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Global Witness initial response to SEC vote on Dodd Frank rules
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Global Witness welcomes the long-overdue vote on implementation rules for Sections 1502 and 1504 of the Dodd Frank Wall Street Reform and Consumer Protection Act by the United States Securities and Exchange Commission (SEC).
The rules were originally scheduled to be voted on 16 months ago. However, industry groups, notably the American Petroleum Institute, the U.S. Chamber of Commerce and the National Association of Manufacturers have aggressively lobbied the SEC to delay and water them down. Global Witness has consistently called on the SEC to issue strong rules that meet the intent of the law: to curb corruption and the trade in conflict minerals and give investors the information they need to assess their exposure to risk.
Global Witness is carrying out a review of the rules announced today by the SEC. We will publish an in-depth analysis shortly.
Regarding Section 1502, we are extremely disappointed that the rule will allow companies to describe the origin of their minerals as ‘undeterminable’ for a period of two years – or four years for small companies. The minerals trade is fuelling violent conflict and human rights abuses in eastern DRC and delays in implementing the law postpone the moment at which companies take responsibility for the impact of their purchases, jeopardising efforts to stop minerals funding conflict and seriously undermining the aim of the law. By allowing companies to say ‘I don’t know where my minerals are from’, the regulators are effectively inviting issuers to evade all of the substantive measures required by the law. The incentive for companies to plead ignorance will be overwhelming.
On a more positive note, SEC staff made clear in today’s meeting that the OECD five-step due diligence framework is the benchmark against which companies’ due diligence should be measured. While it is disappointing that the final rule will not explicitly require companies to meet the OECD standards, the rule calls for companies’ due diligence to conform to a nationally or internationally recognised framework and the SEC stated today that the OECD standards are the only such framework available. By meeting these standards, companies can provide assurances to consumers and investors that they are checking all along their supply chains and taking the necessary steps to ensure that their purchases are not funding conflict.
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With respect to Section 1504, some aspects of the rule appear to represent a step forward. However, the devil will be in the detail as spelt out in the text which is yet to released. On first appearances, the SEC rule will shed some light on payments made by extractive companies to governments enabling citizens in some of the world’s poorest countries to hold their government to account for how resource revenues are being used. However, despite suggesting that “project” is a term understood and commonly used through the industry, we cannot understand why the SEC then failed to define it. That they will only define ‘project’ in their guidance is an enormous missed opportunity, which could provide ‘wriggle room,’ allowing companies to continue to hide illicit payments.
We welcome the fact that companies will not be able to exempt themselves from reporting in countries where governments do not want revenues disclosed: exemptions represented a ‘tyrants’ charter’. The SEC’s announcement on de minimis requirements looks promising but requires further scrutiny.
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Notes to journalists and editors:
- Global Witness spokespeople are available for interview, contact details are below.
- We will also publish a further statement on our response to the detail of the rules after they become available.
- Simon Taylor, Global Witness Co-Founder and Director will be a panellist on the press conference on the 1504 rule hosted by Publish What You Pay Coalition on Thursday August 23, 10am EST, accessible by telephone: Participant Dial In Number: 800-862-9098 or 785-424-1051. Conference ID (Password): Section 1504
For more information or to request an interview, please contact:
Annie Dunnebacke, Conflict Resources Senior Campaigner (for comment on 1502)