GAO Report on Conflict Minerals

By Cydney Posner

Section 1502 of Dodd-Frank requires the GAO to report on the effectiveness of the SEC's rules on conflict minerals (the three T's and gold) beginning in 2012 and annually thereafter. Given that initial reports by affected companies are not due until May 2014, there's not too much to assess on that point. Instead, the GAO report for 2013 describes factors that may impact whether SEC's conflict minerals rules deny armed groups in the DRC and adjoining countries benefits from conflict minerals. The report concludes that "[s]takeholder-developed initiatives may facilitate companies' compliance with the [SEC's] final conflict minerals rule, but other factors may affect the rule's impact on reducing benefits to armed groups in the Democratic Republic of the Congo (DRC) and neighboring countries." In particular, the report indicates that stakeholder-developed initiatives, such as the Conflict-Free Smelter Program may help companies to conduct due diligence and responsibly source conflict minerals by developing guidance documents, audit protocols and in-region sourcing of conflict minerals. For example, the CFS Program enables suppliers to source conflict minerals from smelters that undergo independent third-party audits, in accordance with the OECD Due Diligence Guidance, to verify the origin of minerals processed at their facilities. The EICC and GeSI have also developed applicable audit protocols for the program. According to the report, in December 2010, "the first tantalum smelter was certified conflict-free through the program after successfully undergoing an audit, and as of May 1, 2013, 18 of approximately 23 tantalum smelting companies had been certified as conflict-free. As of May 1, 2013, 5 tin smelting companies had been certified as conflict-free, 7 tungsten smelting companies had begun discussions with representatives of the program, and 12 gold refining companies had been certified as conflict-free through the program."

Unfortunately, the GAO also found that the benefits of these types of programs – and the ability to expand their application -- may be limited by "factors such as lack of security, lack of infrastructure, and lack of capacity in the DRC," including "a lack of infrastructure in place that would enable companies to set up or expand operations in the DRC. Limited transportation and poor roads in eastern DRC also make it difficult to get to mine sites. Moreover, according to officials, the remoteness of mines also makes it difficult for DRC officials to validate mines and ensure that the mines have not been compromised by illegal armed groups."

Interestingly, the report indicates that the amount of 3TG that comes from the DRC is surprisingly small: the report indicates that about 12% of the global tantalum supply and less than 1% of the global tungsten supply was mined in the DRC in 2011, and about 3% of the global tin supply, and less than 1% of the global gold supply, was mined in the DRC in 2010. The number of companies estimated to be affected by the SEC rules include not only 6,000 public reporting companies, but also approximately 280,000 suppliers that may be asked to provide information as part of the rule's due diligence requirements.

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