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Booker, Brown, Durbin to SEC: “No Legal Basis” for Halting Bipartisan Conflict Minerals Rule

Conflict Minerals Rule Helps Stem Tide of Illicit Mineral Extraction

April 26, 2017
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WASHINGTON, DC – Today, U.S. Senators Cory Booker (D-NJ), Sherrod Brown (D-OH), and Richard Durbin (D-IL) led a letter signed by Senators Chris Coons (D-DE), Patrick Leahy (D-VT), and Elizabeth Warren (D-MA) urging the Securities and Exchange Commission (SEC) to keep in place key parts of the bipartisan Conflict Minerals Rule, a provision of the Dodd-Frank Act that ensures that businesses who source products from conflict areas take steps to ensure their supply chain isn’t funding armed groups in those regions. 

Earlier this month, SEC Commissioner Michael Piwowar instructed the agency to halt the enforcement of this key bipartisan safeguard, a decision the Senators say has no legal basis.

In a letter sent today to Piwowar, the lawmakers urged him to rescind his directive, emphasizing the critical need for the Conflicts Mineral Rule in order to “stem the flow of financial support that illicit mining has provided to armed groups operating in an area plagued by violence.”

“We see no legal basis for your unilateral move to halt [the rule’s] enforcement,” the lawmakers wrote. “Any steps to repeal or modify the rule require a transparent, formal review and opportunity to comment by all stakeholders.” 

“Further, we note the dangerous precedent set when an Acting Chairman decides which laws the SEC should enforce, and we are concerned about your intention to direct the agency to ignore other laws.”

Since the mid-1990s, a series of conflicts involving multiple armed groups in the eastern provinces of the Democratic Republic of the Congo have displaced communities and resulted in extensive human rights abuses. This deep-rooted conflict is funded, in part, through illicit mineral extraction which the Conflict Minerals Rule seeks to address.

The Conflict Minerals Rule has prompted companies to improve their supply chains, and the letter notes how the Rule enjoys the public support of several leading American businesses, including Intel, Apple, and Tiffany & Co.

Today’s letter follows a hearing held earlier this month in the Senate Foreign Relations Committee’s Subcommittee on Africa and Global Health Policy, which outlined how the Conflict Minerals Rule has improved stability, safety, and quality of life for communities in the Democratic Republic of the Congo.

Full text of the letter is below and here:

April 26, 2017

Dear Commissioner Piwowar:

We write to express our deep concern about your recent instruction to halt enforcement of key parts of the Conflict Minerals rule (Rule 13p-1 of the Securities Exchange Act) required by  Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203).  As you know, this law required companies using conflict minerals in their products -- including gold, tin, tantalum, and tungsten (3T) obtained from the Democratic Republic of the Congo (DRC) and other “Covered Countries” in the region -- to conduct a due diligence review to ensure their supply chain is not funding armed groups in the region.  The bipartisan law was enacted to help stem the flow of financial support that illicit mining has provided to armed groups operating in an area plagued by violence, in which the use of rape as an instrument of war has become so commonplace that it has become known as the “rape capital of the world.” We see no legal basis for your unilateral move to halt its enforcement.

Any steps to repeal or modify the requirements of the law require action by Congress.  Any attempt to modify the rule requires a transparent, formal review and opportunity to comment by all stakeholders.  An irregular, ad hoc process inviting comment on an Acting Chairman’s statement is no substitute for this formal process.  As Acting Chairman, you do not have the authority to direct a halt to enforcement.  And yet, you have repeatedly taken aim at this bipartisan measure.  As described in a March 29, 2017, Senate letter to the Securities and Exchange Commission (SEC) Inspector General, we are concerned that your ongoing actions with regard to the conflict minerals rule lack adequate justification, undermine the mission of the SEC, exceed your authority as Acting Chairman, and raise questions about whether you may have violated other procedural requirements.  Further, we note the dangerous precedent set when an Acting Chairman decides which laws the SEC should enforce, and we are concerned about your intention to direct the agency to ignore other laws.

Since the mid-1990s, a series of inter-related armed conflicts involving multiple armed rebel groups, local militias, and armed criminal groups in the eastern provinces of the DRC have displaced communities, created humanitarian emergencies, and resulted in extensive human rights abuses.  This deep-rooted conflict is funded, in part, through illicit mineral extraction.

The congressionally mandated directive requiring supply chain due diligence has had important positive effects for the security for the people of Eastern Congo and has bolstered the confidence of investors in companies using minerals from the region. North Kivu province, the most 3T minerals-rich province in Congo, reported record-high, conflict-free exports for both tin and tantalum in 2016, and 220 mines have now been certified as conflict-free.  In addition, as of April 2017, 77 percent of smelters worldwide (249 out of 323 total) for the four conflict minerals have passed audits.

We believe your April 7, 2017, statement, as well as the recommendation by the Division of Corporation Finance questioning enforcement of due diligence requirements, conflates distinct elements of the requirements and process under the statute and the rule and incorrectly interprets the 2015 court ruling.  While your statement effectively suspends enforcement of all due diligence requirements under Section 1502, the court’s decision invalidated only one specific, severable component of the Conflict Minerals rule. The inquiry and due diligence measures on source and chain of custody are separate and distinct, and they must each be enforced.  In fact, when the National Association of Manufacturers requested a stay of the law, the court explicitly denied the request to affirm that the rest of the rule’s requirements were not severable from the requirement found to be unconstitutional. The conflict minerals report is a central part of the law, even if companies are ultimately not required to describe the status of their products, and there is no  question about  whether the due diligence disclosure requirements must be enforced.

Supply chain due diligence under the Conflict Minerals rule has allowed companies to better understand and create efficiencies in their own supply chain, while choking off revenue for violent militia groups.  Several companies, including Intel, Apple, Richline, and Tiffany & Co. have publicly expressed support for the conflict minerals rule.  These companies and others like them have embraced the law and its underlying objectives.   Enforcing the Conflict Minerals rule is required by law.  A failure to do so could place these companies at a competitive disadvantage and is beyond the scope of your authority. 

We urge you immediately to rescind your directive, and allow full enforcement of the Conflict Minerals law and rule.

Sincerely,