[House Hearing, 114 Congress] [From the U.S. Government Publishing Office] DODD-FRANK FIVE YEARS LATER: WHAT HAVE WE LEARNED FROM CONFLICT MINERALS REPORTING? ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON MONETARY POLICY AND TRADE OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTEENTH CONGRESS FIRST SESSION __________ NOVEMBER 17, 2015 __________ Printed for the use of the Committee on Financial Services Serial No. 114-61 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] U.S. GOVERNMENT PUBLISHING OFFICE 99-780 PDF WASHINGTON : 2016 ____________________________________________________________________ For sale by the Superintendent of Documents, U.S. Government Publishing Office, Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800 Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001 HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking Vice Chairman Member PETER T. KING, New York CAROLYN B. MALONEY, New York EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts STEVAN PEARCE, New Mexico RUBEN HINOJOSA, Texas BILL POSEY, Florida WM. LACY CLAY, Missouri MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts Pennsylvania DAVID SCOTT, Georgia LYNN A. WESTMORELAND, Georgia AL GREEN, Texas BLAINE LUETKEMEYER, Missouri EMANUEL CLEAVER, Missouri BILL HUIZENGA, Michigan GWEN MOORE, Wisconsin SEAN P. DUFFY, Wisconsin KEITH ELLISON, Minnesota ROBERT HURT, Virginia ED PERLMUTTER, Colorado STEVE STIVERS, Ohio JAMES A. HIMES, Connecticut STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama MICK MULVANEY, South Carolina BILL FOSTER, Illinois RANDY HULTGREN, Illinois DANIEL T. KILDEE, Michigan DENNIS A. ROSS, Florida PATRICK MURPHY, Florida ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland ANN WAGNER, Missouri KYRSTEN SINEMA, Arizona ANDY BARR, Kentucky JOYCE BEATTY, Ohio KEITH J. ROTHFUS, Pennsylvania DENNY HECK, Washington LUKE MESSER, Indiana JUAN VARGAS, California DAVID SCHWEIKERT, Arizona FRANK GUINTA, New Hampshire SCOTT TIPTON, Colorado ROGER WILLIAMS, Texas BRUCE POLIQUIN, Maine MIA LOVE, Utah FRENCH HILL, Arkansas TOM EMMER, Minnesota Shannon McGahn, Staff Director James H. Clinger, Chief Counsel Subcommittee on Monetary Policy and Trade BILL HUIZENGA, Michigan, Chairman MICK MULVANEY, South Carolina, Vice GWEN MOORE, Wisconsin, Ranking Chairman Member FRANK D. LUCAS, Oklahoma BILL FOSTER, Illinois STEVAN PEARCE, New Mexico ED PERLMUTTER, Colorado LYNN A. WESTMORELAND, Georgia JAMES A. HIMES, Connecticut MARLIN A. STUTZMAN, Indiana JOHN C. CARNEY, Jr., Delaware ROBERT PITTENGER, North Carolina TERRI A. SEWELL, Alabama LUKE MESSER, Indiana PATRICK MURPHY, Florida DAVID SCHWEIKERT, Arizona DANIEL T. KILDEE, Michigan FRANK GUINTA, New Hampshire DENNY HECK, Washington MIA LOVE, Utah TOM EMMER, Minnesota C O N T E N T S ---------- Page Hearing held on: November 17, 2015............................................ 1 Appendix: November 17, 2015............................................ 33 WITNESSES Tuesday, November 17, 2015 Gianopoulos, Kimberly, Director, International Affairs and Trade, U.S. Government Accountability Office (GAO).................... 6 Imena, Hon. Evode, Minister of State, in charge of Mining, Ministry of Natural Resources, Government of the Republic of Rwanda......................................................... 8 Loof, Hon. Per-Olof, Chief Executive Officer, KEMET Electronics Corporation.................................................... 11 Schwartz, Jeff, Professor of Law, S.J. Quinney College of Law, University of Utah............................................. 4 Woody, Karen E., Assistant Professor, Business Law and Ethics, Kelley School of Business, Indiana University.................. 9 APPENDIX Prepared statements: Gianopoulos, Kimberly........................................ 34 Imena, Hon. Evode............................................ 58 Loof, Hon. Per-Olof.......................................... 68 Schwartz, Jeff............................................... 72 Woody, Karen E............................................... 137 Additional Material Submitted for the Record Huizenga, Hon. Bill: Written statement of the National Association of Manufacturers.............................................. 141 Moore, Hon. Gwen: Public Declaration from the Association for the Development of the Initiatives of the People, dated November 15, 2015.. 145 Written statement of the Conflict-Free Campus Initiative..... 146 Written statement of the Electronic Industry Citizenship Coalition.................................................. 148 Written statement of Claigan Environmental................... 151 Written statement of the Enough Project...................... 158 Written statement of Georges Nzabanita Iyamuremye............ 162 Written statement of Global Witness.......................... 164 Written statement of the International Corporate Accountability Roundtable.................................. 168 Written statement of Jewish World Watch...................... 170 Written statement of Hon. Jim McDermott, a Representative in Congress from the State of Washington...................... 171 Written statement of the National Association of Evangelicals 173 Written statement of Panzi Hospital & Foundations............ 175 Written statement of the Responsible Sourcing Network........ 176 Imena, Hon. Evode: Chapter 3, ``Specialty Metals,'' of a report entitled, ``Remaking American Security, Supply Chain Vulnerabilities & National Security Risks Across the U.S. Defense Industrial Base,'' by Brigadier General John Adams, U.S. Army (Retired), dated May 2013............................. 180 Marketplace article entitled, ``The long arms of a U.S. law reach Congo,'' dated December 11, 2014..................... 221 Article entitled, ``How Dodd-Frank Is Failing Congo,'' dated February 2, 2015........................................... 227 New York Times article entitled, ``How Congress Devastated Congo,'' dated August 7, 2011.............................. 236 An open letter from various undersigned parties.............. 240 PR Newswire article entitled, ``Rwanda Has Become World's Largest Coltan Exporter, Reports KT Press,'' dated December 16, 2014................................................... 245 Article from The Wall Street Journal entitled, ```Conflict Minerals' Too Hard To Track, Commerce Department Says,'' dated September 5, 2014.................................... 250 A report from the Tulane University Law School's Payson Center for International Development entitled, ``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,'' dated October 17, 2011.......... 252 Report entitled, ``Unconflicted, Making conflict-free mining a reality in the DRC, Rwanda and Burundi,'' dated July 2015 288 USGS report entitled, ``An Exploration in Mineral Supply Chain Mapping Using Tantalum as an Example,'' dated 2013... 315 Washington Post article entitled, ``How a well-intentioned U.S. law left Congolese miners jobless,'' dated November 30, 2014................................................... 370 Washington Post article entitled, ``Eastern Congo, economic colonialism in the guise of ethical consumption?'' dated September 10, 2014......................................... 375 Center for Global Development Working Paper entitled, ``What's Wrong with Dodd-Frank 1502?'' dated January 2012.. 378 DODD-FRANK FIVE YEARS LATER: WHAT HAVE WE LEARNED FROM CONFLICT MINERALS REPORTING? ---------- Tuesday, November 17, 2015 U.S. House of Representatives, Subcommittee on Monetary Policy and Trade, Committee on Financial Services, Washington, D.C. The subcommittee met, pursuant to notice, at 10:07 a.m., in room 2128, Rayburn House Office Building, Hon. Bill Huizenga [chairman of the subcommittee] presiding. Members present: Representatives Huizenga, Mulvaney, Lucas, Pearce, Westmoreland, Pittenger, Messer, Schweikert, Guinta, Love, Emmer; Moore, Foster, Himes, Murphy, Kildee, and Heck. Ex officio present: Representatives Hensarling and Waters. Also present: Representative Sherman. Chairman Huizenga. The Subcommittee on Monetary Policy and Trade will come to order. And without objection, the Chair is authorized to declare a recess of the subcommittee at any time. Today's hearing is entitled, ``Dodd-Frank Five Years Later: What Have we Learned from Conflict Minerals Reporting?'' I now recognize myself for 5 minutes to give an opening statement. Five years ago, the passage of the Dodd-Frank Act created Section 1502, requiring public companies to disclose whether they source ``conflict minerals''--tin, tungsten, tantalum, and gold--from the Democratic Republic of the Congo (DRC) and its nine neighboring countries. These minerals have been used in a variety of products, including cell phones, cosmetics, footwear, apparel, and even auto supplies. Many auto suppliers are located in my area in western Michigan. Needless to say, every single one of us has someone impacted by this very provision in our various congressional districts. I would also like to note that was a provision that was put into Dodd-Frank which had no hearings in the House or in the Senate; it was a provision that was inserted at conference and never had a full airing. And that is something that I am determined to do now. Well, 5 years later, I am very concerned that this well- intentioned conflict minerals rule is actually harming the very people it was intended to help. In a November 2014 article, the Washington Post reported that the conflict minerals rule, while well-intentioned, ``set off a chain of events that has propelled millions of Congolese miners and their families deeper into poverty,'' with many miners ``forced to find other ways to survive, including by joining armed groups.'' Writing in Foreign Policy magazine, Lauren Wolfe observed that, ``Perhaps it is time to face the fact that the regulatory law now in place has done little to improve the lives of some of the poorest people on Earth, and for many it may have made an already dismal reality grimmer.'' Now, we see that the Securities and Exchange Commission has promulgated rules for public companies to disclose their use of these minerals and issued its disclosure rule in August of 2012. Under the rule, companies that use conflict minerals must undertake a reasonable country-of-origin inquiry (RCOI) to assess whether these minerals have originated from the 10 covered countries in Africa. Companies filed disclosures for the first time in response to the rule in 2014 on minerals used in the calendar year of 2013. Additionally, in April of 2014 a panel of the U.S. Court of Appeals for the D.C. Circuit ruled that requiring companies to describe the conflict-free status of their products violated their First Amendment rights. This decision was upheld by the same three-judge panel in August of this year, of 2015. As we all know, the SEC has little or no experience in crafting trade sanctions or articulating and enforcing human rights policy, two areas which have not traditionally been within the purview of securities regulation. SEC Chair Mary Jo White has also questioned the SEC's ability to promulgate rules governing the African minerals trade and whether SEC disclosure powers are best used to meet and address societal ills. In fact, in an October of 2013 speech, Chair White stated that, ``Other mandates which invoke the Commission's mandatory disclosure powers seem more directed at exerting society pressure on companies to change behavior rather than to disclose financial information that primarily informs investment decisions. That is not to say that the goals of such mandates are not laudable. Indeed, most are. ``Seeking to improve safety in mines for workers or to end horrible human rights atrocities in the DRC are compelling objectives, which, as a citizen, I wholeheartedly share. But as Chair of the SEC, I must question as a policy matter using the Federal securities laws and the SEC's power of mandatory disclosure to accomplish these goals.'' And I can't emphasize enough that I personally agree with Chair White. We have laudable goals. Unfortunately, this is the wrong vehicle. In light of the President's 2016 budget request of $1.722 billion for the SEC, I, along with Chairman Hensarling, Chairman Royce of the Foreign