Department of Commerce hasn’t met conflict minerals obligations, GAO says

Although U.S. public companies were required to file their first conflict minerals disclosures earlier this month, a new government report shows that the U.S. Department of Commerce has not met its obligations with regard to new conflict minerals regulations.

The department failed to meet a January 2013 deadline to compile a list of all smelters and refiners of conflict minerals known worldwide, according to a report to congressional committees published Thursday by the U.S. Government Accountability Office (GAO).

Such a list could enable companies to maintain transparency regarding their supply chains and provide companies the information they need for their SEC-required conflict minerals disclosure reports, according to the GAO report. Because smelters and refiners are considered the “choke point” in the supply chain, information about them can help companies track their materials.

In the absence of such a list from the Commerce Department, an industry-led effort known as the Conflict-Free Smelter Program had certified 85 smelters as conflict free as of April 25, the report says.
In explaining the failure, Commerce cited difficulty tracking conflict minerals operations because the equipment used to process conflict minerals can be moved easily and operations can emerge in different locations. Commerce did tell the GAO that it had conducted outreach efforts with organizations that have gathered information on conflict minerals smelters. But Commerce did not have a plan of action, with associated time frames, for developing and reporting on the list of conflict minerals processing facilities worldwide, according to the GAO.

The GAO recommended that the secretary of Commerce provide Congress with a plan that outlines the steps the department will take to develop and report a list of conflict minerals smelters and refiners, and provide associated time frames. Commerce agreed with the GAO recommendation and plans to submit a list of all known conflict minerals processing facilities worldwide to Congress by Sept. 1, according to the GAO report.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203, required Commerce to compile such a list by January 2013, according to the report.

Under the new regulations, issuers are required to undergo processes to determine whether the conflict minerals (gold, tantalum, tin, and tungsten) in their products originated in the Democratic Republic of the Congo or its neighboring countries. The regulations were designed to choke off funding for groups that run conflict minerals mining operations in the region and are accused of committing human rights atrocities.

Issuers are required to report on their efforts to determine where their conflict minerals originated, and the first reports related to the conflict minerals rule were due to be submitted to the SEC by companies on or before June 2.

Some business groups are fighting the regulations in court. The SEC stayed certain reporting requirements in the rule but held firm with the June 2 reporting deadline as litigation has continued.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.