Analysis Of The Dodd-Frank Act

In late 2008, the world economy seemingly grinded to a halt. Wall Street, unable to reconcile the liquidity crisis and financial losses that stemmed from its bad bets on mortgage backed securities, turned to the United States government for help. What resulted was the $700 billion Troubled Asset Relief Program (“TARP”), the largest government bailout in the history of the United States. After the dust settled and Wall Street, with hundreds of billions of taxpayer dollars, managed to avert a global financial meltdown, Congress put pen to paper to ensure that the same crisis would never happen again. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), a nearly 900-page behemoth of financial reform, was signed into law. The Dodd-Frank Act was meant to reform that the unsavory and opaque practices that led to the 2008 crisis – it does so by introducing a stricter financial regulatory regime in which Wall Street must operate.

However, buried in the voluminous Dodd-Frank Act is an oft-overlooked provision that is completely unrelated to financial regulatory reform: Section 1502. Section 1502 requires public corporations to disclose their use of “conflict minerals” that originate from the Democratic Republic of the Congo (“DRC”) or an adjoining country (collectively, “covered countries”). The Securities and Exchange Commission (the “SEC”) has been charged as the agency responsible for enforcing this requirement.

The impetus for Section 1502 has nothing to do with the impetus for the rest of the Dodd-Frank Act. Section 1502 was not a response to the 2008 financial crisis nor is it a function of financial regulatory reform. Rather, Section 1502 is intended to address a ...

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... current structure of Section 1502 prevents any real humanitarian change from occurring. 1502 is essentially a statute aimed at peacemaking in the DRC and the SEC is financial regulator. Congress therefore should place the burden of implementing such a peacemaking statute on a governmental body that is better suited for the task. Further, the indirect “name and shame” enforcement mechanism of 1502 is inherently flawed and should be discarded in favor of a more aggressive and direct enforcement scheme as the Kimberly Process or the use of severe penalties. Congress cannot merely rely on public shaming to convince the boards of major corporations to avoid conflict minerals. As it currently stands, Section 1502 serves as nothing more than a humanitarian gesture. Until the structure of the law is reformed and given teeth, it will not effect any change in the DRC.