Affairs Committee, and Subcommittee Chairman Garrett, sent Chair White a letter asking for a detailed description of the funds and hours expanded to the date on the SEC's conflict mineral disclosure rule. In the SEC response letter from July of 2010--in the letter they tracked it from July of 2010 to March 16th of 2015. The SEC spent over 21,000 man and woman hours and approximately $2.7 million on this particular provision, with which the SEC has little to no experience. From my perspective, I don't believe that the SEC and the Federal securities laws should be used to help counter human rights abuses or further altruistic causes, no matter how important that they may be. Dodd-Frank is full of unintended consequences. Today, we have the opportunity to hear from expert witnesses, including Minister Imena from Rwanda, regarding how the conflict minerals provision within Dodd-Frank is limiting opportunities to create jobs in the African mining sector, failing to improve the living standards for local miners, and failing to ensure source minerals from African nations that are totally free from bloodshed. And with that, I yield back the balance of my time. The Chair now recognizes the ranking member of the subcommittee, Ms. Moore, for 5 minutes for an opening statement. Ms. Moore. It is really great to be here with you today, Chairman Huizenga. And I want to welcome all of our witnesses to discuss Section 1502, the so-called conflict mineral provisions of Dodd-Frank. I have previously met with several of our witnesses and I look forward to hearing your testimony here today. We have just had our second reporting period, and we have seen some improvements in the disclosure regimes of companies. Although still far from perfect, we anticipate that it will improve as time goes on. What we have also seen is a clear overestimation of the cost of compliance. Let me say at the onset that I support this provision because the human rights violations that occur and that are being fueled by illicit trade in these materials is not something that we can or should ignore. And Section 1502, I believe, is a measured response. Compliance will improve with time. The cost of compliance will decline, and the world will improve. It is easy to think that this is happening in a far-off place, but we know in a global world that the problems and instability of far-off places frequently find their way to our shores. For example, in the first reporting period in 2014, 68 companies looking at their supply chain realized that they were buying gold refined by North Korea. Now, I assume that even the most ardent opponents of Section 1502 do not support North Korean products in the supply chain of U.S. businesses. The United States is a leader in this area, and Europe and China are following. We will hear some good news and some bad news from our witnesses, but we will still see improvement from year to year--from year one to year two. And I believe Section 1502 can work. I am open to improving Section 1502, but now is not the time to discuss repeal of Section 1502, especially in this past weekend, as we have witnessed rogue organizations and rogue states seeking revenue streams for terrorist activities. I am going to ask unanimous consent to place in the record the entire testimony of Representative McDermott of Washington, and I will read a little bit of it. Chairman Huizenga. Without objection, it is so ordered. Ms. Moore. He says, ``It was almost 6 years ago to the day that I introduced the Conflict Minerals Trade Act, which was designed to help stop trade in conflict minerals that were sustaining the brutal civil war in the Democratic Republic of the Congo. It is important to remember why we enacted Section 1502 in the first place: to take a real step forward in monitoring in mining and trade minerals that contributes to violence in the DRC. What my colleagues and I originally envisioned was a vehicle by which the links between the mineral trade and conflict could be broken.'' Measured against that objective, Section 1502 has already achieved substantive progress. This was designed to be a thorough and comprehensive process, and I applaud those companies who from the start showed that compliance was possible by undertaking a complete and detailed account of their mineral supplies. I am further encouraged by the conflict minerals disclosures that were released in June, which saw a marked improvement from the initial 2014 reports as more companies shed greater light on their supply chain. This law is changing the way supply chains are understood and ultimately how they function. And with that, I yield back the balance of my time. Chairman Huizenga. The gentlelady yields back. Today, we have a great panel of experts, and we are very pleased that you are all here. First, we are going to be welcoming the testimony of Jeff Schwartz, a professor of law at S.J. Quinney College of Law, at the University of Utah. We also are joined by Kimberly Gianopoulos, Director of International Affairs and Trade for the GAO. Next, I am very pleased to welcome the Honorable Evode Imena, Minister of State, in charge of Mining, for the Ministry of Natural Resources, for the Republic of Rwanda. And I would also like to point out that we are joined by Ambassador Mathilde Mukantabana, who is also here with us in the audience. Welcome, Ambassador. Karen Woody is an assistant professor of business law and ethics at the Kelley School of Business at Indiana University. And finally, Per-Olof Loof is the chief executive officer of KEMET Electronics Corporation. Thank you all for being here, and you will now be recognized for 5 minutes to give an oral presentation of your testimony. And without objection, each of your written statements will be made a part of the record. With that, Professor Schwartz, you are recognized for 5 minutes. STATEMENT OF JEFF SCHWARTZ, PROFESSOR OF LAW, S.J. QUINNEY COLLEGE OF LAW, UNIVERSITY OF UTAH Mr. Schwartz. Thank you. Chairman Huizenga, Ranking Member Moore, and members of the subcommittee, thank you very much for having me here today. It is an honor. In my testimony, I would like to make two points. The first is that Section 1502, the conflict minerals rule, isn't working. The second is that there is still hope for it. Relatively minor changes to the legislation, to the implementing regulations, or to how the SEC interprets the current rules could render the initiative far more effective. First, why do I say that Section 1502 isn't working? This assertion is based on my empirical study of the disclosures filed by companies in response to the legislation in 2014. For this study, I read each filing submitted by a company in the S&P 500 Index--over 200 in total. In doing so, I measured compliance with each aspect of the conflict minerals rule and looked at the extent to which the disclosures served the purpose that Congress intended. The purpose of the legislation is transparency-- specifically, transparency with respect to corporate supply chains in conflict minerals: tin; tungsten; tantalum; and gold. The idea of the legislation was to force companies to make disclosures that would allow concerned shareholders and consumers to identify which companies should be praised and which companies should be condemned for their conflict mineral sourcing practices and their efforts to identify and understand any shortcomings. Unfortunately, the legislation fails in this regard. The disclosures do not contain enough specifics for concerned stakeholders to make such determinations. One cannot simply sit down and read the disclosures and tell which companies are committed to conflict-free sourcing and which are not. And if stakeholders can't sort companies in accordance with their sourcing practices, there is no incentive for companies to change them in accord with the humanitarian goals underlying Section 1502. In short, the goal of Section 1502 was transparency with respect to conflict mineral supply chains, but we don't have it. Why, then, do I think there is still hope for Section 1502? My empirical study revealed what went wrong with conflict minerals reporting, and thus provides insight into what we can do to fix it. My big-picture takeaway with regard to what went wrong is that there is a mismatch between how the SEC thought companies would comply with the regulations and how they actually did. The rules seemed to anticipate that each company on its own would endeavor to trace its conflict minerals back to the mine of origin. That is not what happened, however. Instead, companies centralized and coordinated their efforts through the Conflict-Free Sourcing Initiative (CFSI). Most importantly, CFSI audits smelters to determine whether the minerals they process come solely from conflict-free mines and then shares the results of its audits publicly on its website. CFSI's efforts are enormously helpful to companies that are subject to Section 1502. Thanks to CFSI's efforts, all companies need to do is trace the conflict minerals in their products back to the smelters, which they should be able to do, and then look to see whether the smelters they have identified show up on CFSI's conflict-free list. If so, then the products for that company are conflict-free. This method of compliance is far easier and far more effective than individual efforts. But the legislation and the regulations didn't foresee this method of compliance, so the regulations don't ask the right questions to illuminate it. And therefore, the sought-after transparency has proven elusive. If the rules were changed to reflect the centrality of the CFSI audit process, then we would get disclosures that were much more useful. Finally, I would like to briefly mention one small change that would have a large impact. In the disclosures that I studied, only 31 percent of companies listed the identities of the smelters in their supply chain despite the rule's instruction that they do so. Many companies explained that they failed to list this because while they could identify which smelters processed minerals for their suppliers, they could not identify which smelters processed minerals for their particular products. And because of this gap, the inability to match specific smelters to their products, companies left out the identity of their smelters from their conflict mineral disclosures. Doing so, leaving this information out, is based on a narrow interpretation of the regulations. If the wording of the regulations were changed or if the SEC issued interpretive guidance telling companies that they need to include the identity of the smelters in their conflict mineral disclosures that are in their supply chain, regardless of whether they can link specific smelters to specific products, then we would get the identity of far more smelters into the disclosures, which would make them far more useful. Thank you very much for having me here today. [The prepared statement of Mr. Schwartz can be found on page 72 of the appendix.] Chairman Huizenga. Thank you. With that, I recognize Kimberly Gianopoulos for 5 minutes. Thank you. STATEMENT OF KIMBERLY GIANOPOULOS, DIRECTOR, INTERNATIONAL AFFAIRS AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE (GAO) Ms. Gianopoulos. Thank you, Mr. Chairman. Chairman Huizenga, Ranking Member Moore, and members of the subcommittee, thank you for inviting me here today to talk about our work on conflict minerals. As you know, Section 1502 of the 2010 Dodd-Frank Act contained a provision for us to report annually on the effectiveness of the SEC rule in promoting peace and security in the DRC and adjoining countries. My statement today will focus on the findings from our August 2015 report, our sixth on this topic. We focused on: first, a review of the SEC filings; and second, State and USAID's actions to implement the U.S. conflict minerals strategy. First, I will discuss our review of the company filings. In 2014, for the first time, companies were required to file disclosures related to their use of conflict minerals from the DRC and adjoining countries. While the SEC estimated that about 6,000 companies could be affected by the rule, only 1,321 filed disclosures. We drew a generalizable sample of those disclosures and found several things. First, almost