Jive Turkey Report: Wall Street Reform

Tucked into the recently passed Wall Street financial reform bill is a little provision about the use of "conflict materials" from the Congo. "Conflict materials" are designated minerals such as tungsten, gold, and tin that are used by militias to fund brutal conflict against citizens in that country. These materials are typically used in the manufacture of electronics like cell phones and computers.

The legislation directs the Securities Exchange Commission to implement regulations requiring publicly traded companies to report whether or not the materials they use in manufacturing are conflict materials from the Congo or surrounding countries. No penalties are imposed for using conflict materials, but the law requires regulated companies to report the use of conflict materials on their websites to discourage their use. Even though directed at large publicly traded companies, the reporting requirement will filter down to distributors of these products, who will have to investigate the origination of the materials they sell and may have to assist in audits.

Although the motivation behind this legislation is undeniably noble, the legislation itself seems poorly-conceived. Beyond the difficulty of determining whether materials constitute conflict materials in the first place, distributors may be discouraged from buying any materials from the Congo to avoid the extra reporting requirements. This could have a drastic effect on the Congolese economy and people, which rely heavily on mining. Furthermore, is adding another reporting requirement to an already heavily regulated manufacturing sector, through the SEC of all agencies, an appropriate way to address the problem? Is this a case of big burden, little effect?

The SEC has 280 days to promulgate regulations to flesh out this new law. I will be interested to see how the SEC intends to implement this law and the effect across the manufacturing sector.

By the way, you might ask what this has to do with Wall Street financial reform in the first place? Nothing that I can tell. Just another example of legislation tacked on where it doesn't belong for easy passage.