In the preparation of additional regulations which are necessary to reduce the human suffering, it is absolutely essential to listen to local organizations and experts. They know the situation better than anyone. The emphasis has to be on the objective of the supplementary regulations (what is the essential aim?) and on the practical implementation of the additional rules (how must the new rules be applied?). Listen to the local experts first, before developing and implementing new regulations!
To achieve the title Master of Science in Accountancy at Nyenrode Business University I performed an empirical study of the determinants that affect the extent to which companies are prepared for the new regulations regarding 3TG minerals. The research has shown that companies active in sectors with a proactive partnership made more progression in preparing themselves to comply with the new regulations regarding 3TG minerals than companies active in sectors without a proactive partnership. The research results are important for policy makers in developing, formulating and introducing new policies and regulations.
It is recommended that policymakers will consult and inform the international sectoral partnerships in an early stage of development of new policies and new regulations. In addition, in order to optimize the intended effects of the policy and to determine the most appropriate approach, it is recommended to involve the local organizations and experts in an early stage.
Before May 31, 2014, the Specialized Disclosures (SD) Forms have to be filed for the first time at the SEC. The question is, whether the violence and gross violation of human rights in the region of the Great Lakes in Central Africa have been decreased by this measure, or not. In other words, does this measure contribute to a decrease of financial resources for the armed struggle groups in this area, and so to a decrease of violation of human rights, because they are no longer able to sell the 3TG minerals they exploit in the controlled mines?
Reports of the atrocities are still coming into our living rooms. Based on these messages, one can assume that the violence and gross violations of human rights have not been decreased. One has to conclude that the introduction of Dodd-Frank Act Section 1502 does not contribute to the reduction of human suffering.
In her contribution of January 24, 2014 Wasima Khan rightly notes that the impact of the Dodd-Frank Act Section 1502 is limited, because there is insufficient coordination between countries on national legislation, and because the business ethics within enterprises is not yet mature enough. There are also other factors that are at the basis of this limited effect. In this article, I will describe another factor, namely the failure to involve and consult local organizations and experts in the preparatory phase.
Reasonable Country of Origin Inquiry
To meet Dodd-Frank Act Section 1502 enterprises must perform a Reasonable Country of Origin Inquiry (RCOI). In this study it should be determined where the 3TG minerals come from. In the case it cannot be assumed that the 3TG minerals are probably not coming from the area of the Great Lakes in Central Africa, based on the RCOI, the enterprise will have to perform a due diligence. This due diligence should be performed according to the framework of the Organization for Economic Cooperation and Development (OECD).
An important element of this framework is the identification of the supply chain of the 3TG minerals on a batch level. For each batch, the supply chain must be identified from the mining of the raw materials till the manufacture of the final product. This is a time-consuming and costly activity. It is therefore important for enterprises that they can demonstrate by means of performing a RCOI, that it may be assumed that the 3TG minerals used, are probably not coming from the area of the Great Lakes.
If a smelter mixes ores from the region of the Great Lakes of Central Africa with ores from other areas, the source of the 3TG minerals used cannot be determined anymore. For this reason, the RCOI should be performed in two parts; one part from mine to smelter (upstream), and the other part from smelter to final products (downstream). The RCOI of the downstream supply chain can be done in a relatively easy way. This is significantly different for the upstream supply chain. This part of the supply chain includes informal flows of goods from smuggling routes which are difficult to trace.
There are two different approaches concerning the identification of the upstream supply chain. One approach is the approach of the Regional Certification System (RCS). Its aim is to identify and recognize conflict-free mines, even if these mines are located in the area of the Great Lakes in Central Africa. However, these mines should be able to prove that they have no relationships with the rebel groups. Another approach is the Conflict Free Smelter (CFS) program. Its aim is to determine that the 3TG minerals do not come from the region, not even from conflict-free mines. It is clear that the CFS approach is the easiest and cheapest one.
Enterprises choose the cheapest method to be 1502- proof
As a result, most companies avoid performing costly due diligence and choose the CFS approach. This has far-reaching consequences.
Mining operations in the area of the Great Lakes in Central Africa are still done by locals in the traditional way and in small mines. It is their main source of income. Stopping the purchase of 3TG minerals from conflict-free mining companies is very harmful to the local population that has already suffered so heavily by the ongoing armed conflict.
In addition, local organizations and experts suggest that, as a result, the conflict-free mines are driven into the arms of the armed militant groups, and so smuggling and corruption will increase. In line with this, armed groups will get more opportunities to enrich themselves by the exploitation and trade of conflict minerals, which in turn will cause a further escalation of the conflict which will finally lead to an increase of the human tragedy, instead of a decrease.
Enterprises will declare to be 1502-proof, while the measures they have taken have not contributed to the reduction of human suffering, but on the contrary, to an increase of it. No, 1502-proof is not the same as humanity-proof!
Early consultation of local organizations and experts
Local organizations and experts have warned for this situation, but they were not heard in the preparation process.
In the preparation of additional regulations which are necessary to reduce the human suffering, it is absolutely essential to listen to local organizations and experts. They know the situation better than anyone. The emphasis has to be on the objective of the supplementary regulations (what is the essential aim?) and on the practical implementation of the additional rules (how must the new rules be applied?).
Listen to the local experts first, before developing and implementing new regulations!