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In-Depth
Dodd-Frank: Will It Stay Or Go?
How would President Trump’s efforts to repeal the Dodd-Frank reform law affect the diamond industry?
By Shuan Sim
When the Dodd-Frank wall street reform and consumer protection act, commonly referred to as Dodd-Frank, was signed into law by former President Barack Obama in 2010, many in the diamond industry worried how it might affect them in the U.S. While most of the Act directly impacted big banks and Wall Street firms (See What Is Dodd-Frank? in slideshow), there were concerns, particularly from the midstream, that the multitude of new regulations would hurt their access to credit as lenders were pressured to limit their exposure to risk. President Donald Trump has since taken office and has promised to gut the Dodd-Frank Act based on these very claims. “We expect to be cutting a lot out of Dodd-Frank because, frankly, I have so many people, friends of mine, who have nice businesses who can’t borrow money,” Trump said in February 2017 at a meeting with leading corporate CEOs, reported various news sources. “They just can’t get any money because the banks just won’t let them borrow, because of the rules and regulations in Dodd-Frank,” he added. However, experts seem to think that Dodd-Frank contributes only a small part to the inability of small businesses — which includes many in the diamond midstream — to obtain loans. Other macroeconomic and systemic issues in the industry were more likely to have caused the lack of credit. “There is evidence that small businesses have had problems accessing credit post the Great Recession,” says Aaron Klein, fellow in Economic Studies at Brookings Institute, a research and policy organization in Washington D.C. “As to Dodd-Frank’s role in this, that’s more rhetoric than reality. What specifically has reduced access to credit for small businesses? When I ask that question, I tend to either get a mix of ‘I don’t know,’ ‘Everything’ or something that isn’t in the law,” he adds. A repeal, which experts think is unlikely to happen (see Will Dodd-Frank Stay? in slideshow) might ease access to loans, but ultimately the pressing problems plaguing the diamond industry need to be solved to improve the lending situation.
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Another aspect of Dodd-Frank that could affect the jewelry industry is Section 1502 on conflict minerals. The section requires disclosure if a company uses “conflict minerals” — defined as tin, tantalum, tungsten and gold — which can be traced back to the Democratic Republic of Congo (DRC) and related U.S. efforts to stem civil violence in DRC and the region. Walter Olson, senior fellow at the Cato Institute’s Center for Constitutional Studies, a Libertarian think tank in Washington D.C., agrees that while a Dodd-Frank repeal is unlikely, he believes that Section 1502 has not been effective for its intended purposes. “Unemployment in the mines does not necessarily undermine warlords,” he says, citing news reports from The Washington Post and other publications and documentaries that show that many mines in Congo aren’t controlled by warlords, even though human rights abuses do occur at these mines. “Banning ‘conflict minerals’ from Congo is purely ritual,” Olson comments. “Section 1502 has no business being wrapped into a Securities Exchange Commission (SEC) financial bill and this was done without thinking things through. If the government had really wanted to make a difference, they should focus on human rights abuses at the mines rather than the minerals, which is a byproduct of the issue.” A repeal could also be costly for companies that have already spent resources on strategic thinking and management practices to be Dodd-Frank compliant, says Tiffany Stevens, president and CEO of the Jewelers Vigilance Committee (JVC). “People have built up these systems and to dismantle these infrastructure would be additional costs,” she points out. Stevens feels that banks see these regulations as steps toward transparency for the diamond and jewelry industry, which can only be a good thing toward reducing the industry’s risk profile. “Young consumers these days are interested in where the diamonds and gold in their jewelry are coming from, so it’s in the best interest of companies to be as compliant as possible.” Like other experts, Stevens doesn’t think it is likely Dodd-Frank will be changed much. “We have a very rich and complex regulatory landscape. Everyone’s out to lower their risk and increase their bottom line. At JVC, we haven’t felt any major changes but we’re ready to take them on when they come,” she concludes.Article from the Rapaport Magazine - May 2017. To subscribe click here.
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