Conflict Mineral Disclosures Show Improvements in Determining Origin, GAO Says
Slightly more companies investigating the origin of their conflict minerals were successful in 2017 compared to 2016, according to a recent report from the Government Accountability Office.
Background. Under the 2010 Dodd-Frank Act and the Securities and Exchange Commission’s implementing regulations, companies that file reports with the SEC under the Securities and Exchange Act of 1934, whether foreign or domestic, must file by May 31 each year a specialized report (form SD) disclosing their use of tantalum, tin, gold, or tungsten originating in the Democratic Republic of the Congo or an adjoining country if those minerals are necessary to the functionality or production of a product they manufacture or contract to manufacture. The minerals at issue are used to make a wide range of goods such as cell phones, computers and video game systems, medical equipment, high-speed tools, machine parts, glass, and lamps.
Among other things, SEC regulations require companies that use any of these conflict minerals to conduct a reasonable inquiry to determine whether they originated in the covered countries. If the inquiry determines that the company knows or has reason to believe that the minerals may have originated in those countries, the company must undertake due diligence on the source and chain of custody of its conflict minerals, file a conflict minerals report with the SEC, and make that report publicly available on its Web site.
GAO Report. The GAO’s analysis of a sample of conflict minerals disclosures filed in 2017 found that, as in 2016, virtually all companies filing disclosures performed reasonable country of origin inquiries. An estimated 53 percent of those who did (compared to 49 percent in 2016) said these inquiries revealed the origin of the conflict minerals in their products. After conducting due diligence, 37 percent (down from 39 percent in 2016) said their conflict minerals came from covered countries or scrap or recycled sources, while 47 percent (down from 55 percent) said they could not definitively confirm the source of the conflict minerals in their products. The number of companies filing an independent private sector audit report fell from 19 to 16.
According to the GAO, many companies indicated in their filings that they had taken actions to improve their data collection processes, such as gathering missing information about their supply chains and working with suppliers to encourage conflict-free sourcing. Representatives of these companies noted that awareness among suppliers about the use of conflict minerals continued to increase and that the process for collecting data on supply chains had become more routine and standardized. However, as in prior years, most companies reported challenges in determining the country of origin of conflict minerals, in part due to lack of access to suppliers and complex supply chains involving many suppliers and processing facilities.