all of the companies reported performing country-of-origin inquiries for the conflict minerals that they used. Second, 94 percent of the companies reported exercising due diligence on the source and chain of custody of conflict minerals used. Third, about two-thirds of the companies were unable to determine whether the conflict minerals came from the DRC or the adjoining countries. And finally, none of the companies could determine whether or not the minerals financed or benefited armed groups in these countries. Through discussions with companies' representatives and our review of the filings, we learned that the companies encountered difficulties in getting the necessary information from suppliers because of delays and other challenges in communication. For example, some companies told us that they received incomplete information from their suppliers. The Dodd-Frank Act also required State and USAID to prepare a conflict minerals strategy to address the linkages between human rights abuses, armed groups, mining of conflict minerals, and commercial products. This strategy was submitted to the Congress in 2011. As part of the strategy, agencies supported a range of initiatives such as validation of conflict-free mine sites in the DRC, and strengthening traceability mechanisms that minimize the risk that minerals which have been exploited by illegal armed groups will enter the supply chain. The first photograph from our November 2014 trip to the region, as you can see on the screen, shows a bag of tantalum at a DRC mine being prepared for tagging and export. USAID officials told us that local miners can earn double the price for certified conflict-free minerals compared to non-certified, illegal minerals, which is more than they would earn from smuggling. Additionally, State reported funding a program for anti- human trafficking initiatives as well as to promote alternative livelihoods and improve workers' rights in the artisanal mining sector. For example, State gave us an example of a woman who used to transport minerals, which is a physically demanding and low-paying job. She received a kit to sell fish at an alternative livelihood training session, and she now makes a better living from selling fish and can pay her children's school fees without having to work in the mining sector. However, there are significant challenges that agencies face in implementing these efforts, many of which are outside the control of the U.S. Government. The eastern DRC is insecure due to a number of factors including poor infrastructure, weak governance, and the presence of illegal armed groups and some corrupt members of the Congolese military. Infrastructure challenges, such as the one you can see in our fifth photograph from our November 2014 trip to the DRC, make it difficult for police and other authorities to travel in the region and monitor mines for illegal activity. U.N. Security Force officials told us that armed groups continue to threaten and perpetrate violence against miners. Finally, a member of the U.N. group of experts noted that smuggling remains prolific, and that instances of fraud call into question the integrity of some traceability mechanisms. Thank you for the opportunity to testify today, and I am more than happy to answer any questions you may have. [The prepared statement of Ms. Gianopoulos can be found on page 34 of the appendix.] Chairman Huizenga. Thank you. Mr. Imena, you now have 5 minutes for your oral presentation. STATEMENT OF THE HONORABLE EVODE IMENA, MINISTER OF STATE, IN CHARGE OF MINING, MINISTRY OF NATURAL RESOURCES, GOVERNMENT OF THE REPUBLIC OF RWANDA Mr. Imena. Thank you, Chairman Huizenga, Ranking Member Moore, and members of the subcommittee, for inviting me today and holding this important hearing. I am honored to testify on behalf of the United States' ally and friend, the Republic of Rwanda. Rwanda has enjoyed significant political stability since emerging from the 1994 genocide against the Tutsi. Gaining recognition for an efficient and uncorrupt government, the country is currently experiencing unprecedented economic development. Rwanda has rich deposits of 3T minerals: tin; tungsten; and tantalum. 3T minerals account for more than 90 percent of Rwanda's mineral production. Mineral resources are very important to our economy. They represent 28 percent of national exports. The industry employs more than 37,000 people and supports livelihoods of about 1.5 percent of the population of Rwanda. In Rwanda, we recognize the threats posed by the potential link between mineral resources and conflicts. That is why 4 years before the passage of Dodd-Frank, the government initiated a project to collect fingerprints of deposits, and later on we initiated the certified trading chains, a system based upon guidance from the Organisation for Economic Co- operation and Development (OECD). When Section 1502 on conflict minerals was passed in 2010, the Government of Rwanda, in cooperation with the International Tin Research Institute, initiated a scheme to improve due diligence and traceability in order to reassure metal buyers of the provenance of their minerals. Since then, a lot has been achieved: 100 percent of 3T minerals mined in Rwanda are traceable from the mine sites up to the point of exports; a modern database exists with information on mining operations, production records, and mineral trading transactions, and to ensure third-party verification, our government works with PACT, the Washington D.C.-based NGO, to implement the traceability mechanism. Despite all of these efforts, we still face serious challenges. To name a few, the 10 countries covered by Section 1502 are at different levels of achievement and have different interests. Putting them in one box and applying a one-size- fits-all regulation is an impediment to implementation and fails to recognize efforts made by individual countries. Today, the Rwandan mining industry bears the direct costs resulting from the conflict minerals due diligence framework. Those costs are a burden to mine workers and mining companies, for which revenues have decreased by 3 to 6 percent. Currently, more money is spent in complying with conflict minerals regulations than money paid for government taxes. I must, however, note a number of positive developments triggered by Dodd-Frank, including better record-keeping and reporting, increased monitoring and alignment of national regulations to best practices. These gains are among the reasons the ministry decided that regardless of what might happen to Section 1502, Rwanda will continue to have a robust traceability and be a reliable partner. In an ideal world, everyone is innocent until proven guilty. But with Section 1502, all of our sources have been labeled ``conflict minerals'' and our job is to prove that they are innocent. In conclusion, moving forward, we welcome a discussion about ways that we could partner with U.S. industry and the U.S. Government to identify strategies and improve the implementation of Dodd-Frank. Let me take this opportunity to invite all of you to Rwanda to witness for yourselves the achievement made in the mining sector and discuss opportunities for development with Rwandan miners. I welcome your questions, and thank you again for inviting me to participate today. Thank you. [The prepared statement of Minister Imena can be found on page 58 of the appendix.] Chairman Huizenga. Thank you, Minister. With that, we have Professor Karen Woody, from Indiana University. And, you have 5 minutes. Thank you. STATEMENT OF KAREN E. WOODY, ASSISTANT PROFESSOR OF BUSINESS LAW AND ETHICS, KELLEY SCHOOL OF BUSINESS, INDIANA UNIVERSITY Ms. Woody. Thank you. Chairman Huizenga, Ranking Member Moore, and members of the subcommittee, thank you for the invitation to appear before you today. My name is Karen Woody, and I am an assistant professor of business law and ethics at the Kelley School of Business at Indiana University. I have researched and written about the mandate and role of the Securities and Exchange Commission, particularly in enforcing Section 1502 of Dodd-Frank. I will begin with some background information. The Securities and Exchange Commission was founded in 1934 and bestowed by Congress with its three-pronged mission: first, to protect investors; second, to maintain fair, orderly, and efficient markets; and third, to facilitate capital formation. The focus of the mandate is the creation and preservation of market integrity. In other words, the SEC was created to help assure investors that their investments are safe. Markedly absent from this congressional mandate is any administrative authority or charge to effect international, diplomatic, or human rights-oriented goals. Now, companies are required to make certain statutorily- mandated disclosures, triggered by events such as issuing new securities or electing new management. In addition to these disclosures, publicly traded companies must disclose any information considered material. The SEC, through its regulation, has implicitly defined ``material information'' as information that bears on the economic value of an investment. The SEC's understanding of the materiality standard is that a reasonable investor generally focuses on matters that have affected or will affect a company's profitability and financial outlook. This understanding is in keeping with Supreme Court precedent, as well. Section 1502 of Dodd-Frank, however, is not a financial regulation, but rather a provision aimed at ending the atrocities of a war occurring 7,000 miles from Wall Street. Assigning the SEC with oversight of conflict minerals disclosure is well beyond the SEC mandate and overextends the agency in ways that could prove harmful to its sole mission: investor and market protection, and capital formation. When tasking an agency to work towards a goal outside of its mandate and outside of its expertise, the agency and the population it is designed to protect are losing out in two ways: first, by losing the opportunity that the proper agency and its experts would achieve the goal in a more efficient and more successful manner; and second, by reducing the ability of the mis-tasked agency to do its best with the proper tasks it should be accomplishing. In other words, by tasking the SEC with regulation such as that of conflict minerals, one is foregoing the opportunity that another agency, such as the Department of State or the Office of Foreign Asset Control, can implement a better solution to achieve the humanitarian goals of the provision. Moreover, there is an increased risk that the SEC will not have sufficient resources to accomplish the goals for which it was created. In practicality, this means the risk of another Enron or Madoff scandal increases because the agency is overextended. This leads me to my second point, which is this: Absent the statutory requirement in Section 1502, information about conflict minerals likely would not meet the threshold for materiality. Conflict minerals disclosure is not a financial disclosure, and disclosure of social and environmental information is not typically required because that information to date has not been regarded as relevant or material to the financial condition of a company. Proponents of Section 1502 and other measures enhancing these disclosure requirements point out that the general public's increased awareness of conflict minerals has rendered it material information. The general public, however, is not the constituency of the SEC: the investors are. That is, the SEC was created to protect those who own Apple stock, not everyone who owns an iPhone. If the SEC administered its regulations with an eye toward protecting all citizens rather than shareholders, it would be difficult to maintain capital formation and to balance the requirements of the agency's mandate. For this reason, the SEC has never waded very far into regulation of human rights or foreign policy. Furthermore, requiring the SEC to enforce these disclosure requirements stretches thin an already overburdened agency and demands that it oversee diplomatic and humanitarian regulations for which it lacks the subject matter expertise and the enforcement resources. Thank you again for the invitation