US Sanctions Now Include Conflict Minerals in the Democratic Republic of the Congo

July 24, 2014Kirsten Wallerstedt

The existing Democratic Republic of the Congo (DRC) Sanctions were updated on 8 July 2014 due to a new Executive Order. US sanctions can now be used against a company’s actions or policies that threaten the peace, security, or stability of the DRC, including against any entity that is complicit in the “illicit trade in natural resources in the Democratic Republic of the Congo.” This may affect companies’ filings with the SEC under the conflict minerals law.

President Obama’s new Executive Order (E.O.) amends President Bush’s Executive Order 13413 of 27 October 2006. The amendments to E.O. 13413 apply to persons who are “responsible for or complicit in, or (who) have engaged in, directly or indirectly,” certain activities in or in relation to the DRC, including:

  • support to persons, including armed groups, involved in activities that threaten the peace, security, or stability of the DRC;
  • support to persons that undermine democratic processes or institutions in the DRC;
  • the illicit trade in natural resources of the DRC;

U.S. sanctions are administered by the Office of Foreign Asset Control (OFAC), which is active in enforcement. A fact sheet released by the White House states that the purpose of these amendments is to expand the sanctions criteria “to allow for more U.S. flexibility in targeting persons contributing to the conflict in the DRC.”

This Executive Order holds a lot of significance for US companies if it is applied to the SEC disclosures under the Conflict Minerals provision of the Dodd Frank Act (Section 1502). All property and interests that are in the possession or control of listed persons “are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in” under E.O. 13413. These “persons” include those who “have engaged in, directly or indirectly…support to persons, including armed groups, involved in activities that threaten the peace, security, or stability of the Democratic Republic of the Congo … (including) through the illicit trade in natural resources.”

Failing to comply with the requirements of the Executive Order can subject a company or individual to penalties of up to the greater of $250,000 or twice the amount of the underlying transaction. Criminal penalties of up to $1,000,000 and imprisonment for up to 20 years may be imposed on any person who willfully commits, attempts or conspires to commit, or aids or abets in the commission of a violation of E.O. 13413.

Companies subject to the conflict minerals law (Dodd Frank Wall Street Reform and Consumer Protection Act of 2010, Section 1502) should take this development very seriously, as these companies are compelled to disclose information about their sourcing of certain minerals from the targeted region. Information contained in the required SEC disclosures may reveal violations of these updated sanctions. Affected companies should be aware that their international subsidiaries are captured under the sanctions criteria as well.

Furthermore, Obama’s Executive Order applies to all US persons, which includes private companies. While private companies are not required to file public disclosures with the SEC, they are now subject to the same OFAC sanctions as the public companies are.

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