The following testimony was delivered 
through an interpreter.] The majority of the population in the 
Kivus lives off of agriculture. The majority of the people in 
the Kivus do not work in the mines and do not live off of their 
work in the mines. The mines, and the militias that run these 
mines, block the production of agriculture in these areas.
    In the short term, there may be some people who will lose 
some work and some income, but in the long term, if you close 
the illegal illicit mines and cut connection between the mines 
and the violence, the violence stops. People can go back to 
their lives and back to a better agricultural system.
    The studies and the work of the Church institutions in the 
area show very clearly that the violence follows the same roads 
as the minerals from the mines. Better laws will protect the 
legalization and ensure the legalization of these mines, and 
thus protect agriculture.
    A much better legalization of the mines will also permit a 
better, more legal, taxation of the citizens in the area. It is 
impossible to understand that illegal, illicit exploitation is 
a good for the people.
    Chairman Miller of California. The gentlelady's time has 
expired.
    Mr. Dold is recognized for 5 minutes.
    Mr. Dold. Thank you, Mr. Chairman.
    Mr. Dizolele, if I can just start with you for a moment. 
You have complimented the activists for drawing attention to 
the Congo, but have criticized them for oversimplifying the 
causes of the conflict in the Congo, and the solutions to that 
conflict.
    And after listening to a number of the testimonies here 
today, I think it is clear that we all have similar objectives: 
to try to reduce the violence inflicted on the Congolese people 
and help them achieve better quality of life. But I also think 
it is clear that the problems here are complex and that there 
is no simple solution.
    With that in mind, how can the following groups better 
address the problems in the Congo, whether it be western 
activists, the NGOs, companies affected by Section 1502, and 
finally, the SEC and the United States Government as a whole? I 
know that is a big question, but if you can be somewhat brief?
    Mr. Dizolele. Thank you, Congressman.
    I think we need to start by changing our narrative. I said 
earlier that the narrative that we have has been shaped through 
a binary prism of sexual violence and conflict minerals. If we 
do that, then we set our attention on the one sector of the 
Congo's territory, which is the size of the eastern United 
States.
    I submit to you that life is absolutely worse in some areas 
of the Congo that don't have conflict. Anybody who has been 
through Equateur Province, through the Kasai Province, through 
Bandundu Province, was apt to be shocked that people were still 
living almost like it was still 1920 today.
    So what do we do? I think we need to have the courage to go 
after the real problem. And that courage happens in the very 
response--opportunity, which amazed me. I was an observer, an 
election observer, last December in Kinshasa. The international 
community did not stand with the Congolese people during the 
election. We chose the easy route.
    This was the chance for the Congolese people to really be 
supported by everyone, including the activities here so that 
the election would be accepted. Today, the elections, because 
they were botched, has created a legitimacy crisis.
    So if we tie what is going on in the east with the chaos in 
Kinshasa and the lack of legitimacy of the current government, 
we actually are in a conundrum, meaning we cannot really find a 
solution, because the people don't have the legitimacy of 
their--the people in power don't have the legitimacy of the 
country at large, are not going to solve the crisis, because 
they draw the raison d'etre in this environment.
    So I think we need to revert to what happened, and I 
referred to King Leopold's days; there is no instant 
gratification in the Congo. When we approach the Congo, we need 
to know that as we approach the Congo, it is for a long haul, 
and the long haul may take 10 years, building one step on top 
of the other until we get there.
    Mr. Dold. Thank you so much.
    Mr. Dizolele. Thank you, sir.
    Mr. Dold. Mr. Vargo, a question for you. When a company 
joins an initiative to buy clean minerals from the DRC region, 
does that automatically trigger the expensive reporting 
requirements in Section 1502?
    Mr. Vargo. We don't know what the reporting requirements 
will be. We are looking for a flexible standard that industry 
can work with that will be parallel to the way that we enforce 
export controls, we keep slave labor products out of our supply 
chains, etc.
    Companies typically work with what is called a flowdown, 
where you turn to your suppliers, and there may be thousands of 
them, and you put into your purchasing contract a requirement 
that they do due diligence to stay free of conflict minerals, 
as well as other things.
    So that is why we are pressing for a very flexible rule. We 
have estimated $9 billion to $16 billion. If the SEC were to 
issue a more restrictive rule, it could be higher than that. 
But if the SEC had a very workable rule, it could be lower than 
that, sir.
    Mr. Dold. Sure. I guess my concern is that when a company 
like, for instance, Motorola, which has a presence in the 10th 
District of Illinois, when they invest in the DRC by setting up 
a closed pipeline of conflict-free minerals, I believe they 
will have to file at least a very expensive due diligence 
report. However, if the company were to invest, say, in 
Australia, that is not going to require them to invest in what 
is going to be a very expensive report.
    So the net result is that we are going to have companies 
making a cost-benefit analysis: Do I want to invest in the 
Congo, or do I want to go elsewhere? And I think people are 
going to take a very calculated approach and say, you know 
what, we are not going to invest any in the Congo, and 
therefore, we are going to see the life in the Congo get 
potentially even worse than what it is now, and we are going to 
go somewhere else.
    So I just wondered if you might be able to comment on that?
    Mr. Vargo. Congressman, that is absolutely correct. And 
companies are looking and saying if I source out of Canada or 
Australia or Ukraine, I don't even have to file a report. The 
report is expensive. It certainly is a disincentive for 
companies to do business in the region; yes, sir.
    Mr. Dold. Thank you, sir.
    And my time has expired, Mr. Chairman. I yield back.
    Chairman Miller of California. Thank you.
    Ms. Moore is recognized for 5 minutes.
    Ms. Moore. Thank you so much.
