Due Diligence and Legal Havens: Conflict Minerals Exports in Africa’s Great Lake Region

This paper studies how « conflict mineral » trade flows react due diligence policies imposing sourcing guidelines for importers, in the presence of legal opacity. Legal opacity is a set of legal loopholes enabling morally reprehensible products to reach global markets. It is supplied by legal havens, jurisdictions endowed with a legal technology ensuring loss of information on economic transactions. I explore this mechanism in the case of conflict mineral trade. I study how Dodd-Frank Act Conflict Mineral Rule imposed new trade costs on minerals by imposing sourcing disclosure and name and shame for U.S. importers. It targets specific “3T” (tin, tantalum and tunsgten) minerals extracted in D.R.C. and adjoining countries. Comparing targeted bilateral trade flows to non-targeted products exporters within the structural gravity framework, I find that this policy decreased targeted countries exports value of 3T products by 70%. However, disclosure is evaded through legal opacity: in a counterfactual exercise, I estimate that 38% of exports to regular trade partners are exported to legal havens after the law is implemented.