Most companies responding to new US disclosure rules did not know where their conflict minerals came from, it has emerged.
The US Government Accountability Office (GAO) reviewed company disclosures filed with the Securities and Exchange Commission (SEC) for the first time last year in response to the SEC conflict minerals disclosure rule. The data indicated most companies (87 per cent which were based in the US) were unable to determine the source of their conflict minerals, GAO said.
Companies that used one or more of the four conflict minerals – tantalum, tin, tungsten, and gold – filed a disclosure. These minerals have been determined by the US secretary of state to be financing conflict in the Democratic Republic of the Congo (DRC) or adjoining countries ('covered countries'). Almost all the companies (99 per cent) reported performing country-of-origin inquiries for the conflict minerals they used. But reported difficulty obtaining the necessary information from suppliers because of delays and other challenges in communication, the GAO said.
Most companies (94 per cent) reported exercising due diligence on the source and chain of custody of conflict minerals used. But 67 per cent could not determine whether those minerals came from the DRC or adjoining countries. None could determine whether the minerals financed or benefited armed groups in those countries.
And 4 per cent disclosed conflict minerals in their products came from covered countries, and said that they are, or would be, taking action to address the risks in their supply chains. One company indicated it would notify suppliers that it intended to cease doing business with suppliers that continued to source conflict minerals from smelters that are not certified as conflict-free.
Some 24 per cent reported minerals did not originate in covered countries, 2 per cent reported conflict minerals came from scrap or recycled sources, and 3 per cent did not provide a clear determination.
The Department of State and US Agency for International Development said 140 mines had been validated as conflict-free sites, which has benefited artisanal miners and exporters. But the GAO said the US conflict minerals strategy faced multiple obstacles outside the control of the US government. This included the presence of illegal armed groups in the DRC, some corrupt members of the national military, weak governance, and poor infrastructure.
Companies were required to file under the rule for the first time by 2 June 2014, and annually thereafter on 31 May.
SEC issued its conflict minerals disclosure rule in August 2012 in response to the Dodd-Frank Act. The number of companies that filed disclosures in 2014 was 1,321, substantially lower than the SEC’s estimate of 6,000 companies that could possibly be affected by the rule.