to testify today, and I welcome any question you may have. [The prepared statement of Ms. Woody can be found on page 137 of the appendix.] Chairman Huizenga. Thank you. We appreciate that. And last, but certainly not least, we have Per-Olof Loof, chief executive of KEMET. And you have 5 minutes. STATEMENT OF THE HONORABLE PER-OLOF LOOF, CHIEF EXECUTIVE OFFICER, KEMET ELECTRONICS CORPORATION Mr. Loof. Thank you, Chairman Huizenga, Ranking Member Moore, and members of the subcommittee, for holding this hearing and inviting me to tell my story. My name is Per Loof, and I am the chief executive officer of KEMET Corporation, and chairman of the board of NEC TOKIN, a joint venture with NEC, headquartered in Tokyo. KEMET is a leading supplier of electronic components. Founded in 1919, we manufacture the broadest range of capacitor technologies in the world. We serve the military, automotive, industrial, telecommunications, computer, and medical markets. Including our joint venture, we have 17,000 people employed and a total of 28 manufacturing facilities globally, and we are listed on the New York Stock Exchange. Tantalum capacitors have been the key product for us since 1958. Today, about 46 percent of our revenue comes from tantalum capacitors. Tantalum ore is one area where the DRC actually can be a world leader. Simply put, it is easier to get to, and once you get it the density of tantalum in the material is significantly higher. Tantalum is our single largest cost item. Acquiring tantalum at competitive prices and stable prices is paramount to our company. This has always been a bit of a struggle, but during the global recession in 2008 and 2009, it became a real issue. Powder suppliers kept raising prices, seemingly unaware of what was going on around them. We had to figure something out, and the DRC was not, at the time, an option. Already in the 1990s, as things became increasingly difficult in the DRC due to the conflicts, customers didn't want products with raw materials originating from the DRC. Some even said they didn't want blood tantalum capacitors. We did procure from other locations, China mainly. But we all knew that DRC had the most cost-competitive source. When the Dodd-Frank Act passed, I actually sensed a real business opportunity. Section 1502 could be the impetus for us to develop in the DRC a socially sustainable source for conflict-free tantalum ore. We got going in 2011, after my first visit to Katanga and the village of Kisengo in northern Katanga. The objective was a vertically integrated, closed-pipe, sustainable sourcing model. First, we helped create an industrial mine in the DRC. The mine is operated according to an agreement between us and the mining partner, MMR, and the people of the mining village of Kisengo, through their union. Second, we had to get really serious about logistics. Kisengo in northern Katanga, to get to Kalemie on the shores of Lake Tanganyika is a real trip. Third, we built an ore processing facility. And finally, we bought a tantalum powder manufacturer in Carson City, Nevada. All of our facilities have been audited and validated with the Conflict-Free Smelter Program. And globally, we have today invested over $110 million in this venture. Our investment has reduced some extreme fluctuation in ore and powder pricing in our former supply model. Being one of the largest tantalum users in the world, I believe our initiative has stabilized the pricing of this material not just for us but for the industry at large. While some may argue that miners in the DRC have been negatively impacted by Dodd-Frank, I can say with certainty that this is not the case with our initiative and in our little village. Our investment resulted in: an industrial mine, making it safer for the workers; a new hospital for the people of Kisengo, treating over 14,000 patients over the last year-and- a-half; a new school with 1,500 students; access to clean water; eradicating cholera from the village; the creation of a bunch of businesses to support the mine, the school, and the hospital; the installation of solar powered street lights; and refurbishing basic infrastructure. The economic benefit to KEMET is multiples of what we have invested in the village. The annual run rate benefit to us is now at $56 million. We were able to secure 86 jobs in Nevada and 200 jobs in South Carolina. It is possible to succeed in business while being economically and socially responsible. Section 1502 has been very good for the tantalum industry. There is little question on provenance and there is a clear road map how to ethically source DRC tantalum. The Dodd-Frank Act has helped companies like KEMET to again, after decades of absence, be able to embrace the DRC and develop a competitive and secure supply chain, while also, of course, improving the lives of the people in the village. I know we at KEMET cannot solve all of the problems in the DRC, but I do believe that we have had and will continue to make a positive impact on this little village--a village that you can hardly find on a map, but with 15,000 people living there 4 years ago, and now 30,000 people living there. So I thank you all for allowing me to testify and tell our story. I will be happy to answer any of your questions. [The prepared statement of Mr. Loof can be found on page 68 of the appendix.] Chairman Huizenga. The Chair now recognizes himself for 5 minutes for questioning. Mr. Loof, you just testified that what has happened in this was ``very good for the tantalum market.'' What I am concerned about--you have the minister of mines sitting two down from you--is that it hasn't necessarily been so good for Rwanda and for the countries affected. We have seen the average price per month of tantalum ore fall from $116 in January to about $92. I understand that is very good for business, but aren't you kind of invested in making sure Dodd-Frank stays exactly as it is, the status quo, and isn't that a bit of a conflict of interest? Mr. Loof. Thank you, Mr. Chairman, but for KEMET it is very important that the prices are stable and that the sources are secure. And it is important not just for us but mainly for our customers. Our customers are determined to ensure that whatever they buy from us is conflict-free and that the prices are stable. And what has happened through the investment that we have made and others have been able to benefit from, is we have been able to ensure a stable, cost-competitive source that allows the tantalum industry to continue to flourish. Chairman Huizenga. All right. I need to turn to the minister of mines, but I will note that in your written testimony you said, ``When the Dodd-Frank Act passed, I sensed a business opportunity.'' So I understand this may be very good for your business; what I am concerned about is this might be misplaced for the folks in the countries that are affected by that. So, Minister Imena, obviously, I think especially in the people in the West, we have talked about this and have had in previous hearings, we kind of lump in all of Africa together way too often, those 10 different countries within the Great Lakes Region. Rwanda had, as you have pointed out, its challenges and horrors 20 years ago, but it is a very different place now, and very different than the DRC and very different than some of the others. In your testimony, you argue that Dodd-Frank's one-size- fits-all approach is a mistake, and I would just like you to maybe elaborate a little bit more on that, if you would. Mr. Imena. Thank you very much, Mr. Chairman. Geologically, we are in what is called the Kibaran Belt. That is a belt very rich in tin, tungsten, and tantalum. And that belt covers entirely Rwanda, and some parts of the eastern side of the Republic of Congo, and some parts of Burundi, Tanzania, and Uganda. But in this Section 1502, 10 countries with different geological backgrounds and different economic, social, and cultural situations have been put together in a box and are required to do the same thing. And we don't look at what is above ground, where are we, and where these countries are going. So that is the real challenge for Rwanda. Chairman Huizenga. You had said in your testimony, you write we don't have ``conflict-free'' minerals under Dodd- Frank, but you have Africa-free minerals with Dodd-Frank. Do you believe that economic instability is likely for Central Africa if this de facto boycott of material continues? Mr. Imena. Thank you very much, Mr. Chairman. The customer of these has reduced dramatically because companies are fearing to come and source directly from us. We have a very limited number of companies working or buying from our producers, due to these regulations. Thank you. Chairman Huizenga. And you have also testified that Rwanda pays more to comply with Section 1502 than it collects in mining taxes. This may go to Mr. Loof's questions about price stability and all of those things. You and I have had a little bit of a conversation about that. But please tell the panel what Rwanda and what the Government of Rwanda would do if compliance costs weren't so burdensome, and what kinds of investments do you think could be made in your country and in your people? Mr. Imena. You are right, Mr. Chairman. It is today more costly to comply with these requirements than what we collect as taxes to develop the mining industry and to do some surveys and educate our people so that we can grow the industry. It seems like it is really a burden from the small-scale miner up to the mineral exporter, and they don't really understand why. It is too costly, it is too difficult, and despite whatever they are trying to do, they don't see people coming and investing in the business. Chairman Huizenga. And you said to me yesterday that you have been witnessing an 8 percent growth in the economy of Rwanda, but there has been some stagnation, correct, in mining? Mr. Imena. You are right, Mr. Chairman. We expect a reduction of around 50 percent, compared to what we are expecting from the mining sector. And this is also impacting the growth of the country. Chairman Huizenga. Okay. With that, my time has expired. I now recognize the distinguished ranking member of the subcommittee, Ms. Moore, for 5 minutes. Ms. Moore. Thank you so much, Mr. Chairman. And I can tell you that I was not disappointed to hear such good information from this distinguished panel. I guess--and someone can correct me if I am wrong--what I hear from you all is that--especially from you, the Honorable Imena--you really at a gut level believe that this is a good, socially responsible thing to do but for the problems in implementation, but for the speed bumps. I heard Professor Schwartz say that there was hope, although it is not working because there are some things that need to be tweaked. I heard our GAO witness talk about the difficulties in doing it. I heard Professor Woody say that the SEC doesn't have the expertise necessarily to do that, nor the authority. And I heard you, Honorable Imena, say that no matter what happens, you are committed to providing conflict-free minerals for the industry. So I think that I am hearing that we are not at a point where people are suggesting that we throw the baby out with the bath water. Now, having said that, let me ask a couple of questions. Let me start with you, Honorable Imena. I guess what I need to get a clearer picture of is the costs relating to compliance. Has the government or the private industry done any sort of assessments to determine why there are $6.1 million to comply? We have heard testimony here that people will pay a premium price to make sure that they are conflict-free. I know I want a diamond badly, but I want a conflict-free diamond. But they will pay for that. So do you think--I want to know, Honorable Imena, if you think that the private sector, that--using, for example, the tagging and bagging scheme run by the International Tin Research Institute, is a much more costly approach and that could be done at a lesser cost. Do you think that if the private sector owns these mines--I guess I don't understand why--and if they are getting a premium price, I don't understand exactly why it is costing more. Can you dive a little deeper into that? Mr. Imena. Thank you