Dodd-Frank's Conflict Minerals Rule: The Tin Ear of Government-Business Regulation

By Lowenstein, Henry | Southern Law Journal, Fall 2014 | Go to article overview

Dodd-Frank's Conflict Minerals Rule: The Tin Ear of Government-Business Regulation


Lowenstein, Henry, Southern Law Journal


From 2007-2012 the United States encountered its longest and deepest economic recession since the 1930's. Most analysts attribute the economic contraction's proximate cause to a systemic meltdown in the national and world financial markets. This occurred due to the convergence of government policy stimulating irrational lending practices in real estate (subprime mortgages), weak financial instruments based upon them along with hedge fund manipulations and questionable if not fraudulent practices of major financial institutions.1 Major financial institutions risked insolvency, required government intervention2 and some such as the venerable financial house, Lehman Brothers, went out of business altogether.

Out of investigations and resultant public political pressure, Congress enacted the most sweeping banking and financial service market structural reforms since the Glass-Steagall Act of 1933.3 Thus, came about the lengthy and controversial Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.4 Not unlike other legislation by Congress, deep within it's over 2,300 page of statutory text were provisions having nothing to do with the financial services market or any cognizable theme of the legislation itself.

This paper examines one of those unrelated provisions, which have recently come to light with recent realization of its potential massive adverse impacts on business, manufacturing, and ultimately consumer costs of products. Buried within Dodd-Frank's statutory text is Section 1502, known as the "Conflict Minerals Provision"5 (later developed into a "rule" and hereafter "CMR'). The provision establishes a requirement that manufacturers who are publicly listed corporations trace, certify and report the origins and use of four specific minerals, gold and the "Three T's" (tin, tungsten and tantalum) used in modem day manufacturing to verify they did not originate from mines in the "Democratic Republic of Congo (formerly Zaire) or adjoining countries."6 These minerals are collectively known as so called, "Conflict Minerals."7 The law neither bans the purchase, import or use of these minerals from the identified nations. Rather, it is (at this point) limited to reporting, but as this article will outline, that reporting is neither benign in its effect nor limited in its cost burden to industry.

The law further delegated regulations and enforcement of CMR not to an existing federal regulatory agency most qualified in expertise and oversight of minerals or natural resource or import-exports, but to the U.S. Securities and Exchange Commission (SEC); a financial regulatory agency with no prior mission or expertise in any aspect remotely related to the subject matter jurisdiction imposed by Congressional mandate.8 This was done at a time when the SEC is overwhelmed with financial market cases from its existing mission, Dodd-Frank financial market mandates, and the effect of 2013 federal budgetary sequestration reducing all agency budget resources.

Congress's choice of mechanism for §1502 raises serious questions about the legality of the law, the method chosen to address the issue, matters of equal protection of American firms and industries, the financial burden placed on both the SEC and businesses at a time of recession and public outcry (both among those against regulatory interference in Commerce and by those who approve of it), better effectiveness and efficiency in regulatory oversight. Indeed, at a time when both parties in Congress and the Executive branch agree in principle of the need to improve effectiveness and efficiency of government, the Conflict Minerals Rule presents one example of a "tin ear" in public policy and business law.

Public policy debates often assert the inefficiency, cost burden and even illogical processes that occur in government regulation of business have the effect of delaying innovation, diverting management energy and adding deadweight costs to both the cost of production and the operation of government itself. …

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