SEC to tackle conflict minerals in Congo

By Rachelle Younglai

WASHINGTON (BestGrowthStock) – U.S. regulators will take steps aimed at abolishing trade in “conflict minerals” that finance war in the Democratic Republic of Congo.

A whole swath of companies could eventually be required to disclose whether they are sourcing their minerals from the war-torn region, under a plan to be considered by the U.S. Securities and Exchange Commission on Wednesday.

“The idea is to cut off funding for the armed rebels in the Democratic Republic of Congo who are getting money from the sale of these minerals to fund these activities,” said Darren Fenwick, a senior manager at Enough Project, an organization aimed at ending genocide and crimes against humanity.

“It is going to create transparency in the supply chain process. It will force consumers to make a choice,” he said.

Much of Congo’s minerals, such as gold, cassiterite and tantalum come from its troubled east, where conflict among government forces and rebel groups have displaced more than 1.4 million people.

The SEC rule is required by the Dodd-Frank legislation that was enacted in July to reform Wall Street and plug regulatory gaps after the worst financial crisis since the Great Depression.

The Dodd-Frank bill changes the financial landscape and creates new rules to protect consumers from risky products and plans to protect the financial system.

The conflict mineral provision was slipped into the bill by a number of senators, including Dick Durbin, who has said he witnessed first-hand atrocities of horrific and inhumane proportions.

Under the legislation, a company would have to disclose its source if the conflict minerals are necessary to the “functionality or production” of the product manufactured.

The SEC is expected to propose that the requirements apply to domestic and foreign companies listed in the United States as well as to smaller companies.

Companies would have to disclose the information in their annual reports. If the company concluded that the conflict mineral did not originate in the Democratic Republic of Congo or neighboring countries, it would be required to tell the public how it determined this, under the SEC proposal.

How the rule is interpreted will determine which companies will be forced to disclose the information — raising concerns among manufacturers, technology and defense companies.

For example, tantalum is widely used by the global electronics industry due to its unique ability to store and release an electrical charge — essential for the power-storing processes of iPods and iPads, BlackBerry smart phones and laptop computers.

On Wednesday, the SEC is also expected to propose rules that would force mining and energy companies to disclose payments to foreign governments, as well as mine safety information.

DERIVATIVE RULE EXEMPTION

At the same meeting, the SEC is expected to largely follow the futures regulator’s plan to exempt certain companies from new derivatives rules.

So-called “end users,” companies such as Ford Motor Co that use derivatives to manage their risk, are desperately trying to make sure that they will not have to set aside extra capital in order to use the financial instrument.

Under the Commodity Futures Trading Commission’s plan, an end-user would be exempt if the deal is not speculative and one side of the trade is a nonfinancial entity.

Regulators won new powers to police the estimated $600 trillion over-the-counter derivatives market after insurer AIG’s pile of risky credit swaps unsettled financial markets. The SEC will police only a tenth of the market, while the CFTC will supervise the rest.

Under the SEC’s proposal, end-users relying on the exemption would have to tell the SEC how it expects to meet its financial obligations.

In an attempt to prevent abuse in the market, the end-user would have to provide the SEC with a host of additional information, including the identity of the counterparty.

Most derivatives, private contracts between two parties, will be forced onto trading venues and through clearinghouses. The trading venues, also known as swap execution facilities, will help make the market more transparent. The clearinghouses are expected to help mitigate risk if one party defaults.

The SEC on Wednesday is expected to outline a process that will determine whether a swap is required to be cleared.

(Reporting by Rachelle Younglai; Editing by Richard Chang, Dave Zimmerman)

SEC to tackle conflict minerals in Congo