[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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