very much, Congresswoman Moore, for that question. I will address that by giving you some figures. Our region produces around 2 percent of the global tungsten. And when any company willing to source from Africa sees that they will be filling out different reports, and undergoing different audits, they just say, ``Let's avoid Africa because it is just 2 percent of the tungsten.'' When it comes to tin, we have a quite considerable share. But the number of companies interested in coming and continuing to do their business directly from our countries has reduced because of that-- Ms. Moore. Okay, Honorable Imena, I don't have much time so I am interrupting you. So just with the tungsten, can they source it from non-conflict areas? Mr. Imena. Thank you-- Ms. Moore. The other 98 percent? Mr. Imena. They can source it from Canada, from China, from many parts of the world. Ms. Moore. Is there anyone else on the panel who wants to address this particular issue? Mr. Loof? Mr. Loof. Yes. I will be happy to. I can talk about the costs of implementing this system for our country, and we are the largest tantalum users in the world probably. The bag and tag system is very simple. It needs a bit of discipline, but we all need discipline in whatever we do. The cost of implementing this for us has been--last year we paid $45,000 for the audits. We have two full-time equivalents working on this ongoing for the-- Ms. Moore. So the $6 million doesn't make any sense-- Mr. Loof. This does not make any sense to us. We haven't seen that. For us, this has been an important business reason to go back into the Congo. And due to the fact that we now can tell our customers--because that is where this all originates; it is about people not willing to buy iPhones if they can't ensure that the tantalum used in those iPhones is conflict- free. That is where it starts. And our ability to serve these customers are absolute--it is paramount that we can source it-- Ms. Moore. Thank you. My time has expired. Thank you, Mr. Chairman. Chairman Huizenga. With that, we recognize-- Ms. Moore. Mr. Chairman? Chairman Huizenga. Yes-- Ms. Moore. I ask unanimous consent request to place in the record letters--from the Responsible Sourcing Network, Panzi Hospital & Foundations, the Conflict-Free Initiative, the Enough Project, the National Association of Evangelicals, the Association for the Development of the Initiatives of the People, Congolese human rights NGO, the International Corporate Accountability Roundtable, and other documents, including George Inez Bonita y Amarne statement, Campus Initiative, Jewish World Watch, and Global Witness--supporting Section 1502. Chairman Huizenga. Without objection, it is so ordered. All right. We will make sure that a forklift is provided-- [laughter] With that, I would like to recognize the vice chairman of our Monetary Policy and Trade Subcommittee, Mr. Mulvaney from South Carolina, for 5 minutes. Mr. Mulvaney. Thank you, Mr. Chairman. Mr. Imena, I want to go back to something you had started talking about with the chairman and follow up a little bit. You mentioned that Section 1502 treats these 10 countries in the region similarly, or the same, that they are all in this same box together. You mentioned that, as well, in your opening statement. So I am curious as to why you think that is inefficient or wrong, and how you would propose to change that? What is it about Rwanda that is different than the Congo and why they should be treated differently and not all painted with this same brush? And if you could be specific, that would be helpful. Mr. Imena. Thank you very much, Congressman. The difference is that in Rwanda there is no single mine occupied by any armed group or any illegal group. There is no single route controlled by any illegal group. So the situation is totally different from what you have in some of the parts of these countries. Mr. Mulvaney. Then how would you-- Chairman Huizenga. If the gentleman will yield just a moment-- Mr. Mulvaney. Absolutely. Chairman Huizenga. --we do actually have a map, if you are interested, and we can put that map up. And without objection, I would love to share that map for the testimony. Mr. Mulvaney. And while they are doing that, I will ask the question. So I understand that is one of the differences. If we sit here, and Ms. Moore and I get together afterwards and say, ``Well, look, we are not going to get rid of Section 1502 for various political reasons in our country,'' how could we improve it in order to reflect what you just said? Mr. Imena. Thank you very much, Congressman. Normally when a country complies with some requirements or does what it is supposed to do, it graduates. But in our case, we are just stuck. I think we need to work with U.S. companies, the U.S. Government, and get something that works for Rwanda but also for the United States, and to ensure that we are responsible, we are transparent, and we are cost-effective. This is what is lacking, being efficient and cost-effective. Mr. Mulvaney. So I guess if I am trying to summarize that to my friends across the aisle, it would be that since Rwanda does not have the same challenges as the Democrat Republic of Congo, does that mean maybe we shouldn't treat it exactly the same as the DRC? Is that fair? Mr. Imena. Thank you, Congressman. I will speak for Rwanda. We would like, really, Rwanda to be considered as conflict-free because there is no conflict in Rwanda. Mr. Mulvaney. That is about as good a summary as I can think of. Thank you very much, Mr. Imena. Professor Woody, you said something that has come up a couple of different times in these hearings over the last couple of years, which is that as well-intentioned and as admirable as the desired results of this rule are, there seems to be a fairly valid conversation as to whether or not the SEC is the right entity to enforce it. And you said something that caught my attention during your opening statement. You said that the SEC has neither the experience nor the personnel or the expertise to do this. Could you flesh that out a little bit and tell us what you have seen in your research and why you think that is noteworthy? Ms. Woody. Yes. Thank you. It is a valid question and now, as the chairman's opening remarks mentioned, there has been a significant amount of manpower and personnel put to this. But my point, simply, in my testimony is that is at the expense of using that staff and that personnel for other well-situated tasks within the agency. And so for--if that answers your question? Mr. Mulvaney. I think it does, and that is what I was expecting you to say. So I say again to--I see that the ranking member of the full Financial Services Committee, Ms. Waters, has come in, and to the ranking member of the subcommittee, as well, is that this comes back to a conversation we have had many times, which is that as well-intentioned as this is, there are things that the SEC has not been able to do because it has been spending time on this. We are now coming up on many, many months after I asked Chair White where the rules were on parts of the JOBS Act, as many of you voted for--most specifically, some of the rules on crowd funding, which are now several years late, in large part, I think, because the time has been spent on issues like this. So with that, I am not going to have a chance to ask another full question, so I will yield back the balance of my time. I thank you all. Chairman Huizenga. The gentleman yields back. I will make a note that Chair White will actually be here tomorrow for testimony in front of the full Financial Services Committee, and I intend to pursue that line of questioning with her. I now recognize the ranking member of the full committee, Ms. Waters, for her 5 minutes. Ms. Waters. Thank you very much, Mr. Chairman. I'm sorry that I could not be here at the beginning of the hearing, but I want to thank you for having it. I think this is very important, and I am glad that you decided to take the time, because this is an important issue. I served on the conference committee of Dodd-Frank, and I worked with Barney Frank on this issue. Some of us who have spent years dealing with different parts of Africa and trying to do everything that we could to not only support the peoples of the continent in different ways, whether we are talking about Northern Africa, South Africa, Central, or what have you, we believe that the continent is so rich in minerals and they have the kind of resources that could conceivably guarantee a good quality of life for all Africans. And we believe that, of course, the entire continent has been exploited for far too long and that the people have not benefited from the rich resources in many of the parts of the continent. And so Section 1502 is important because we, in Dodd-Frank, took the opportunity to not only look after investors so that they would know where these minerals are coming from and not do anything, or try to do everything that we could to avoid the conflict and the different organized paramilitary efforts that were engaged in this conflict. And so I am very pleased that the SEC is charged with oversight. I am very pleased that the SEC does not see this as something that they don't have time to pay attention to. I just heard one of the gentlemen talk about how the SEC is so involved with the JOBS Act and all of that perhaps--I guess he was suggesting that maybe they should be spending time on this issue, or too much time is spent on this issue. I am just pleased to learn from my staff that our companies are doing a better job of reporting, that--and it is working, and that from the first report to the second report, we see a marked improvement. And I think that is very helpful. Let me ask any of the members of the panel today, do you think Section 1502 in Dodd-Frank is helpful and should be supported and maintained? Mr. Loof. If I may answer that, Congresswoman, for us it is paramount. We could not be back in the DRC if we didn't have a sure, secure way of ensuring our customers, because that is where it all starts, that the tantalum that we--tantalum capacitors that we make actually are made from ore that sourced conflict-free. Ms. Waters. Anyone else? Yes, sir? Mr. Imena. Thank you, Congresswoman. I think one of the best way to solve conflicts is to create opportunities to grow economies. Section 1502, as it is written, is not allowing us to build the mining industry, to create jobs, to allow our people to develop. We need to do something because it is not working. Ms. Waters. Let me interrupt you a minute because I want to understand you. Would you repeat the statement about the SEC when they are not doing what? Would you repeat that? Mr. Imena. Section 1502 is not helping us grow our mining industry, employ people, create opportunities. Ms. Waters. How is it stopping you from doing that? Mr. Imena. Minerals have been labeled as conflicts-- themselves. Even not being extracted, they are already conflict minerals. So this is taking away a lot of companies which would be willing to invest and do business in Africa. Ms. Waters. And so you think perhaps if we could eliminate Section 1502 that you could develop your economy a lot better? Mr. Imena. Thank you, Congresswoman. If we work on how we implement this regulation, we can do a lot. Ms. Waters. If you do what? I'm sorry, repeat that. Mr. Imena. If we change how we implement these regulations, we can do a lot. Ms. Waters. How would you suggest that we could be helpful? Mr. Imena. We need to work on how it can get cost-effective and how the de facto boycott on African minerals can be taken away. Ms. Waters. Would you describe to me the cost-effective problem that you are alluding to? Chairman Huizenga. Unfortunately, we are going to have to have another--the gentlelady's time has expired. But this is a line of questioning we are hoping to continue to pursue. I encourage my fellow Members to do that. And if possible, I am hoping that we are going to be able to get to a second round of questioning. So with that, we recognize Mr. Pittenger of North Carolina for 5 minutes. Mr. Pittenger. Thank you, Mr. Chairman, for this important hearing. I would like to continue on that line of questioning. Please continue on the cost-effectiveness