    And I want to thank the witnesses again for appearing. This 
has been very, very informative.
    Let me start out by asking Mr. Dizolele some questions, the 
distinguished visiting fellow at Stanford University's Hoover 
Institution on War, Revolution and Peace.
    I am very curious about your testimony, and I wanted to 
know if you could tell me a little bit more about the Lutundula 
report that the stakeholders in the Congo, some of the many 
organizations people have put together to stop the 
exploitation--the mineral exploitation--through the examples 
you give in your testimony are with Canada and China, where 
they changed the contracts.
    I am thinking also of something Mr. Vargo said just a few 
moments ago, when he said that they wanted to make sure that 
there was no slave labor connected with the supply chain.
    So I am wondering what can you just tell the committee a 
little bit--and I don't want to use up all my time--the 
substance of these Lutundula contract changes that were made?
    Mr. Dizolele. Thank you very much, Congresswoman.
    Lutundula used to be a member of parliament. He was an MP 
in the transitional period between 2003 and 2006. I met him in 
2006, indeed. What happened was with the privatization in 1990, 
the structural adjustment to the World Bank and the IMF, the 
government of Zaire at the time was forced to privatize its 
mining industry, which was the bedrock of the economy.
    When they privatized that, it totally collapsed the entire 
economy. Meaning instead of having strong mining companies, you 
had smaller, private investors, especially westerners, taking 
ahold of the situation and totally destroying the system as it 
was because they needed to maximize their profits.
    Ms. Moore. Okay, thank you. I just wanted a little bit more 
information about that.
    So I guess my question is leading to this observation, that 
without some sort of regulatory framework, and who knows, maybe 
Section 1502 is not it, but there is potential for exploitation 
with Canadian companies, Chinese companies, U.S. companies, 
exploitation of the ``resource curse.'' Exploitation without 
some sort of monitoring that the Congolese people are not 
getting their just due, that there were to be slave labor, as 
Mr. Vargo would suggest.
    And so, I guess I appreciate the information that you have 
given us that it is not just the mineral rights, that there are 
needs to reform the police forces, and to have reforms within 
government. But I was concerned that you were minimizing the 
potential exploitation that mineral rights inherently bring.
    Mr. Dizolele. Congresswoman, if I may, the Lutundula report 
was adopted by the parliament of the DRC. We set out a series 
of hearings, just like what we are having today, and brought in 
the law of the DRC to start investigating and reopening all 
those contracts. So I have been to the mines. I have been to 
south Kivus. I have seen children in the mine. I have 10-hour 
footage of this.
    There is a problem, but that problem, the reason there are 
children in the mines is because there is no state strong 
enough to assert its authority. Dodd-Frank Section 1502 is not 
building the state. It is a sideshow that is not hooked to the 
national policymaking.
    Ms. Moore. Right, I understand that. So I guess what I am 
saying is that if we were to eliminate the exploitive partners 
on the other end, that would help spawn some changes.
    I can see that I am sort of running out of time on this 
issue.
    I see Dr. Seay is dying to say something. No?
    Mr. Calder, do you have any comment on this?
    Mr. Calder. One thing we have definitely seen from the data 
now, it is not the Western countries are pulling out. They 
pulled out back in 2004, 2005, ever since the U.S. operations 
at Kabot got a lot of pressure in the media because of a--buy 
they did through Rwanda.
    All the purchases right now you are seeing are from 
Chinese, Malaysian, and ex-Soviet republics, or that region. In 
particular, when a Chinese entity, which was a nonentity 5 or 6 
years ago had used the fact that he can get cheaper material 
from that region where the U.S. companies cannot buy, and they 
are able to take away the market share from the other two big 
players, which are U.S.-based during this period. So they have 
been able to use this cheaper price and buy materials that the 
U.S. companies cannot to increase their market share.
    Chairman Miller of California. The gentlelady's time has 
expired.
    Ms. Moore. I am so sorry, because I wanted to figure out 
what the difference was between the Bishop's testimony and Mr. 
Dizolele's.
    Chairman Miller of California. I was going to say that was 
my question exactly.
    Ms. Moore. But I hope that somebody else will ask that, 
because they just don't seem to coincide.
    Chairman Miller of California. Mr. Manzullo is recognized 
for 5 minutes.
    Mr. Manzullo. Thank you.
    A couple of points. If you take a look at the statements 
put out by a couple of the corporations in the documents 
furnished by Mr. Calder, you will see language to this effect. 
And I don't want to name the company, because it wouldn't be 
fair. But this company ``does not knowingly use these minerals 
and by-products as specified in the Conflict Minerals Trade 
Act.''
    That doesn't comply under the SEC on the Form 10K. If you 
file, there is liability attached to it, as opposed to simply 
furnishing information to the SEC. And the documents here from 
several corporations ostensibly are in compliance with Section 
1502. Just looking at the face of them, they are not in 
compliance.
    You can't say this company does not knowingly use the 
materials, and another company says that we will not 
``knowingly purchase any material from any minefield with 
social problems.'' And so, it is not a matter of knowing 
something; it is a matter of being responsible, even if you 
don't it. The term ``knowingly'' does not take you out of 
compliance with the SEC.
    The second thing is in our congressional district, we have 
lost a couple of circuit board makers, and Mr. Pudles, you and 
I talked about this. The little guys who have to get in tin for 
the soldering and others of those, if there is a company 
overseas that makes the circuit board that has these materials 
in them and its exported to the United States, and the company 
in the United States that does not have to register with the 
SEC, then isn't it a fact that there is no violation of the 
law?
    Mr. Pudles?
    Mr. Pudles. That is correct. Any company outside of the 
United States that is selling to a non-SEC issuer will have no 
reporting requirements and therefore can buy their tin and 
their gold anywhere they want to buy it.
