As required by last year’s Dodd-Frank bill, the Securities and Exchange Commission (SEC) has come out with proposed regulations for US companies trading in minerals from Congo and surrounding countries. I have not read the whole bill – the 113 pages did not fit into my packed Christmas schedule – but a few things do spring to mind. First and foremost, this a bill that is intended not so much to have the government regulate the mineral trade, but to provide the tools and information for concerned citizens and the press to do so. The SEC does not specify what exactly a company must do to determine whether it is sourcing its minerals from the Congo (“a reasonable country of origin inquiry”) or what steps it should take to make sure the minerals coming from the Congo are not fueling conflict. It simply requires companies to say what that have done to find out from where there minerals are sourced. It would then be up to the court of public opinion to punish those companies who do trade in conflict minerals. The SEC, however, does reserve the right to review companies’ due diligence process and to judge them insufficient or unreliable. They suggest that companies could use standards such as those developed by the OECD. In any case, the burden is on companies to prove that their minerals do not come from the Congo. If they are unable to prove this, they will have to submit a “Conflict Minerals Report” to the SEC and will have to pay an independent auditor to review its report and make the report and the audit public on its website. One problem raised by this laissez-faire attitude is that companies would simply submit a report saying that they sent people into the field, but were unable to find any evidence that companies they buy from are trading in conflict minerals. Given the opacity of the minerals trade in the Kivus, they could even carry out fairly rigorous due diligence without finding any wrong-doing. Auditors flown in from Nairobi or Washington would be hard-pressed to figure out much in the muddle of Kivu politics. This just highlights the importance of independent body doing in-depth investigations into companies and armed groups in the Kivus – something like the UN Group of Experts, but with much more manpower (the UN panel only has one person working on conflict minerals) and access to company information. Bottom line: without good knowledge of local criminal networks, the best due diligence will not produce much. Another possible problem with the proposed regulations is that they, as the Dodd-Frank bill, say that they will define “armed group” in accordance with the State Department’s human rights reports. While the Congressmen who drafted the legislation have said that by armed group they definitely meant the Congolese army, as well, some lobbyist are now apparently contesting that. The latest UN Group of Experts report highlights the importance of the Congolese army in the criminalization of the minerals trade; it would be a huge disappointment if companies felt they could buy minerals taxed and controlled by Congolese army units, who now control many of the Kivu’s most lucrative mines. The footnotes in the proposed regulations also tell an interesting story: A lot of lobby groups have written to the SEC to express their support or skepticism about due diligence, many more of these groups, actually, than NGOs. Finally, there are some funny calculations in the draft about how much due diligence could cost. They suggest that up to 20% of the world’s tantalum comes from the DRC, so therefore 20% of minerals-consuming companies in the US would be concerned: a total of 1,199 companies. But what if all companies in the US used tantalum from the Congo to the tune of 20% of their supply? In any case, they only use this figure to speculate about how much due diligence might cost the industry – they use the mean of a figure provided by NGOs ($25 million) and by the industry ($8 million) and come up with $16.5 million. They then add to that the amount a private sector audit of the Conflict Minerals Report would cost – only $25,000 per company, a very low figure that suggest that auditors would not have to go into the field – and multiply by 1,199 companies: $29,975,000. Together with the due diligence, that totals $46,475,000 for the whole industry. Pretty funny math, if you ask me, even if it’s just to get a ballpark figure. Anyway, this is just a draft. The SEC welcomes comments until the end of January. You can email them at: email@example.com.