that you can employ inside your own country and what you can do to make this more efficient. Mr. Imena. Thank you very much, Congressman. In Rwanda we have two type of levies. There is one we call the iTSCi and the other one we call the JIMBI. Both levies are taken or collected at the export points to finance the traceability mechanism. For a ton of tin, for instance, we collect almost $400. And that money is spent to pay auditors, to pay employees, and to make sure that the system works. Four-hundred dollars is almost the same amount that the government collects as taxes, and those taxes would in turn be used to develop the industry, harmonize it, and build a responsible business in the country. But because we are spending a lot of money, and a lot of effort in complying with these regulations, we are not given enough resources to develop the industry in the country. And our wish is to look at how can we efficiently work with the U.S. Government, with the U.S. private companies, to ensure that whatever product comes from Rwanda is clean; but for ourselves, that it is not very costly. And, most importantly, people are feared to come and work with us because we have tagged all our minerals that they are already conflict, which is not the case. Thank you, sir. Mr. Pittenger. Thank you. Professor Schwartz, would you like to weigh in on that? Mr. Schwartz. Sure. I think what the Honorable Mr. Imena says is troubling, that this is imposing costs on Rwanda, and that he makes a good point in that regard. I guess the only thing I would say is that we have to always keep in mind when we are talking about the costs that we need to consider the benefits, and that while this might be costly for the government and it might be costly for companies, we also have to look at, is this decreasing the funding available to military groups in the Congo? And we need to weigh those against each other. And they are both abstract and this is difficult to do, but we just need to keep both sides of the equation in mind. Mr. Pittenger. Professor Woody? Ms. Woody. I would echo both the Honorable Imena's comments and Professor Schwartz's. It is something that seems different with Rwanda, and it almost seems like we would have to have a representative from each of the neighboring countries here because each neighboring country of the Congo likely would have very different regulations and different--even as you pointed out-- geographical characteristics, such that that would make-- Section 1502 needs to be written in such a way that you would have to have discrete provisions for each of the countries that it affects. Mr. Pittenger. Ms. Gianopoulos, do you have anything else to add? Ms. Gianopoulos. As part of our work, we really didn't look at the cost of putting this rules into effect. We have gotten a very mixed bag as far as the effectiveness of the rule in achieving the goals that it has been set out to do. Part of that is because of the way the rule has been promulgated, in that larger companies have 2 years and smaller companies have 4 years before they have to actually determine whether or not the conflict minerals that they are employing are supporting armed groups. So that is part of the reason why we haven't addressed this issue. Mr. Pittenger. Thank you. Many people have stated that Section 1502 has been a de facto embargo on the continent, as--on the country, and it is leaving the militias more in charge. Would you concur with that, Mr. Imena? Mr. Imena. Thank you very much, Congressman. I will give an example. Before Dodd-Frank, we had a company from Germany which owned a mine, and they were extracting the minerals and shipping them immediately to Germany. But since the promulgation of this law, that company just ceased its operation and they were fearing about the auditing, about all the burden which will come with Section 1502 and they just stopped operations. Now the clients we have only for those minerals are coming from Asia. So when you have a reduced number of people coming to source from you, immediately they put the price down, which also impacts your economy. Mr. Pittenger. Thank you. Would anybody else like to weigh in on that? I yield back. Mr. Loof. If I may jump in, Congressman, our experience is different. We couldn't actually be there unless there was a clear way of sourcing this thing in an ethical manner because we couldn't sell our products to our customers. Chairman Huizenga. The gentleman's time has expired, and I am going to have a follow-up question on that personally, if it is not gotten to. But with that, I recognize the gentleman from New Mexico, Mr. Pearce, for 5 minutes. Mr. Pearce. Yes, sir. Mr. Chairman, thank you very much. Minister Imena, I will continue the discussion that Ms. Waters and Mr. Pittenger started. But first I want to go to the Honorable Loof and ask if you have your own security forces to protect your mines to keep them from being taken over? Mr. Loof. No, we don't have. There are police--Federal police and mining police--in the mine site. The number of times I have been in the village there have been--there are always police present. I have never felt really threatened, and I have been able to walk around in the village quite openly and quite freely. But clearly, I am no expert on the DRC, and I am no expert on the mining business. But for our experience in our little village, we have been able to create work and create safer work, and also been able to fund medical care at a whole different situation than before. As I said, we have eradicated cholera, and we are working on malaria right now. Mr. Pearce. I appreciate that. Having traveled to Uganda, Rwanda, Burundi, South Sudan, and Tanzania in the last 2 years multiple times, I suspected I would be concerned about people like Joseph Kony, who ranges freely. We stopped and talked with the U.S. forces who are trying to catch him, and he does--I am not asking a question; I am just making an observation that I would be concerned that your operation, if it is profitable, would be a target for somebody who has been able to pretty well do what he wants. Mr. Imena, we have been to Rwanda, and I will tell you that as an outsider, I appreciate when I go in and see the cleanliness of your country and the kind of industriousness. And I have met with Paul Kagame personally and know that he is in the process of maybe getting an exception to move into another term and I would support him. But I have found our State Department to be exactly on the opposite side of that; they seem to be trying to undermine him during our visits there and it is--again, the politics are very difficult to understand completely. And maybe I was mistaken, but I don't think so. Do you think that Rwanda maybe has been singled out because of our disagreement between the State Department and Mr. Kagame and their resistance to him being there? Do you think that it is something as directed as that? Mr. Imena. Thank you very much, Congressman, and thank you for your good comments on the cleanliness of Kigali City. For these other aspects beyond the mining sector, I will be pleased to refer them to our embassy here, and we can follow up with you. Thank you. Mr. Pearce. Thank you. Those are very carefully chosen, well-chosen comments. [laughter] Chairman Huizenga. The Chair will note, he is a professional diplomat. Mr. Pearce. He gets a special award for that particular answer. I think Ms. Waters is really driving at something that is very critical: If there are ways that Section 1502 can be changed to accommodate what we all want, I think that the aspirations of the provision are noble. I, like you, am concerned that it is penalizing a country that really is trying to move itself forward. And again, I see the industriousness of the people; I appreciate the quality of the society there. And anything that we can do to facilitate that would be, I think, good for both sides. Mr. Loof, have you considered going into Rwanda as a country and maybe establishing a second mine there, a second operation? Mr. Loof. We have not considered starting another mine in Rwanda, but we are sourcing material from Rwanda as well. Mr. Pearce. Okay. Mr. Loof. And that works in the same manner that it does in the DRC. I do recognize the situation in Rwanda is much different from the Congo. Luckily for us, the southern part of Congo, southeastern part, the Katanga province, has always been a little less violent than the other parts for the-- Mr. Pearce. And the final question--thank you, sir. The final question is to Ms. Gianopoulos: Do you have an observation about Professor Woody's comments about the SEC being overextended? I tend to believe it. I have watched as they have tried to get into the fracking question and the oil and gas industry, and so I wonder how in the world they have the resources. Do you note any of that extension of resources? Ms. Gianopoulos. We have spoken with the SEC across the last several years that we have been under this mandate to report to you annually. When we talked with the SEC about how they were going to promulgate the rule, they did admit that they needed to come up to speed on a number of issues that they did not have expertise on, but that they reached out to the State Department as well as to other stakeholders, and when they promulgated the rule and asked for public comments, they received a number of written comments from both the private and the public sector in order to put it together in a meaningful way. Mr. Pearce. Thank you. I yield back, Mr. Chairman. Chairman Huizenga. The gentleman yields back. I recognize the gentleman from Washington State, Mr. Heck, for 5 minutes. Mr. Heck. Thank you, Mr. Chairman. I am not entirely sure to whom I should address this question, but I think probably starting with Ms. Gianopoulos, and maybe Professor Schwartz. If anyone else wants to chime in, that would be fine. I am a little bit old-school insofar as I believe that you can, in fact, catch more flies with honey than you can with vinegar. And as a consequence, I think there is great value in pointing out and putting the spotlight on the success that some of this program has brought about. I read with some considerable interest the report by Global Witness and Amnesty International on the first round of reports and took some personal pride in the fact that the Boeing Company, which, of course, I believe makes the finest airplanes on the face of the planet and does so mostly in the State of Washington, which I have the privilege to represent, was individually cited for the precision and depth of their disclosures. But for all my parochial pride, it prompted in me the question, well, after Boeing, maybe who else should be given a little honey, as it were, to spotlight their successes? So I am wondering, in addition to the Boeing Company, Ms. Gianopoulos, if there are any--I wouldn't want you to just say one, but are there two or three companies that you thought had pretty good reporting and earnestly attempted to fulfill the spirit of the law among those that did report? Ms. Gianopoulos. We took a generalizable sample of all different sizes of companies. I know Professor Schwartz was focused on a particular sector or a particular size of companies. But across the various companies we tried to make it--to bring it up to a higher level. So I wouldn't be able to give you the names of individual companies of particular disclosure reports. But this coming year, with the current cycle of our annual mandate, we are looking at the second round of disclosures and comparing them back to the first round to see how those have changed--positive, negative, or whatever. So I would probably have more to tell you in the next round of reporting. Mr. Heck. Can you do it by sector? Is there any particular sector that you think overall did a little better job than-- Ms. Gianopoulos. Unfortunately, the generalizable sample that we took did not break it down by individual sector. We would have had to do a much larger sample for that. I'm sorry, sir. Mr. Heck. Professor Schwartz, throw me a lifeline here. Mr. Schwartz. Thank you, Congressman. I would single out Intel as having the best disclosures, and then I would also throw some honey towards Apple. Although Apple's