    Mr. Manzullo. And if a completed product is made overseas 
and exported to the United States, does the company that is 
doing the importing in the United States have to certify as to 
every product coming in that it is conflict-free?
    Mr. Pudles. If their customers and their supply chain are 
all non-SEC issuers, there will be no requirement on any of 
them to report any content in that product; correct.
    Mr. Manzullo. Okay. And then, as I read the statute, it 
says--the language says that conflict-free is defined to mean 
``the products that do not contain minerals that directly or 
indirectly finance or benefit armed groups in the Democratic 
Republic of the Congo.'' How is somebody supposed to know that?
    Dr. Seay, how many mines are in the Congo?
    Ms. Seay. I don't know the exact number, Congressman, I am 
sorry, but it is hundreds. And many of them are informal. So I 
think one of the important things to note is that even if you--
I am very skeptical of this idea of a closed pipeline coming 
out of the DRC. I think you can have a closed pipeline coming 
out of other countries, but in the DRC, even if you are able to 
mine outside the influence of minerals, you cannot leave an 
airstrip, you cannot cross roads without paying off militias.
    It is just under the circumstances, with the lack of 
governance, with the lack of anybody really being in control, 
it is going to be impossible to verify that those minerals have 
no association and are not tainted by association with armed 
groups in the Congo.
    Mr. Manzullo. And that is where the problem starts. If 
there is no way to verify it at the source of the mines, how 
could a company certify under a civil if not possible criminal 
penalty that they are conflict-free?
    Ms. Seay. It is really going to be difficult. There are 
these programs that we call bag-and-tag, where you tag the 
minerals at the location and seal them in bags. But even then, 
the transportation becomes an issue and it is going to be very, 
very difficult to verify that.
    You should never underestimate the entrepreneurial 
creativity of the Congolese. They will find a way around these 
regulations, because it is a matter of survival. It is a matter 
of survival to smuggle out minerals, to find a way. And so, I 
think focusing on the government issue is a great idea.
    Mr. Manzullo. And then, are there ever products from 
different mines that are combined?
    Ms. Seay. Oh, sure. Absolutely. There are processing in the 
Kivus as well. I think we have the idea that all the minerals 
are flown out as raw, and that is not true. In Bukavu, there is 
a facility that separates out Kesterite and Coltan, which tend 
to be found in nature together. And they don't associate what 
comes from where; they just dump it all into their products and 
send it out as one product.
    Mr. Manzullo. Okay.
    Chairman Miller of California. The gentleman's time has 
expired.
    Mr. Manzullo. Thank you, Mr. Chairman.
    Chairman Miller of California. Mr. Carson returns for 5 
minutes.
    Mr. Carson. Thank you, Mr. Chairman. Thank you for 
convening this hearing.
    The eastern portion of the Democratic Republic of the Congo 
has long been the site of one of the world's worst humanitarian 
crises. We know this. Since 1998, an estimated 5 million people 
have died as a result of the conflict.
    Several organizations, including GAO in a September 2010 
report, and a U.N. group of experts in several reports, 
documented that illegal armed groups, as well as some corrupt 
units of the Congolese National Military, are continuing to 
commit mass killings, rapes, and other severe human rights 
violations. And these groups profit from illegal exploitation 
of the minerals trade in eastern DRC.
    Recognizing the continuing urgency of the human rights 
situation, Congress as we all well know, included in the Dodd-
Frank Act provisions to reduce violence caused by these groups 
by targeting their illegal trade in conflict minerals.
    Mr. Vargo, do you agree, sir, that cutting the trade in 
conflict minerals could decrease violence in the eastern DRC by 
limiting the funding that is fueling the groups and units 
involved with these human rights violations?
    Mr. Vargo. Mr. Carson, frankly I don't know. I have heard 
testimony on both sides, a lot of press articles that say this 
is not working. I don't know. I represent America's 
manufacturers, and the law says that we have to do due 
diligence to try to reduce--eliminate our purchases from DRC 
conflict mines and we are going to do our best to do that.
    Mr. Carson. Okay.
    Mr. Lamar, do you think, sir, that companies that source 
conflict material minerals have a responsibility as a part in a 
real sense of their corporate responsibility to avoid funding 
these groups and units that commit horrific human rights 
violations in the eastern DRC?
    Mr. Lamar. I think in the business community, there are a 
number of compliance professionals who want to make sure that 
their supply chains are not inadvertently creating or 
contributing to any problems, whether it is the conflicts in 
Africa or any of the other problems around the world.
    And so, I think what you will see is that companies will do 
their best to be in compliance with either regulations or 
efforts, initiatives, to make sure their supply chains are not 
inadvertently contributing to or creating problems. And I would 
sort of echo what Mr. Vargo said about the relationship between 
this and the underlying conflicts.
    Mr. Carson. Bishop Djomo, do you agree, sir, that cutting 
the trade in conflict minerals could decrease violence in the 
eastern DRC by limiting the funding that is basically fueling 
those groups and units involved in human rights violations?
    Bishop Djomo. [The following testimony was delivered though 
an interpreter.] Certainly that will diminish the violence, 
because the armed groups persist in their violence because they 
receive revenue from the minerals. Their largest source of 
revenue is through this illegal sale of minerals. If they 
collect taxes through the anarchy of informal taxation, it is 
because they have first, the financing from the minerals, and 
the arms to do it.
    Mr. Carson. Thank you, Mr. Chairman, I yield back.
    Thank you.
    Mr. Huizenga [presiding]. The gentleman yields back. Thank 
you.
    I actually get an opportunity to recognize myself for 5 
minutes. And that is unusual, being recognized so.
