There is much truth to the cliche that politicians are primarily interested in getting re-elected. To achieve this goal they cater to the small group of voters who are paying attention to the details of the legislative process – and often looking to cook up a raiding party on the public interest to promote their own goals.
Take a provision tucked into the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank), one of the most sweeping financial reform bills in U.S. history, which President Obama signed into law in 2010. Dodd-Frank demonstrates that policy making is dominated by powerful businesses and other well-organized special interests.
In the aftermath of the historic bailout of the financial system and major banking houses in 2008 and 2009, which precipitated the worst economic downturn since the Great Depression, the financial industry fell under intense criticism and scrutiny. The omnibus 2,300-page bill was passed in response to this financial and economic crisis.
Its stated aim was to “promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purpose.” It was supposed to reduce system-wide risk and prevent a financial collapse like the one in 2008.
While the law did not lay a hand on Fannie and Freddie Mac, major players in the 1997-2007 housing bubble and the subsequent financial crisis, it did address the subject of “conflict minerals” that was promoted by certain non-governmental organizations supported by celebrities such as George Clooney and Brad Pitt.
These activists lobbied Congress and got them to state that the exploitation and trade of certain conflict minerals was fueling a humanitarian crisis in the Democratic Republic of the Congo that warranted the imposition of disclosure requirements.
The NGOs argued that profits from conflict minerals have helped fund the conflict between rebel militias and government troops in Congo that has claimed millions of lives and resulted in widespread human rights abuses, including violence against women and the conscription of children as soldiers.
The conflict minerals are tantalum, tin, tungsten, and gold, which are used in many industries. Tungsten, for example, is used in the screens of cellphones and tin is used to solder circuit boards.
Congress directed the Securities and Exchange Commission to promulgate a rule requiring thousands of publicly traded U.S. companies to investigate whether they or any of their suppliers use minerals mined in the conflict-ridden parts of Congo and to annually disclose the origins of conflict minerals necessary to its operations if the minerals originate from Congo or an adjoining country.
Supporters of the Dodd-Frank conflict minerals provision and of the SEC implementing rule argue that such disclosures reduce the violence involved with the mining of conflict minerals. Opponents argue that they are burdensome and costly to administer.
Combating brutal human rights abuses in the Congo is surely a good idea, but is a Wall Street Reform bill the appropriate place to do it? And is the SEC the right entity to implement the law?
And what are the boundaries of corporate social responsibility? How much responsibility does a firm have for its supply chain? Are there alternative and transparent approaches to dealing with the issue of conflict minerals? Corporations cannot be asked to solve all the world’s problems.
The financial industry was widely criticized for its intense lobbying efforts to shape Dodd-Frank’s legislative and rule making process. But they were not the only ones to convince lawmakers eager to curry favor with powerful special interests to include provisions in the legislation that promote their own rather than the public interest.
Originally Published: October 10, 2015