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Saturday, 25 August 2012
immediate release: 22 August 2012
Global Witness initial response to SEC vote on Dodd Frank rules
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.
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 inimplementing 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.
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.