    But first, Bishop, to you and Mr. Dizolele, as a person who 
has been watching this, I want to tell you personally that for 
myself, many people that I know, we are praying for you and 
your citizenry. Our hearts go out to you. As a fellow believer, 
I know the work that the Church does. And I commend you for 
that. And for being here. And I just wanted to first convey 
that.
    I have also asked that we put up a map of the country. It 
is a bit of an unknown for many in the Western world, exactly 
where it is and where it lies. And I was hoping that Mr. 
Dizolele and Dr. Seay, if you could maybe talk a little bit 
about where those conflicts are and then, Dr. Seay, I would 
like you to expand on that a little bit about what the conflict 
origination is.
    We are hearing from the Bishop that he believes that all 
roads lead to the mines, or those roads to the violence lead to 
the mines I believe was sort of the phrase that he was talking 
about. And we can maybe explore a little bit about the 
differences on that. So if you could maybe point out what part 
of the world we are talking about?
    Mr. Dizolele. Thank you, sir, Congressman, for your prayer 
for the Congolese, and for this opportunity.
    So we see to the left--to the right there--above the big 
lake, which is Lake Tanganyika, which is Bujambura and Bakavu, 
and then just above that where it says Burungungu, that is the 
area we are talking about, which is Lake Albert, so it is just 
that section that we are talking about.
    Mr. Huizenga. The Mount Stanley area, and that area up 
there?
    Mr. Dizolele. That is the area up there.
    Mr. Huizenga. Yes.
    Mr. Dizolele. But the challenge is that the conflict in 
that area is fed by what is not happening in the rest of the 
country. I think it is very dangerous for us to talk about the 
Kivus in isolation. This is not an independent sovereign 
nation. This is a collection of three provinces that are paying 
the price of a lack of leadership in Kinshasa, to the west, to 
the capital.
    So putting a Band-Aid on the problem in Bukavu is not going 
to lead us to peace. I am afraid to say so. It might allow for 
temporary relief of sorts, but it is just not sustainable.
    Thank you.
    Mr. Huizenga. And thank you.
    Ms. Seay. Thank you, Congressman.
    Mr. Huizenga. And if we could very quickly, because I do 
want to hear from the Bishop--
    Ms. Seay. Sure.
    Mr. Huizenga. --as well, and then I actually want to get to 
my real question. So, quickly?
    Ms. Seay. Sure. So I think it is important to understand, 
mineral--the militarizing in the mineral trade is a symptom, 
rather than a cause, rather than the disease itself. So it is 
definitely something that fuels some of the conflict. It is 
definitely a problem and I don't want to give the impression 
that it shouldn't be cleaned up. I just don't think Section 
1502 is going to do it.
    But the real issue underlying conflict in this part of the 
country is land rights and citizenship rights. The question of 
who gets to be Congolese and who has the right to own land? In 
the area, the north Kivu area that Mr. Dizolele was describing, 
is some of the most fertile agricultural land in the world. It 
produces three harvests per year. And it is hotly contested 
because it is so valuable and has been.
    And it is really important to note, these conflicts have 
been going on since before the DRC war started, and before 
there was high demand for Congolese minerals. But it is not 
homogenous. The armed groups are different; they are not all 
fighting on minerals. They don't depend on minerals to the same 
extent. It is really complex.
    Mr. Huizenga. So this isn't just the LRA that we may be 
seeing in the media? This is local?
    Ms. Seay. They are not even in the area.
    Mr. Huizenga. Yes, this is local and--
    Ms. Seay. And you also have significant mining areas where 
there is no conflict, like the Kasai and the Katanga.
    Mr. Huizenga. Bishop, quickly, if you would maybe respond 
to that?
    Bishop Djomo. [The following testimony was delivered 
through an interpreter.] The Church lives everywhere where the 
population lives as well. We have come to realize that the 
largest, the most important part of the instability are the 
economic reasons. The ethnic rivalries are manipulated, are 
used as instruments for this conflict. The Church believes that 
the international and national regulations, if done gradually 
over time, will solve these problems.
    I mentioned in my testimony that the Congolese government 
is in the process of passing some of these laws. It is certain 
that stability in the Congo depends on many factors, but the 
illegal exploitation of resources is a major factor. That is 
why the Church asked the international community and the 
national leaders in the Congo to regularize these laws and to 
implement them.
    The tensions, the ethnic tensions that exist are 
manipulated, are instruments of this conflict and are fueled by 
the minerals and the mines.
    Mr. Huizenga. I appreciate that testimony.
    And Mr. Lamar, I wanted to briefly get to you, and I don't 
know that I really have the time. My time has expired. But I am 
concerned, so I guess to the panel, my concern is whether it is 
out of the apparel and manufacturing, whether it is out of tier 
one automotive suppliers that are in the 2nd District of 
Michigan, who are dealing with requirements in NAFTA that for 
them to go through a tier one and we see it costs hundreds of 
thousands of dollars to that process, they are looking at it 
being millions of dollars if they are having to go down five 
tiers.
    And I think the crux of the question is, will this solve 
the conflict in the DRC? Will this solve the issues that we are 
dealing with in that northeastern corner of a very conflicted 
world?
    And obviously, Rwanda and other areas that are in that area 
have seen violence for so long, and I hope you understand that 
is what the intent is for me personally and I believe the rest 
of this panel is to look at how we are making sure that the 
problem is really truly solved and is not a veneer, I think as 
Mr. Dizolele talked about.
    So with that, my time has expired. I appreciate that.
    With that, the Chair recognizes Mr. Scott for 5 minutes.
    Mr. Scott. Thank you.
    As I mentioned in my opening statement, I traveled over 
there into the Congo and I have seen firsthand and I have 
witnessed a lot of this. And it was very disturbing. It is just 
terrible.