disclosures didn't necessarily stand out to me in reviewing the reports, you can tell by looking at the website that they have internalized the idea of conflict-free sourcing and that they are endeavoring to illustrate to the public the extent to which they are actually trying to do so. And they have a diagram where they actually separate out their phone and show where everything came from on their website. And then if I were to single out--I don't know if I could do it by industry, but I would single out as generally doing better those companies that are consumer-facing, so companies that actually--they sell their products directly to a customer, like Apple, rather than companies that are deeper in the supply chain. So those companies that are more worried about what the person buying their product on the street is going to think, they are tending to be more responsive to these rules. And I would also say that there has been some improvement in the reporting year over year, but there is still a long way to go. Mr. Heck. Professor Woody, do you have anything to add? Ms. Woody. I also couldn't speak necessarily to any individual company, but I agree that for the most part, the press that I have read has singled out Intel as being one of the forerunners of doing very comprehensive due diligence on their supply chain. Mr. Heck. That would be, of course, in addition to the Boeing Company. Ms. Woody. Yes. I'm sorry. Of course, Boeing, as well. Mr. Heck. That is really all I have, Mr. Chairman. Thank you for holding this hearing. With that, I yield back the balance of my time. Chairman Huizenga. The gentleman from Boeing, I mean Washington, yields back. [laughter] Okay. It was meant purely as a jest, so with that, the Chair recognizes the gentleman from Minnesota, Mr. Emmer. Mr. Emmer. Thank you, Mr. Chairman. And thanks to the witnesses, again, for taking the time to be here today. Mr. Imena, it is my understanding that a U.S. Federal court--at least one, perhaps more--has struck down a large and important requirement from Section 1502, and I am referring specifically to the requirement that companies file with the SEC to indicate that the minerals they use are ``conflict- free.'' How do you think this will affect any United States and Western companies and their suppliers in terms of doing future business in Rwanda? Mr. Imena. Thank you very much, Congressman, for the question. We are following that case closely, but obviously it is beyond any control of the Government of Rwanda. But the concern to us is the uncertainty it is creating, because as long as the case is still before the courts, it creates uncertainty, and we are not able to predict whatever will happen in the future. Thank you. Mr. Emmer. It hasn't relieved the filing; it just--you are waiting to see if ultimately--let's just say the case is affirmed. I assume it is on appeal. Let's say the case is affirmed. How will that affect the U.S. and Western companies and their suppliers in terms of doing future business with Rwanda? Mr. Imena. Still there will be a problem to us because Section 1502 will be there and the region will continue to be struggling because of that de facto boycott. So, the concern would remain. Mr. Emmer. Thank you. What other traceability systems for 3T minerals are currently being used by Rwanda's neighbors, Mr. Imena? Mr. Imena. Today, we have the iTSCi. That is the ITRI Tin Supply Chain Initiative. We tested the METRUCK. It is another electronic system. And we also have the regional certification mechanism, called the International Conference on the Great Lakes Region. So both schemes that we are having on the ground, but the most efficient one is the iTSCi. Mr. Emmer. All right. Mr. Imena. Thank you. Mr. Emmer. And what are some of the development and investment challenges in terms of scaling up your mining sector in Rwanda? Where do you see the best opportunities for growth? Mr. Imena. Thank you, Congressman. The best opportunities are at value addition. We have very good opportunities to create refineries and processing facilities in Rwanda. We also have very good opportunities in other minerals rather than 3Ts, like the gemstone. We also have very good opportunities in transforming and modernizing the mining industry from a small-scale, artisanal industry to an industrial operations. Mr. Emmer. Thank you, Mr. Imena. Changing gears just a little bit, Professor Schwartz, I appreciate all of your research, the empirical evidence you presented. But as I was reading through it and then listening to you again today, on the one hand, when I read it it sounded as though you--or I took from it that you are not impressed with Section 1502, it is not doing what it was intended to do, and that we should get rid of it. But then I get to another portion of your testimony and you start to offer a potential better way of doing it. And I have heard you talk about this here this morning. So the question I have is--to you, Professor Schwartz-- should we get rid of Section 1502 or should we fix it, and why? Mr. Schwartz. Thank you very much, Congressman. And you are definitely right that I have a lot of criticism for Section 1502, but the way I ultimately come down is that it is worth trying to salvage. And when I was writing that paper and thinking about what we should do next, it was--I was weighing, is this section fundamentally flawed so it should just be repealed, or is there a way to fix it? And I ultimately come down in thinking that there are ways to fix it and that primarily, if we ask some different questions, so ask companies--so the way companies complied was commonly through surveying their suppliers, so if we ask companies what their survey response rate was with respect to their suppliers, and if they followed up with their suppliers; and if we ask companies to identify the actual mine of origin and who controls the mine of origin. So if we ask some different questions, we might get better answers to what is going on in these companies' supply chains. And much of the rule, I think, is written with an eye towards process--but do these companies have the right process in place--and not enough with an eye towards substance. So I think when we ask more substantive questions like, ``Okay, who are your suppliers,'' make it more clear that the companies need to identify their smelters in their supply chain, and make it so that we really can unfold the supply chain and get that onto the reports, I think it could be better. Mr. Emmer. But you weren't actually making a determination as to whether Section 1502 would be better, for instance, than the traceability systems that are currently being tested in the region? Mr. Schwartz. That is a good point. They are all actually connected, so I can't-- Mr. Emmer. It is a yes-or-no question. You weren't actually doing that, trying to compare Section 1502 and whether its benefits outweigh the cost, as opposed to the traceability systems that are currently being tested? Mr. Schwartz. They are connected. So iTSCi is a way to trace conflict minerals in order to comply with Section 1502, so that is why I said they are related together, that they are tied together. Mr. Emmer. But you wouldn't need it-- Mr. Schwartz. I'm sorry? Mr. Emmer. My time has expired. Thank you. Chairman Huizenga. I will allow you to answer that last question. Mr. Emmer. My last one was, but you don't need Section 1502. I understand you are saying they are related, Professor, but you don't need it. If the traceability systems that are currently being tested in the region work, then it would solve the problem, allegedly, that the purportedly Section 1502 is supposed to address, correct? Mr. Schwartz. Correct. I see what you are saying. So if the tracing schemes are already in place, then perhaps the legislation is unnecessary. I understand-- Mr. Emmer. Thank you very much. I yield back. Chairman Huizenga. The gentleman's time has expired. And the Chair is sitting here with a bit of embarrassment and egg on his face. I offered a private apology to Mr. Heck up here, and I now want to publicly apologize, as well. My misdirected and misguided Irish sense of humor got out in front of my thinking process and I in no way intended to suggest or impugn his character or independence, and I hope he will allow me to chalk that up as a lesson learned. He has assured me that he will, but I wanted to make that public, as well. So with that, I would like to recognize the gentleman from California, Mr. Sherman, for 5 minutes. Mr. Sherman. I thank the chairman for allowing me to participate. I will point out that the tracing schemes and other ways to deal with this issue, I think get their impetus from Section 1502 and the effort that led to Section 1502. I will ask our witness from the GAO, is there a difference in the market price, because these are traded goods, in these 3T minerals where they are coming from outside this region versus coming from inside the relevant region? Is there a difference in price? Ms. Gianopoulos. We haven't-- Mr. Sherman. A pound of tin is a pound of tin. Ms. Gianopoulos. Right. We haven't done an analysis of the price of minerals that are coming from outside the Great Lakes Region and those from inside the Great Lakes Region. What we looked at and what we spoke with folks in the region about was, what difference does it make if a particular mine is certified as conflict-free when it comes to the price of those minerals? Mr. Sherman. And what is that price differential, a conflict-free versus an uncertified mine? What is the difference in price? Ms. Gianopoulos. What we heard was if minerals are coming from a certified conflict-free mine, the miners are receiving about double the price for those minerals than they would from an uncertified, potentially illegal mine. Mr. Sherman. Mr. Loof, is that your experience, that you will pay twice as much for a certified rather than an uncertified pound of tin? Mr. Loof. We wouldn't buy from an uncertified smelter, period. Mr. Sherman. How much more are you paying to get certified tin as opposed to your competitors who are using uncertified tin? Mr. Loof. It is actually a little different. It doesn't actually work that way for us. What has happened is due to, I believe, the efforts we have taken to ensure that we can do this in a conflict-free and ethical manner, we have been able to stabilize the price. And because we actually have our own source of material, we have been able to extract the same price from anywhere in the world when we buy from somebody else today, so our business-- Mr. Sherman. So you are able to take a stand against the evils that we have seen in some of the mining operations at no discernable higher price for the minerals involved? Mr. Loof. I don't want to say that what we are doing is, in a major way, changing the lives of the Congo, but I can certainly say that for us the pricing has been more stable, the sourcing of this mineral has been more secure, and in our little village, which has grown twice as big as it was 4 years ago when we got in there, life has improved significantly. Mr. Sherman. Doing well by doing good. Professor Schwartz, you have--you are looking for tweaks in Section 1502. Are you looking for tweaks in the statute or-- ``tweaks'' may be understating it. You are looking for changed regulations or changed statute? Mr. Schwartz. I think there is a range of options. I think there could be some changes to the statute. If you are fully on board with my proposal, I think that might implicate some changes to the statute. But I think a lot could be done just by changing the regulations, or even through interpretive guidance. There is some vague language in the statute and the regulations, and some companies very narrowly interpreted that language. So if it was clarified what companies needed to report in terms of the identity of their smelter, I think that would improve things and that would be a small tweak that the SEC could do. Mr. Sherman. Does the SEC have the advisory committees and the channels to listen to you and others to improve their regulations and guidance? Mr. Schwartz. I think they do. The SEC is actually fairly reachable. Oftentimes, when I send my work to them, I will get a response. But they don't have