The SEC is no longer enforcing compliance with Dodd-Frank’s conflict minerals rule and the Republicans are attempting to overturn the rule altogether through the Financial CHOICE Act; after all, why would it be good for business to disclose that you are dealing with a regime notorious for severe human rights abuses and sexual violence.
Nevertheless, the rule that requires the General Accounting Office (GAO) to review disclosures is still in place. Dodd-Frank required the SEC to promulgate rules requiring companies to disclose whether conflict minerals used in their products came from the Democratic Republic of Congo and adjoining countries. Conflict minerals are, in particular, tin, tungsten, tantalum, and gold.
The GAO report reports ‘not much change from the prior two years’. Though, in fact, most figures did change, though perhaps not significantly. Now more than half of companies filing Form SD, the form required, reported in 2017 whether the conflict minerals in their products came from the DRC and adjoining countries, 53%, as opposed to 49% in 2015 and 2016. In addition, more companies reported that minerals came from a covered country, 32% compared to 25% in 2016, and fewer not from a covered country, 21% compared to 24%, and less from scrap or recycled materials. Fewer companies, 1,165, filed conflict minerals disclosures in 2017, compared to 2016 and 2015 (1,230 and 1,281 respectively). Around 90% were US companies.
The GAO also found that “almost all companies that filed conflict minerals disclosures in 2017 reported performing inquiries about their conflict minerals’ country of origin” and that “many companies described actions they took to improve data collection processes, and most companies indicated challenges in determining the country of origin”. In addition, almost all companies required to conduct due diligence, as a result of their country of-origin inquires, reported performing it even though the SEC is no longer enforcing this so-called burden. On the other hand, even within the GAO’s sample, “three companies cited the updated guidance and other statements issued by the SEC in their filings as a rationale for not reporting on due diligence activities”.In its review, a lot of companies told the GAO 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”.
Most interviewees indicated improved awareness both among suppliers and supply chain managers, though many companies also reported continuing challenges in identifying countries of origin. These improvements have led to fewer companies reporting, 47%, that they could not definitively confirm the source of the conflict minerals, compared to around 55% and 67% in 2016 and 2015, respectively. On the other hand, few companies that conducted due diligence appear to have been able to determine whether money they paid for conflict minerals went to financing armed groups.
Only four companies in the sample (a randomly selected 100 out of the 1,165 companies which filed Form SDs) reported that the minerals in their products “did not finance or benefit armed groups in covered countries and declared some products ‘DRC conflict free’”. Three of these companies included a required independent private-sector audit (IPSA) report, while the last one did not. Some 16 companies out of the sample of 100 filed an IPSA report in 2017, compared with 19 in 2016.
The GAO does not draw any conclusions from this study nor does it make any recommendations, it simply records what is reported. So, while the conflict minerals rule appears to be raising awareness among companies and suppliers, and companies are complying even though enforcement is no longer in place, the figures do not appear to show that disclosure is reducing either conflict or the funding of armed groups. Other GAO reports have taken into account the views of investors and it would seem that this would be an improvement to the report, despite the fact that it is not a requirement. Link