    Let me start with you, Bishop. Is it true, in your opinion, 
that this trade in conflict minerals has funded the cycle of 
conflict in the Congo? You said yes?
    Bishop Djomo. [The following testimony was delivered 
through an interpreter.] That is exactly what the Bishops of 
the Congo have been saying.
    Mr. Scott. All right.
    Now, Mr. Dizolele, has this mineral--conflict mineral--
spawned this conflict? And I am asking you the same question I 
asked the Bishop.
    Mr. Dizolele. To a certain extent, yes, Congressman. I 
think though the way forward, if we can take the example of 
Sierra Leone. Everybody here we heard today information on the 
Kimberly process, black diamonds, and so on and so forth. What 
helped Sierra Leone and Liberia was a confluence of actions. 
Black diamond containment was just the topping on the cake. And 
we don't have that in the Congo. We are putting the cart before 
the horse.
    Mr. Scott. Okay. What I want to do here is, because we have 
a conflict right here with the panel. I want to get at a 
measure here and in the midst of one myself, who was there, and 
as an African-American, I can't begin to tell you how much that 
experience touched me.
    And if these minerals are the source of the funding for the 
conflict, which the end result becomes this dehumanizing 
mutilation of the sexual reproductive system of the women of 
Africa, then we must with all deliberate speed take every step. 
So if you agree, and if there is a consensus that this--that 
dealing in these minerals is causing this, what more important 
thing can we do than to, as the United States, the most 
powerful country on earth, with the riches of our economy, to 
say to our companies that you cannot do business here.
    It is clearly in conflict with what we stand for. That 
seems to me to right now be the least we could do. It will not 
solve the problem, but it seems to me that it will be a big 
step going forward. So if we got that consensus there, on what 
grounds would you deny and say the United States should not do 
this?
    Mr. Dizolele. Congressman, I think it is an important 
question. It gets to the heart of the matter. This mighty 
country, for which I served as a Marine, has the power to go 
after the militias. If we want to help the poor women, I have 
seen pictures, I have been to Panzi. I have seen pictures of 
mutilated genitalia. And I have seen these women. If we mean to 
help them--the question they would ask this chamber if they 
were here is, why don't you come after these militias? That is 
the question they would ask you.
    Mr. Scott. No, but the point to me is what I am trying to 
get at is that, no, I don't think. I think it is a cultural 
thing. I think that once they do that act there is something 
else at work there. But the point of the matter that we have as 
a country in the United States, should we be contributing to 
that?
    It is not that we could stop it, but cannot--should our 
companies be allowed to contribute to this, if you agree with 
the Bishop that these conflict minerals are in effect getting 
us to the end line of this brutalization of women sexually and 
violently, physically in that country? And I think that is the 
core of our pushing forward Section 1502. Do you see my point? 
I think that that really gets to where we are.
    And I see my time is up. Thank you, Mr. Chairman.
    Chairman Miller of California. Thank you.
    We are probably going to try to do a line of questioning 
for Members not on the subcommittee, so I will start with 
myself, then I will go to Mr. Miller next.
    Mr. Dizolele, would you say that fewer women are going to 
be violated after the implementation of Section 1502?
    Mr. Dizolele. Mr. Chairman, two things. First, I would like 
to say that sexual violence is not part of the culture. There 
is no religious edict or any tradition of this. This is just as 
appalling and new to most Congolese.
    Then two, I don't think it is going to reduce the violence 
on women, because as long as those militias are still there and 
the justice system does not work, and there is no military 
solution to go after them, then, as I said early on, the women 
have to be the one to go to the field, they will still be 
raped.
    So we are not getting--I think we are tepid and timid in 
our approach with Section 1502. I think this chamber and this 
Congress has the power to enact bolder regulation than this, 
what I again call a veneer. Because this serves to assuage 
Western consumers, but it doesn't get to really help the 
victims.
    Thank you.
    Chairman Miller of California. It appears from testimony 
that maybe American companies are moving out of the mines, but 
Chinese companies and others are moving back in. Is that true, 
Ms. Seay?
    Ms. Seay. Yes, it absolutely is. I mentioned in my 
testimony that 10 exports have gone down by about 90 percent 
from the Kivu provinces. That other 10 percent is entirely 
being bought by China through 2 or 3 of the trading houses in 
the cities. It is essentially the main consumer now.
    Chairman Miller of California. So is there any record we 
have that Chinese companies are better on human rights issues 
than American companies?
    Ms. Seay. I don't believe--the evidence of which I am aware 
does not suggest that they are.
    Chairman Miller of California. So if we are saying that we 
are pulling American companies out of a region that is heavily 
impacted, it is like many of our trade issues we face. If goods 
aren't produced here, they are produced in China. And it seems 
like other countries are going to pick up the shortfall and 
take advantage of the availability that is going to exist in a 
region if we pull out. Is that--what is your opinion on that?
    Ms. Seay. I think that is a reasonable opinion. And I think 
it mirrors the efforts that the Chinese are making on the 
political side of things. China, as Mvemba mentioned in his 
testimony, has a multi-billion dollar deal with the Congo. And 
they don't care about human rights violations. They don't care.
    The Chinese do not put any pressure on the government. And 
losing sources of leverage by our companies pulling out, I 
think is a challenge for things like democracy, for things like 
having free and fair elections that accurately reflect the will 
of the Congolese, which they do not enjoy today.
    Chairman Miller of California. Mr. Dizolele, you heard the 
testimony of the Honorable Bishop. Do you agree with that?
    Mr. Dizolele. I am sorry, sir?
