Summary of the World Gold Council's submissions to the Securities and Exchange Commission (SEC) in response to the consultation on the proposed rules to implement Section 1502 (conflict minerals) of the Dodd-Frank Act
Published 2 March, 2011
New York 2 March 2011
The World Gold Council, on behalf of its members, has submitted two documents in response to the SEC consultation on the regulations to implement the Dodd-Frank ‘conflict minerals’ legislation (the Act). The World Gold Council is fully supportive of the humanitarian intentions underpinning the Act of preventing gold or other minerals from the Democratic Republic of the Congo (DRC) being misused to fund or otherwise benefit armed groups and of rooting out ‘conflict minerals’ from the supply chain. The World Gold Council’s members are involved in the leading corporate responsibility frameworks designed to promote human rights and transparency in the extractive sector and are working to combat ‘conflict minerals’. Nonetheless, the World Gold Council has expressed concern about aspects of the draft regulations as follows:
- The regulations should not start from the perspective of labelling all gold as a ‘conflict mineral’ until it can be proven not to be. Only 0.6% of global production comes from the DRC and it is disproportionate to taint the remaining 99.4%, especially given gold’s role in the global financial system and in the economies of many developing countries.
- The regulations need to be better targeted and there is a high risk of negative impacts. The focus of the Act is on minerals originating in the DRC (including their transport routes and where DRC minerals are falsely declared as having been mined in other countries) but the compliance requirements are as great for minerals produced in other countries in the region that are remote from the conflict. The costs arising from compliance are potentially as great for a manufacturer sourcing gold from a regulated mine in Tanzania as from informal sources in the DRC. Unintentionally, the regulations may trigger a boycott of minerals from the region – which would be particularly serious for Tanzania as the only major gold producer. It has not been involved in the DRC conflict and its gold has never been accused of fuelling the conflict. Gold contributes as much to the country’s foreign exchange earnings as total aid flows, over 3% of tax revenues and supports over 100,000 livelihoods.
- The SEC’s calculation of the costs of implementation concentrate on the compliance costs for ‘issuers’ but the costs in livelihoods in the region, if the regulations are not well targeted, may be considerably in excess of this.
- The gold which has contributed to funding conflict in the DRC does not come from mines in the formal economy but from smaller scale operations, often dominated by warlords. Investment in large-scale mines from reputable international companies will help to generate stability, jobs and tax revenues for the DRC Government.
- Gold is increasingly being used in small quantities in medicine (e.g cancer treatments and vaccines), energy efficiency and environmental applications. The SEC should recognise these growing public interest uses by creating an end-use related de minimis exemption to prevent compliance requirements from discouraging innovation or increasing patient costs.
- The public disclosure requirements need to better reflect the security sensitivities of gold and dore shipments. Unless safeguards are added, the details which must be provided in publicly available reports could put the safety of security personnel at risk and be used for profit by criminal gangs and armed groups – contrary to the objective of the legislation.
- The SEC proposal to designate miners as ‘manufacturers’ within the meaning of the regulations should be reconsidered. It would be duplicative and nugatory for miners to be required to produce reports on their sourcing of minerals since they will, in any case, be required to provide assurance on these issues to end-users further along the supply chain and it runs contrary to other US legislation governing mining.
- The regulations need to be phased-in with a period allowed for companies to prepare their supply chains, audit arrangements and management systems. This is complex and novel territory. Moreover, key elements to be provided by US Government Agencies and needed to support implementation, such as the State Department’s conflict map and strategy and the Comptroller General’s guidance on audit standards, have yet to be published.
For further information please contact:
World Gold Council
T 001 917 224 6473