SEC conflict minerals rule foot-dragging a nightmare-GAO
The longer the SEC delays adoption of a final conflict minerals rule, the worse the situation becomes for global manufacturers voluntarily trying to keep conflict minerals out of supply chains.
Posted: Tuesday , 24 Jul 2012
RENO (MINEWEB) -
A performance audit by the U.S. General Accounting Office (GAO) has found the continued delay of the SEC to issue a final conflict minerals rule has contributed to "a lingering uncertainty among industry and other stakeholders" who have tried to implement voluntary conflict minerals supply chain initiatives.
In a recent report to the U.S. Congress, the GAO noted "the uncertainty regarding SEC's reporting and due diligence requirements" has complicated the efforts of industry associations, multilateral organizations, and others who have developed global and in-region sourcing initiatives to help companies comply with future rules regarding conflict minerals.
Congress has pressured the SEC on two fronts to adopt rules relating to conflict minerals and resource extraction. In a June 22 letter to the SEC, 58 members of Congress urged the commission to implement Sections 1502 and 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which require public companies to make disclosures relating to the use of conflict minerals and payments made for mining of resources.
"Final rules will take the issues of non-transparent payments [made by mining companies] and conflicts minerals out of the shadows and into the open, making it possible to fight corruption, increase government accountability and end the resource curse," said the representatives. "They will also provide material information for investors to reduce their risk and increase the choices of ethical investment."
The lawmakers argued continued delay "undermines efforts in the DRC to make the mining industry more transparent and to diminish the link between minerals and the funding of the brutal violence carried out by warlords. If the rules are not released soon, some companies will not have to file their first reports until summer 2014, four years after Dodd-Frank was passed."
In a Jul 2, 2012 notice, the SEC said it would consider adoption of the rules regarding disclosure and reporting obligations with respect to the use of conflict minerals on August 22.
A recent Wall Street Journal article suggests the SEC may toughen its proposed conflict minerals rules. "Compared with the original proposal, a final draft circulated to SEC commissioners would outline a series of items for companies to review before they can assume their goods don't contain minerals from the area, people familiar with the document said."
"The reports require companies to say what steps they took to verify whether the minerals were taxed or controlled by rebel groups," said the WSJ. "For some companies, the report may require scouring supply chains made up of hundreds or even thousands of suppliers and vendors."
The newspaper said the SEC would give companies a two-year period to determine if their goods contain conflict minerals.
To help prepare their performance audit ranging from August 2011 to July 2012, the GAO interviewed officials from U.S. agencies, representatives from multi-lateral organizations, NGOs, consulting firms, industry associations, five smelters and one refiner encompassing all four conflict minerals, and a gold industry expert.
The four conflict minerals covering by Section 1502 (b) of the Dodd-Frank Act are mined all around the world. Tin is mined in China, Indonesia, Peru, Bolivia, as well as the DRC. Tantalum is mined in Australia, Brazil, Canada and the DRC. The majority of tungsten is mined in China with a very small amount mined in the DRC. Gold is mined throughout the world including the DRC.
The DRC produces about 17% of the world's tantalum supply, about 4% of global tin supply, less than 1% of global tungsten supply, and less than 1% of the world's gold supply.
A number of industries use these conflict minerals in a wide variety of products and in varying amounts. For instance, tin is used in a multitude of industry in tin solder used to join metals pieces together.
The GAO noted that, "in practice a supply chain for products containing tin, tantalum, tungsten and gold can be complex and vary considerably. ...In addition the supply chains for some companies' products may contain a small number of component parts, whereas the supply chains for other companies' products may contain thousands of component parts."
Meanwhile, in their research, the GAO discovered nine stakeholder-developed global and in-region sourcing initiatives have been developed in the vacuum created by SEC's delays in adopting the conflict minerals rules. Asian smelters-particularly Chinese-have not been convinced to participate in these voluntary programs.
However, 12 of the 25 tantalum-smelting companies globally have been certified as conflict free. Nevertheless, steeper challenges have been encountered in convincing tin and tungsten smelters to participate in voluntary programs, the report observed.
To compound the situation, "in part because of the delay in the rule's insurance, many companies across the tin, tantalum, tungsten, and gold supply chains are reluctant to participate in or support the global and in-region initiatives currently being developed or implemented because they are uncertain whether or not the initiatives will align with the anticipated rule," said the report.
"The limited participation by Chinese smelters may affect the scalability of the Conflict-Free Smelter Program as Chine smelters processed an estimated 43 to 48% of the global tin supply between 2006 and 2009, and Chinese companies mined and processed an estimated 77 to 84% of the global tungsten supply between 2006 and 2009," said the GAO.
Nevertheless, if the SEC actually issued its final rule it may provide business incentives to Chinese smelters. "Specifically, the issuance of a final SEC rule may result in covered companies' widespread demand for conflict mineral sourcing information from their suppliers, and the leverage applied by all impacted covered companies may create the necessary business inventive for Chinese and other foreign companies to participate in initiatives such as the Conflict-Free Smelter Program," the GAO suggested.
However, the GAO cautioned, the world's efforts to enforce restrictions on imports of conflict minerals by the DRC are not being helped by the lack of information on sexual violence in eastern DRC. Congress originally enacted the conflict minerals legislation to help address sexual violence and other human rights abuses perpetrated by armed groups in the DRC.
"We recommend that the Chairman of the SEC identify the remaining steps it needs to take and the associated time frames to finalize and issue such a conflict minerals disclosure," the GAO concluded.
To read a copy of the report, CONFLICT MINERALS DISCLOSURE RULE, SEC's Action and Stakeholder-Developed Initiatives, go to gao.gov
iPad Version: Picture - A view of a traditional gold mine, seen from a hill just outside the eastern Congolese town of Kamituga: REUTERS/Stringer