    Chairman Miller of California. You heard the testimony of 
the Honorable Bishop. Do you agree with his testimony that this 
is going to have a positive impact on the people in the region, 
the implementation of this? And it is not really a big jobs 
issue for them?
    Mr. Dizolele. I think only partly, because I think in the 
bigger picture, this will actually not have a positive. If the 
goal--early in my statement, I said if you are going to assess 
this, we have to assess this on the claim, the premise of 
Section 1502. The claim was it is going to extensively reduce 
the violence. I do not think so.
    To buy an AK-47, you don't need to sell minerals. AK-47s 
are pretty cheap and violence can happen with machetes, as we 
saw in Rwanda. No AK-47s were used in the genocide. If the 
conflicts are not addressed, if we don't go after the militia, 
they are still free agents to do whatever they will.
    Again, we don't have an enforcement mechanism on the 
Congolese side. This law has made the enforcement mechanism on 
the corporations in the United States. But where is the other 
side of the coin? Who enforces this in the Congo?
    Chairman Miller of California. It seems like we have placed 
the burden on American businesses. And I am not minimizing the 
problem over there, but having--we have met with the African 
Development Bank multilevel development banks who play a 
significant role in this region.
    Wouldn't their involvement be much more beneficial to this 
issue to increase stability than the way we are trying to 
create it, Ms. Seay?
    Ms. Seay. I am a bit skeptical about the African 
Development Bank. Their power is limited. But I think that you 
do have regional and domestic mechanisms that are aware of the 
conditions and have a much more sort of pragmatic approach to 
the problem than the one reflected in Section 1502.
    So you have--there are partnerships going on. These are 
evolving. Some of them are working with the OECD guidelines. 
But eventually we are going to get a mining code in the DRC 
maybe. And we are going to have these regional initiatives, and 
I think providing support to regional actors who know the 
terrain, who speak the languages, who understand the culture, 
and who understand the challenges of operating in an 
environment in which there is absolutely no regulation and 
absolutely no rule of law is really important.
    Chairman Miller of California. So we can feel good that we 
have probably turned it over to Chinese companies to deal with 
the mines and the other companies and that is going to probably 
make their situation better in that part of the world, which I 
highly doubt.
    Ms. Seay. I don't feel good about that.
    Chairman Miller of California. Mr. Miller, you are 
recognized for 5 minutes.
    I am going by the Ranking Member's list. It wasn't my 
preference, it was--
    Mr. Miller of North Carolina. All right. Thank you, Mr. 
Chairman.
    Mr. Scott said that the conflict, the violence in the Congo 
was appalling for African-Americans. It is also appalling for 
White folks, I can tell you. The chairman at the beginning said 
that the conflict, that the violence in the Congo was the 
result of warlords and thugs. That lets the developed world off 
pretty lightly.
    It is very clear that the conflict in the Congo is largely 
motivated by the opportunity to steal from the people of the 
Congo, to steal the revenue that comes from conflict minerals. 
And that the revenue from conflict minerals are funding all the 
sides in the conflict.
    When Mobutu was deposed in 1997 by Laurent Kabila, Kabila 
said Mobutu had $5 billion waiting for him in foreign bank 
accounts from what he had stolen when he was the head of the 
Congo.
    Kabila said to a local reporter that all it took to put 
together a rebellion was $10,000 and a satellite thing--$10,000 
was enough to hire an army in the Congo, given how extreme the 
poverty was there.
    And the satellite thing meant that he could negotiate with 
all the buyers of the minerals to further fund his army. And 
supposedly by the time he reached Kinshasa, he had already 
contracted--he had half a billion in contracts with the buyers 
of the minerals in the Congo.
    There have now been 5.4 million people who have died since 
1998. Rape is a weapon of war there and at least 200,000 women 
have been raped. But what is going on in the Congo is horrific 
and all of humanity should take responsibility for it.
    The Enough Project's concerns have been kind of dismissed, 
sneered at even, I think, some today. They say they are not 
urging a boycott of Congo minerals. They are urging that there 
be legitimate supply chains with tracing and auditing to make 
sure that the buyers of those minerals know what they are 
getting, and they are not conflict minerals. And it is not 
impossible to do. In fact, there appear to be some supply 
chains, legitimate supply chains, already.
    Mr. Calder, is it going to be impossible to develop 
legitimate supply chains? And what now exists?
    Mr. Calder. A good part of the data we have now is the 
Conflict-Free Smelter Program, and a very key part of their 
data about whether it is possible. One of the also key parts is 
now it is very clear. We have talked about U.S. companies 
pulling out. They pulled out a long time ago. They pulled out 
in 2004, 2005.
    It has been mostly purchased--everything has been purchased 
up to more recently, the status quo before this law came out, 
it was Chinese, Malaysian, Soviet Republics. I am not talking 
about the Chinese moving in now. They moved in a long time ago 
and they have been able to use this cheaper material to 
actually gain marketshare over the U.S. companies.
    This is before this law. This law finally levels the 
playing field. Is it possible? Now we know this incredible 
traceability, which companies have been buying, because of 
these smelter programs. These were done before we have a final 
rule, that they have done on their own initiative.
    Is it possible? We have a number of examples in here of 
companies that say it is possible. One of them being quoted 
here is also Nordstrom. So it is very key. These companies are 
quoted it is possible. And some companies like Kester, which 
buys most of the solder, or a majority in the United States, 
have completed it.
    Mr. Miller of North Carolina. All right.
    Dr. Seay, you have said that rather than try to trace 
conflict minerals, you are very skeptical about the 
practicality of doing that. But do you say instead say there 
should be government's promotion in security sector reform?
