Congolese army tanks retreat after an alleged ambush by rebels in the Democratic… (Phile Moore/AFP/GettyImages…)
WASHINGTON -- The Securities and Exchange Commission on Wednesday voted 3-2 to adopt a controversial rule requiring new disclosures by public companies regarding their use of so-called "conflict minerals" mined in war-torn Central Africa that are essential to the manufacture of high-tech devices and other products.
The rules, advocated by human rights groups, were mandated by Congress in the 2010 financial reform law. Lawmakers wanted to reduce the use of key minerals -- gold, tin, tungsten and tantalum -- as a source of financing for armies battling in the Democratic Republic of Congo and neighboring countries.
But business groups have complained that the new specialized disclosures could cost U.S. companies as much as $16 billion dollars and hinder their competition with foreign companies that don't face such requirements.
They lobbied hard to soften the regulations, and the SEC revised its original proposals to reduce the companies' obligations. The rules, which were supposed to be in place by April 2011, were delayed because of the extensive feedback.
Companies will have until May 31, 2014, to make their first filings about whether the minerals they use are "conflict free" -- meaning they did not finance or benefit armed groups. And the SEC allowed companies two years, and smaller companies four years, to disclose simply that they could not determine if the minerals were helping finance fighting in the Democratic Republic of Congo.
The SEC's analysis determined that initial compliance costs for U.S. companies would total $3 billion to $4 billion, and ongoing compliance with the rules would cost a total of $206 million to $609 million.
The rules were adopted along party lines, with SEC Chairwoman Mary Schapiro and the other two Democrats, Elisse Walter and Luis Aguilar, supporting it.
"Congress intended to further the humanitarian goal of ending the extremely violent conflict in the DRC, which has been partially financed by conflict minerals originating in the DRC," Schapiro said. "Congress chose to use the securities laws disclosure requirements to accomplish its goal."
Noting changes made by the SEC to address cost concerns, she said the final rule "faithfully implements the statutory requirement as mandated by Congress in a fair and balanced manner."
But Republican commissioners Troy Paredes and Daniel Gallagher voted against the rule. They said that it was inappropriate to use public disclosure laws to accomplish what they said were the laudable goals of reducing the violence in the Democratic Republic of Congo.
“We are … not the right tool for this job," Gallagher said. He and Paredes said they were worried the rules would lead many U.S. companies to simply avoid any minerals from the Democratic Republic of Congo, harming residents there because mining is a major industry.
Later Wednesday, the SEC was expected to approve another controversial rule required by the 2010 financial reform law that requires public companies to disclose payments to governments to extract oil, natural gas or other important resources.