More Companies Able to Report Source of Conflict Minerals, but Confirmation Remains Challenging, GAO Says
A greater proportion of companies reported that they knew or “had reason to believe they knew” the source of conflict minerals in 2015 Securities and Exchange Commission specialized disclosure form (Form SD) filings, compared with 2014, but most companies performing subsequent “due diligence” couldn’t confirm the origin of the minerals, according to a Government Accountability Office report (here). Since the SEC approved the rule in 2012 (see 12082308), 97 percent of the companies that performed due diligence after filing the form couldn’t determine whether the minerals financed or helped militias in the Democratic Republic of the Congo and adjoining countries, the GAO said.
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Facilities that process conflict minerals -- comprising tantalum, tin, gold and tungsten -- pose challenges to disclosure efforts because documentary evidence submitted to the facilities is vulnerable to fraud, and because several levels of processing operations increase fraud risk and can raise disclosure-related costs, the GAO said. But industry and other stakeholders are attempting to mitigate such risks through measures such as chemical “fingerprinting” to verify documentary information, the GAO said.
The Commerce Department, as of July, had neither submitted a report to Congress required in January 2013, examining the accuracy of 10 total independent private sector audits filed in connection with conflict minerals reports, nor crafted a plan to complete such an assessment, the GAO said. While Commerce officials said they assembled a team in March, that team was lacking in several areas and couldn't provide Congress information on the accuracy of the audits or other due diligence practices used by filing companies, the GAO said. Commerce agreed with the GAO’s recommendations for the department to chart a plan containing steps and time frames for determining the accuracy of firms’ due diligence processes, including the audits, and bolstering expertise to meet related goals, the report says. Commerce is currently developing such a plan, Deputy Commerce Secretary Bruce Andrews said in a letter responding to the GAO. But because of more information collected from country-of-origin inquiries, an estimated 49 percent of companies in 2015 reported the ability to make a determination on whether the conflict minerals in their products came from countries covered by the SEC rule, 19 percent more than in 2014, the GAO said.
SEC’s final rule requires companies to file a Form SD if they manufacture or “contract to have manufactured products that contain conflict minerals necessary to the functionality or production of those products and, as applicable, file a [conflict minerals report],” the GAO said. Firms that report their products as “DRC Conflict Free” are also required to include documentation of independent audits in their SEC disclosures. In 2015, 1,283 companies filed conflict minerals disclosures, compared with 1,321 firms in 2014, the first year such documents were required under the SEC’s rule, with about 86 percent of submissions coming from domestic companies both years, the GAO said.
The largest percentage of disclosing companies, 55 percent, reported the use of tin, the GAO said. Global sourcing initiatives like the Conflict-Free Smelter Program, the Responsible Gold Program, and the Chain-of-Custody Certification Program can mitigate risks of minerals exploited by illegal armed groups entering the supply chain, and could also aid private-sector efforts to find sources of conflict minerals worldwide, as the programs employ a “bagging-and-tagging” program or another type of traceability method, the GAO said.