    I spent a couple of days in Kinshasa. I don't claim to be a 
Congo hand as a result of spending a couple of days in 
Kinshasa. But we met with--our delegation met with the--it was 
in MINOC. I think it is now called UNESCO, the United Nations 
mission in the Congo. And they said they were simply 
overwhelmed.
    They could not begin to govern or to provide security in 
the Congo. They got just shy of 20,000 uniformed personnel, 
another 4,000 or 5,000 civilians, and can't begin to touch the 
problem. They can't begin to get at real governance or rule of 
law, because they are simply spending all of their resources 
providing security. And that security is massively resource-
intensive and long term.
    Dr. Seay, where are you suggesting--how much are you 
suggesting that it cost to provide the necessary security in 
this massive ungoverned area? How long are we going to be 
there, and who is going to provide those resources?
    Chairman Miller of California. The gentleman's time has 
expired.
    Dr. Seay, you may give a brief answer.
    Ms. Seay. Thank you, Congressman, for the question. I am 
not suggesting that all the security be provided by UNESCO. 
Although I do agree, it is vastly underresourced. It is 
absolutely ludicrous to think that a peacekeeping force of 
17,000 people can protect civilians in a territory the size of 
the United States east of the Mississippi. That mission was 
underresourced and underfunded from the beginning. And it has 
never been properly--
    Mr. Miller of North Carolina. It apparently--
    Chairman Miller of California. The gentleman's time--
    Mr. Miller of North Carolina. --has the best resources--
    Chairman Miller of California. The gentleman's time has 
expired.
    I will allow the witness to respond, but the gentleman's 
time has expired.
    Mr. Miller of North Carolina. Okay.
    Ms. Seay. Okay. So on your question regarding how much it 
is going to cost and how long, I think the key is not getting 
more peacekeepers in, which is unrealistic by any measure, 
financial or political. But rather, to strengthen the capacity 
of the Congolese military, and to turn it away from being a 
force that is the largest abuser of human rights in the Congo 
and responsible for more rapes and more looting or institution 
or armed group.
    And instead, to professionalize those soldiers, to punish 
and remove from the army those who commit human rights abuses, 
and to pay soldiers a living wage so that they do not have an 
excuse to go out and loot and cause other problems.
    Chairman Miller of California. Thank you.
    I ask unanimous consent that the gentlelady from California 
be recognized for 5 minutes.
    Without objection, the gentlelady from California is 
recognized.
    Ms. Waters. Thank you very much. I know that this time, Mr. 
Chairman, is reserved for questions. And I want to thank you 
for this hearing. I don't really have any questions. My mind is 
made up.
    I am a supporter of the continent, the entire continent of 
Africa. I want you to know that I have spent part of my career 
working on getting rid of apartheid in South Africa, and 
helping Nelson Mandela to get out of prison.
    I want you to know that I am applauding the fact that 
Charles Taylor is going to be sentenced to a long time in 
prison for what he did in Sierra Leone. And in Liberia and the 
diamonds that were conflict diamonds there. I want you to know 
that I have been in Angola and I was so glad when we finally 
got rid of the war that was funded with Savimbi coming out of 
the bush, using conflict diamonds.
    I want you to know that I have been to the Democratic 
Republic of the Congo long before Laurent Kabila ever became 
president, and I understand all of this very well. And I want 
you to know for anybody to say whatever we are doing does not 
help, we should not do it, and look what China is doing, does 
not hold water with me.
    We have a moral responsibility to deal with these issues, 
and we have a moral responsibility to provide that leadership. 
I don't care if it helps but a little, we keep working, we keep 
building on the idea that the exploitation and the devastation 
of this wonderful continent has to stop. And some of us are 
committed to that for the rest of our lives.
    And so, I am sorry that there are those who think it is 
going to interfere with their business, that they won't be able 
to make as much money. First of all, give the SEC the 
opportunity, give them the chance. Give them the opportunity to 
put together the regulations. I worked on Dodd-Frank. I was on 
the conference committee, and I supported Sections 1502 and 
1504, and I will continue to do that.
    Now, this hearing is fine, because it gives people an 
opportunity to respond to the allegation that we didn't have a 
hearing on these issues prior to Dodd-Frank. So this is the 
hearing. But we should not reach any conclusions about it being 
unfair to businesses. It is possible. I want to tell you, I am 
reading abut a supply pipeline that is closed. Motorola is 
doing it. They are able to comply. And they lay it all out 
here. So this business of possible, not able to comply, you 
can't verify, excuses, excuses, excuses.
    And I wanted you to know that for as long as I am an 
elected official and a Member of Congress who understands what 
has happened on that continent, not only from those of us in 
the United States who were part of that exploitation, but from 
other countries all over the world.
    I am not worried that somehow China is going to beat us 
out. China is all over the world doing what China does. But 
some of us are even looking at our trade negotiations to see 
how we can include these kinds of questions in our trade 
negotiations with China and other places.
    So I am very appreciative that you are here. Bishop, I want 
you to go back and I want you to tell the other Bishops that 
there are people here who love the continent, who love Africa, 
who are going to fight for Africa, who understand what is going 
on with these conflict minerals, and we are not worried about 
competition, we are not worried about loss of dollars. We can 
have a closed pipeline where we can monitor this. And there are 
some of us who are committed to doing it.
    So I don't have questions, and perhaps there are some 
people who can say, well, how is it she can say that she knows 
so much that she doesn't have to answer any questions?
    And again, I am telling you, I am not a stranger to the 
Democratic Republic of the Congo. I was there. I am not a 
stranger to Angola, I have been there. I am not a stranger to 
Liberia and Sierra Leone.
    I am not talking from afar. I am not some privileged 
African-American legislator in this country, or a privileged 
White person in this country who can sit back and talk about 
how we are disadvantaged, because when you say that you don't 
understand the rape and the murder and the killings and the 
devastation and the loss of lives that has taken place.
