[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
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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
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