The Government Accountability Office ("GAO") conducted a review of conflict minerals disclosures filed with the SEC by companies in 2016. GAO reported that a similar number of companies filed conflict minerals disclosures in 2016 as in 2015 and 2014. The GAO also found that the disclosures showed significant gaps in nearly all companies' identification of the source of conflict minerals in products.
The SEC conflict minerals disclosure rule (mandated under Dodd-Frank, Section 1502) concerns four conflict minerals – tin, tungsten, tantalum and gold – from the Democratic Republic of Congo and adjoining countries. As noted in the GAO review, any company that discloses that its products did not finance or benefit armed groups in the covered countries (and therefore are "conflict free") must include an independent private-sector audit in its conflict minerals report.
The GAO stated that nearly all of the companies (i) filed disclosures reporting that the companies performed inquiries about their conflict minerals' country of origin, and (ii) used the Organization for Economic Cooperation and Development's framework to "conduct due diligence on the source and chain of custody of their conflict minerals." Though companies' 2016 disclosures generally were similar to those that were filed in prior years, an estimated 55 percent of the companies were unable to confirm the source of the conflict minerals in their products, and almost all (99 percent) reported that they could not determine whether the conflict minerals financed or benefited armed groups.
Commentary / Karen Woody
The GAO report merely adds ammunition to the growing criticism of this rule, and the drumbeat for repeal continues to get louder. Fewer companies filed Form SD reports in 2016 than in the previous two years of reporting. The GAO summary notes that the majority of companies reporting could not determine the source of the minerals; additionally, almost all of the companies that performed additional due diligence reported that they could not determine whether the conflict minerals financed or benefited armed groups. The takeaway from this report is that we now have three years of data related to the conflict minerals disclosure requirement, and yet it shows that supply chains are not more transparent, nor is Congo a safer place.
Commentary / Steven Lofchie
Many critics argued that conflicts mineral disclosure was an unworkable idea when the requirement was originally adopted as part of Dodd-Frank. Few predicted that the requirement could attain this degree of uselessness. Time for a repeal?
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