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On Swiss Chocolate, Conflict Minerals, and Corporate Pillage

Swiss chocolateEveryone knows some of the main differences between the United States and Switzerland. Americans play football with their hands while the Swiss play it with their feet. Americans love chocolate but the Swiss are crazy about it; they consume more than twice as much chocolate per capita. The Swiss army knife is the Swiss invention that does everything. In the United States, it’s the iPhone.

 

Now it may be time to add a new one to the list. The Swiss criminally prosecute companies that pillage natural resources, whereas in the United States the business community thinks it shouldn’t have to comply with the most basic disclosure rules.

 

Two court cases, one in Switzerland and one in the United States, bring this difference into sharp relief. In the Swiss case, a prosecutor recently agreed to investigate a Swiss gold refiner named Argor-Heraeus. The company is being accused of buying three tons of gold originating from the Democratic Republic of Congo (DRC) between 2004 and 2005. A deadly civil war in the DRC has claimed more than 5 million lives since 1998. Because mining for certain minerals—gold, tin, tantalum, and tungsten—is helping to finance the war, the Swiss prosecutor is proceeding under the theory that Argor-Heraeus committed the crime of pillage when it bought the gold. Pillage, legally defined, is theft during wartime. If the company is found guilty, it could face heavy fines.

 

In the United States, meanwhile, a different kind of lawsuit is proceeding. In 2010, as part of the Dodd Frank financial legislation, Congress required certain large companies to disclose to the Securities and Exchange Commission (SEC) whether the gold, tin, tantalum, and tungsten minerals in their products may be “conflict minerals” from the DRC. The SEC issued regulations to implement the law in 2012. Finding the rules too burdensome, business groups such as the U.S. Chamber of Commerce filed a lawsuit against the SEC. Although a lower court upheld the regulations, the U.S. Court of Appeals for the District of Columbia Circuit will soon decide an appeal.

 

The Swiss case is helpful for the way it puts the American one in perspective. Companies in the United States have won sympathy for all the work they will need to do to comply with the regulations. Lawyers for the U.S. business community have even come up with the dubious legal theory that the regulations amount to government-compelled speech, in violation of the First Amendment. The Swiss example suggests that, on this Thanksgiving weekend, the U.S. business community should be saying “dangge” (thank you in Swiss German) to the U.S. government for requiring only disclosure rather than threatening criminal liability.

 

But the American case also illuminates the Swiss one. In a way, the American response to the conflict mineral problem—requiring more transparency—isn’t really all that soft, and may even be the most progressive and innovative approach of all. A conflict minerals law like the one in the United States hasn’t even been adopted in Switzerland or Europe, although both the European Union and Canada are considering their own laws modeled after the U.S. legislation. And U.S. companies are not necessarily more oblivious to their ethical obligations than companies elsewhere. Corporations including General Electric, Microsoft, and Motorola have publicly supported the conflict minerals law and opposed the Chamber of Commerce lawsuit. Meanwhile, a conflict minerals rule has been delayed in Europe mostly due to objections by German business interests.

 

The important question may not be which country is doing the most to stop the war in the DRC, but which approach makes more sense—the Swiss criminalization approach or the American transparency one. The Swiss approach is appealing in that it actually prohibits buying natural resources pillaged from war zones. It also properly punishes companies for their behavior. Companies ought to be publicly shamed for buying natural resources from violent rebel groups, even when they didn’t deal with those rebels directly. (In the case of Argor-Heraeus, it is alleged that a rebel group sold the gold to intermediaries before it was purchased by the Swiss refiner.)

 

But the American response, although less punitive, carries advantages too. It clearly lays out corporations’ obligations and imposes fines on corporations that don’t report properly. It is less vulnerable to selective and uneven enforcement by prosecutors. And although it doesn’t technically prohibit the purchase of minerals sold by Congolese warlords, the effect may be the same or better. Knowing that disclosure requirements were on the way (SEC regulations call for the first disclosures to be made in 2014), many companies have taken steps to ensure that they aren’t buying conflict minerals from eastern DRC.

 

There is, of course, a third possibility: a combined Swiss-American approach. In the United States, pillage is technically already a federal crime under the War Crimes Act of 1996, according to the legal scholar James B. Stewart. Potentially, in addition to the SEC disclosure requirements, the U.S. government could prosecute companies that aided in the pillage of conflict minerals. On the other hand, a combined approach might not be as simple or satisfying as, say, adding Swiss cheese to a hamburger—especially if it meant prosecuting companies based on their SEC reporting. That would amount to a politically controversial bait-and-switch tactic. It could also undermine the goal of transparency if it prevented full and honest disclosures.

 

Regardless of which approach is best, at least one of them is needed. Although progress has been made lately in stopping the war in the DRC, it is too soon to declare victory. The world must do its part to put a final end to the war. And it must test out policies that, in the future, could prevent other resource-fueled conflicts from spiraling out of control.

 

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