a formalized process in place. Mr. Sherman. Okay. Obviously, there are those pushing in the business community just to eliminate Section 1502. Have any of them come up with a solution, or do they just say, ``Don't worry about the problem?'' Professor? Mr. Schwartz. I think the general response in the business community from those who are opposed to this rule is to just repeal. You don't generally see middle-of-the-road options like I am proposing. Mr. Sherman. I would just say that the effect of these conflict minerals on people's lives in the Great Lakes Region is significant. The fact that Mr. Loof and others are able to help people build lives through conflict-free and certified minerals is substantial, and for the business community to just say, ``Oh, that is just a goal not worth trying to achieve,'' is not as good a stance as those whom you have mentioned positively, or other witnesses have mentioned positively, such as Intel and Apple, who seem to take seriously the effect that their sourcing minerals have on the lives of people in the Great Lakes Region. And I will yield back. Chairman Huizenga. The gentleman's time has expired. And without objection, I would like to do a brief second round, since it looks like it may be just the vice-- Ms. Waters. Thank you very much. I think there is an awful lot to be learned about-- Chairman Huizenga. I will recognize the gentlelady first, if she would like to go first. Ladies first. And feel free to go ahead. Ms. Waters. Mr. Chairman-- Chairman Huizenga. I would be happy to follow up and wrap up. Ms. Waters. I thought you were looking this way. But please, take your rightful time. Thank you. Chairman Huizenga. I am happy to do so. But, all right, I want to still continue to unpack this a little bit. And we have heard from the ends here, Mr. Loof, we have heard from Professor Schwartz. We have not heard from Minister Imena, as well, and I know that Mr. Loof here had said that you couldn't be there without Dodd-Frank, is what I heard. And I guess what struck me and a question that I had written down at that time was, even with a non-Dodd-Frank system in place, you couldn't be there? So in other words, Minister Imena had talked about how Rwanda, well before Dodd-Frank ever put in Section 1502, was working on a system that guaranteed that conflict-free mineral. And what I am concerned about again, and I think what we have heard from the minister--I don't want to put words in his mouth--but when it is 2 percent, I believe, of the tantalum on the world market and 4 percent of tungsten, or I might have those reversed, there is still 96 and 98 percent of the world market that is not subject to this, and doesn't that put a place like Rwanda at a distinct disadvantage if they have the types of cost structure? So I guess my specific question to you, Mr. Loof, is could you be there if there was a non-Dodd-Frank system that would fulfill your internal mandate to your customers that you wanted to have conflict-free minerals? Mr. Loof. Thank you for your question. And I do recognize the situation in Rwanda is quite different from the part of the world where we have our operation. But the issue for us was to have a clear playbook that we and our customers can agree on, so that if you fulfill this playbook, you are actually by definition legally conflict-free. Otherwise, if there wasn't this playbook we would be in a constant conversation as to whether the bag and tag system we use and the way we transport the material through the bush in Katanga down to Kalemie and across the lake is, indeed, conflict-free. If that wasn't clear to our customers, we couldn't actually operate the way we are. And that is really where I am coming from. Chairman Huizenga. Okay. Mr. Loof. But I do recognize that the minister has a different situation in Rwanda. Chairman Huizenga. And, Minister, do you care to address that briefly? Mr. Imena. Thank you very much, Mr. Chairman. You are right, before Dodd-Frank had this system, we tested the analytical fingerprint; we tested the CTC, certified trading chains. Both systems were voluntary. But when Section 1502 came and it was mandatory, we immediately shifted to it and we lost the attention for both other systems. It means that if there is no Dodd-Frank, Rwanda is committed to continue to ensure to be a source of clean, transparent, and reliable minerals. Chairman Huizenga. Okay. Professor Schwartz, I was gathering from your conversation with Mr. Emmer--and, Professor Woody, I would like to have you comment, as well, on this--about the SEC's capability and broad--their bandwidth as they are dealing with this. We heard a couple of examples: We have not seen JOBS Act regulations be put in place; we have seen a number of other delays that have been put in place. We do know from the GAO reports that 21,000 hours have been put into this at a substantial cost--I don't have that right in front of me right now. Ms. Gianopoulos, I don't know if you recall exactly what that number is. It is significant. Ms. Gianopoulos. ``Significant'' is fair. Chairman Huizenga. Okay. So in the last remaining minute here or so, Professor Schwartz, Professor Woody, talk to me a little bit about the SEC and whether they could be doing additional things if they weren't putting an outsized amount of effort into this. Mr. Schwartz. Yes. And thank you for the question, Mr. Chairman. Yes, I agree with what has been said, that the SEC is overstretched here, and just in general, and that this additionally stretches their expertise. So I think it is less than ideal that the legislation has fallen to the SEC to oversee and to implement and to enforce. I guess if I were to defend it, I would say that we could have a more dynamic conception of the SEC that agencies aren't static over time and that if we take a more dynamic perspective, maybe it needs to evolve to embrace these social disclosures. But I agree that this stretches them both in terms of manpower and expertise. Chairman Huizenga. And Professor Woody, quickly? Ms. Woody. Yes. I would agree. The SEC certainly, just in sheer economic principle here, people who are working on this are not working on something else. And that said, I think the import of my testimony here today is really the broader picture, that there are a couple of problems with this regulation as written, in that the SEC has no real effective measurement of progress or a way to really quantify a reduction in violence in the Congo via the disclosures. Again, there is no penalty even for the use of conflict minerals under the law, so mere disclosure is really the only charge that is required here, so that alone seems to render the SEC fairly toothless in this. Chairman Huizenga. And I think that is fair to point out, that there is no penalty. So if you don't particularly care what your interface is with the public or with that customer, you could go right ahead and continue to use conflict minerals, correct? Ms. Woody. That is correct. Chairman Huizenga. All right. Which other countries may be doing. So with that, my time has expired, and I would like to recognize the ranking member of the full committee for 5 minutes. Ms. Waters. Thank you very much, Mr. Chairman. This may have been described, but I would like Mr. Imena to describe to me what was happening prior to Section 1502 in the region. Mr. Imena. Thank you, Congresswoman. It depends on which country, but in Rwanda before Section 1502, and today after Section 1502, we were mining tin, tungsten, and tantalum. And there was no conflict mineral before, and there is no conflict mineral today. The only change is the introduction of that regulation, which sometimes was taken as a burden to many of the operators in the region and essentially in Rwanda. Thank you. Ms. Waters. So can you describe to me what the smuggling problem was or is--smuggling conflict minerals from the Democratic Republic of Congo to Rwanda? What is that all about? Mr. Imena. Thank you, Congresswoman. That has existed in the past. And today, with all the illegal exploitation of metal resources in the country and in the region, our heads of state in 2006 signed a pact of the International Conference on the Great Lakes Region. And one of the areas covered by that pact is the Regional Initiative on the Illegal Exploitation of Natural Resources. We have teams and committees following up closely any claim of any illegal transportation, and illegal sale, or any illegal cross- border activity where minerals are concerned. Ms. Waters. All of the smuggling has been basically gotten rid of? You don't have any smuggling from the DRC to Rwanda, is that right? Mr. Imena. Thank you, Congresswoman. Smuggling is criminal in Rwandan law. Whenever there is any issue relating to smuggling, we have enforcement capacity and we immediately take actions. As is mentioned in my statement, where even giving an example of a company which was mentioned in the last U.N. group of experts report, which was immediately sanctioned and its license was cancelled because we found that they were doing some illegal and illicit activities. Ms. Waters. So you are saying Section 1502 may be needed for DRC but not for Rwanda. Is that right? Mr. Imena. You are right. Ms. Waters. And you are saying that because of the conflict mineral problem in DRC, you are perceived somehow by the international community or by America as having the same problem and that is what bothers you? Mr. Imena. You are right, Congresswoman. Ms. Waters. And you believe that even though the DRC needs Section 1502 and you don't, that Section 1502 should be modified or gotten rid of in some way? Mr. Imena. I will not speak for the DRC, but for the Rwandan case, Section 1502 is not helping at all. Ms. Waters. But you are not for--you won't speak for the DRC, but DRC has no negative impact on Rwanda at all now because you have smuggling covered. Is that right? Mr. Imena. There are many areas, as long as Rwanda and DRC relations are concerned. But for minerals and for Section 1502, we need to do something. Ms. Waters. Let me just say, I think that is Mr. Schwartz down on the end, you agreed with the Chair about the SEC and you think that the SEC is oversubscribed and they don't have the personnel to deal with some of the other mandates that they have. Are you aware of the opposition to funding the SEC so that it can cover its missions by Members of Congress? Mr. Schwartz. So yes, I have followed that debate, and I am not going to claim to be an expert on it, but I have followed that debate, yes. Ms. Waters. So you know they are underfunded? Mr. Schwartz. I'm sorry. Say that again? Ms. Waters. You know the SEC is underfunded? Mr. Schwartz. Yes, I would agree that the SEC is underfunded. Ms. Waters. And if we are desirous of the SEC carrying out its missions, we probably should try and see that it is funded properly so we wouldn't be in a position of saying they can't do their job properly because they are oversubscribed. I guess that could be the conclusion. Mr. Schwartz. I would agree. If the worry is the opportunity cost for the SEC's time, then the answer would be if we hired more people at the SEC, they could attend to all of the tasks that are assigned to them. You could even envision hiring--you could even envision a department of the SEC for social disclosures that would internalize the values of regulations like the conflict minerals rule, and they could enforce provisions like this and implement the rules. Ms. Waters. Thank you, Mr. Chairman. Chairman Huizenga. The gentlelady's time has expired. So I would like to thank our witnesses for their testimony today. And without objection, I would like to submit a statement for the record from the National Association of Manufacturers. Without objection, it is so ordered. 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 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. And again, I just would like to say thank you to our distinguished panel. I thought this was illuminating. I am hoping that we will do additional hearings on this. That is my intent, as well. And with that, our hearing is adjourned. [Whereupon, at 11:48 a.m., the hearing was adjourned.] A P P E N D I X November 17, 2015 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]