    It is easy to speculate or to talk about this is 
uncomfortable for me, this is inconvenient for me, this may 
interfere with my profits. Shame on us. Shame on us. We are 
better people than that.
    I have one second left? I yield back the balance of my 
time. I have said all I need to say.
    [applause]
    Chairman Miller of California. Mr. McDermott, you are 
recognized for 5 minutes and 1 second.
    Personal items are not permitted during a congressional 
hearing. I am sorry.
    Mr. McDermott, you are recognized for 5 minutes.
    Mr. McDermott. Mr. Chairman, I am going to begin with a 
confession.
    I lived in Kinshasa for 9 months. I worked there for the 
State Department. I have been all over Goma. I know all the 
people in Kivu who are involved in this. And what is necessary 
here today is to decide, are you going to repeal it, or are you 
going to let the SEC go forward and write a rule?
    The problem here is most of the argument is about an 
imaginary rule. We have not seen the rule. People are 
responding to an imaginary rule. The SEC should move forward. 
And I will stipulate that this decision will not end all the 
problems in the Congo. I was recently in Brussels and went to 
the Leopold museum. And when you realize this kind of conflict 
has been going on since 1890, that nothing is going to come in 
and be the silver bullet that fixes it.
    This question goes to Mr. Scott's point: Does our 
continuing to put money into the Congo minerals black market 
feed the war? Now, every Member of this Congress knows that the 
Vietnam War ended when Congress cut off the money. And the war 
in Afghanistan will stop when this Congress cuts off the money. 
That is what we are talking about here is, ``How do you cut off 
the money?'' Now, it won't fix everything, but it is going to 
fix it for a lot of people.
    Let me go to one other point that there has been a lot of 
confusion here about. And I was pleased to see a map, because 
most people, if you handed them a map, they couldn't find the 
Congo on it, first of all. Then they couldn't find Kivu if 
their life depended on it. But the fact is that those 
provinces, North and South Kivu, are the area right next to 
Rwanda, from which the genocide moved right across the border.
    And all of the problems created by those people back in 
Berlin 100 years ago when they drew lines in Central Africa 
about who lived where and who was who, is going on today as it 
was 100 years ago. And everyone who talks about that, or who 
understands the place, knows that. The fact is, there are 
conflict-free mines now. In Katanga Province, immediately south 
and west, which is where all the copper and tin comes from, 
that is what created all of the business when we sent in our 
troops in 1960, all of it was about copper in those days.
    Now, there are conflict-free mines. There is a place down 
on 18th and L Streets, I think, called PACT. It is a group of 
conflict-free mining experts working for the tin and tantalum 
society, who can give you the name of 146 conflict-free mines 
in the DRC and 406 conflict-free mines in Rwanda today. They 
put out 500 tons a month of conflict-free minerals. And it is 
all sold. There is no shortage. These companies who talk about, 
``Oh God, we won't know where to get our stuff.'' That is 
nonsense. The minerals industry has already moved to clarify 
this situation, because they realized the justice in it.
    It is so clear that they have already moved. And my belief 
is that the question here is really, is the Congress going to 
use its power of money to change the situation over there, or 
are they not? We can throw up our hands and say, it is 
hopeless, it is impossible, there are all these people, it has 
been going on forever, and we won't do anything.
    Congo has been free for 50 years, since 1960. I was there 
in 1987 and 1988. And the policemen were not paid. People would 
stop you in the street and say, give me money. That is how the 
policemen were paid. That is how the army is paid. There is no 
civil service. There is no organized government. We all know 
that.
    But the question is, is the Congress going to allow 
industry, for profit, to continue to buy from this source? It 
is changing, it has changed dramatically as we already have 
testimony from Mr. Calder, that because once the companies saw 
the justice in it, they said no, we are going to find a clean 
place to buy our minerals.
    And I could tell you, I can assure you, Mr. Miller, that 
Nordstrom, whose name is on this list from my city, will not 
sell you a suit with a button that is filled with conflict 
minerals. They don't want that reputation, and they will make 
sure that they are all clean.
    I would like to hear from Mr. Calder a little bit about 
the--
    Chairman Miller of California. The gentleman's time has 
already expired before he asked a question.
    Mr. McDermott. Time flies when you are having a good time.
    Chairman Miller of California. It does.
    Without objection, I would like to submit for the record 
the following: a letter from the U.S. Chamber of Commerce; a 
letter from the Retail Industry Leaders Association; a 
statement from Kinnemont-Link based in Latrobe, Pennsylvania; a 
letter from the SEC, from the SBA Office of Advocacy; and a 
letter from the Automotive Industry Action Group signed by 
executives from Chrysler, Ford, GM, Honda, Nissan, and Toyota 
to their suppliers alerting them that they will need to comply 
with Section 1502, even though they are not SEC registrants.
    Ms. Waters. Mr. Chairman, may I ask unanimous consent?
    Chairman Miller of California. I already did that.
    Ms. Waters. For the supply chain?
    Chairman Miller of California. Oh, without objection, the 
supplychain letter will be submitted also.
    Ms. Waters. Thank you.
    Chairman Miller of California. I would like to thank the 
panel for your time, for your expertise, for your patience, and 
for the travel many of you have made to be here. And let us 
hope that the government and the region does something about 
this problem, deals with the human rights. I hate to see the 
burden placed on the back of American businesses. It is not 
Congress paying; it is American businesses paying.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for Members to submit written questions to these 
witnesses and to place their responses in the record.
    And with that, this hearing is adjourned.
    [Whereupon, at 12:52 p.m., the hearing was adjourned.]










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                              May 10, 2012


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