Yeah, that headline seems a bit odd -- Dodd-Frank is about banking, right? Well, apparently buried within Dodd-Frank are conflict minerals rules which I suppose were spurred by the efforts of a few dim-bulb celebrities who have a knack for latching onto poorly thought out "solutions" for Africa that tend to have staggering unintended consequences.
In this case, the logic was that minerals sales to western companies were propping up dangerous warlords and militias, particularly in the Congo. The law imposed huge penalties on American companies that did not purge their supply chain eight, ten, twelve steps deep of any suspected bad actors in the mineral world.
The problem for US companies is that this imposes a ton of cost, and is very hard to do. So hard that the US government has not been able to successfully differentiate conflict from non-conflict suppliers. However, as we learned on issues like cybersecurity, the US Government is still more than willing to impose enormous penalties on private businesses for failing at tasks the government can't even do itself. So companies play it safe and don't buy from any source anywhere near places like Congo, even avoiding neighboring countries that have no such conflict issues.
Because what Progressive supporters forgot in patting themselves on the back for their sensitivity in passing such laws is that minerals extraction and related labor is about the only source of income for citizens of these countries, which are among the poorest in the world. We may cut have off some of the money flowing to warlords (though not much as they turn out to do pretty well in the new bootlegging environment), but we are cutting off all the money that went to the struggling population. Further, by driving the trade underground, it becomes impossible to impose event he most basic rules on the trade. Dodd-Frank turned the mineral trade in these countries into the cocaine trade.
The 2010 Dodd-Frank Act increased violence in the Congo by 143 percent (and looting by 291 percent) through its “conflict minerals” rule, which has backfired on its intended beneficiaries. So concludes a new study by Dominic Parker of the University of Wisconsin and Bryan Vadheim of the London School of Economics.
As we noted earlier, Dodd-Frank conflict minerals regulations have also caused starvation in the Congo, harmed U.S. businesses, and resulted in increased smuggling—even as they punish peaceful neighboring countries in Africa just for being near the Congo, whose civil wars have killed millions over the last 20 years. They have inflicted great harm on a country that was just beginning to recover from years of mass killing and had the world’s lowest per capita income. The new study is consistent with a 2013 paper by St. Thomas University law professor Marcia Narine that criticized the conflict minerals rule for its dire consequences for the Congolese people.
To his credit, David Aronson was on this four years ago:
For locals, however, the law has been a catastrophe. In South Kivu Province, I heard from scores of artisanal miners and small-scale purchasers, who used to make a few dollars a day digging ore out of mountainsides with hand tools. Paltry as it may seem, this income was a lifeline for people in a region that was devastated by 32 years of misrule under the kleptocracy of Mobutu Sese Seko (when the country was known as Zaire) and that is now just beginning to emerge from over a decade of brutal war and internal strife.
Meanwhile, the law is benefiting some of the very people it was meant to single out. The chief beneficiary is Gen. Bosco Ntaganda, who is nicknamed The Terminator and is sought by the International Criminal Court. Ostensibly a member of the Congolese Army, he is in fact a freelance killer with his own ethnic Tutsi militia, which provides “security” to traders smuggling minerals across the border to neighboring Rwanda.
The people of eastern Congo agree that it would be beneficial to bring greater clarity and transparency to the mineral trade. A variety of local and international initiatives to do so were under way when the embargo hit. Those efforts may now become a casualty of the Dodd-Frank law.