Company Filings in 2014 Indicate That Company Inquiries and Due Diligence Provided Limited Insights Regarding Country of Origin of Conflict Minerals Used, Citing Difficulty Obtaining Information from Suppliers

The SEC conflict minerals disclosure rule outlines a three-step process  for companies to follow, as applicable, to comply with the rule. Of the 1,321 companies that filed conflict minerals  disclosures in 2014, the sample of filings that we reviewed indicates that  almost all of the companies conducted an RCOI and a majority of them  exercised due diligence, but most reported that they were unable to  determine the country of origin of conflict minerals they had used in  2013. According to our analysis, an  estimated
67 percent reported that they were unable to determine the
4 percent reported that conflict minerals came from Covered
24 percent reported that conflict minerals did not originate in
2 percent reported that conflict minerals came from scrap or
3 percent did not provide a clear determination. Our analysis shows that the exercise of due diligence on the source and  chain of custody of conflict minerals yielded little or no additional  information, beyond the RCOI, regarding the country of origin of conflict  minerals or whether the conflict minerals that companies used in 2013 in  their products benefited or financed armed groups in the Covered  Countries. The estimated 4 percent of the companies who determined  that the necessary conflict minerals used in their products originated from  Covered Countries could not determine whether such conflict minerals  financed or benefitted armed groups during the reporting period, even  though they disclosed that they conducted due diligence on the source  and chain of custody of conflict minerals they used. State and USAID Actions to Implement the U.S. Conflict Minerals Strategy Have Yielded Some Results, but Conditions Remain Difficult

		State and USAID Are Taking Action to Implement Strategy Objectives

State and USAID officials reported that they are implementing the U.S.  conflict minerals strategy they submitted to Congress in 2011 through  specific actions that address the strategy’s five key objectives. First, the mining areas in eastern DRC  continue to be plagued by insecurity because of the presence and  activities of illegal armed groups and some corrupt members of the  national military. As we reported in 2010, U.S. government officials and others indicated  that weak governance and lack of state authority in eastern DRC  constitute a significant challenge. According to USAID officials,  USAID is working to introduce a pilot traceability system to increase  transparency, accountability, and competition in the legal artisanal mining  sector. Appendix I: Related GAO Products

SEC Conflict Minerals Rule: Initial Disclosures Indicate Most Companies  Were Unable to Determine the Source of Their Conflict Minerals. GAO-15-561. The Democratic Republic of the Congo: U.S. Agencies Should Take  Further Action to Contribute to the Effective Regulation and Control of the  Minerals Trade in Eastern Democratic Republic of the Congo.
Why GAO Did This Study

This testimony summarizes the information contained in GAO's August 2015 report, entitled SEC Conflict Minerals Rule: Initial Disclosures Indicate Most Companies Were Unable to Determine the Source of Their Conflict Minerals , (GAO-15-561) .

What GAO Found

According to a generalizable sample GAO reviewed, company disclosures filed with the Securities and Exchange Commission (SEC) for the first time in 2014 in response to the SEC conflict minerals disclosure rule indicated that most companies were unable to determine the source of their conflict minerals. Companies that filed disclosures used one or more of the four “conflict minerals”—tantalum, tin, tungsten, and gold—determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo (DRC) or adjoining countries. Most companies were based in the United States (87 percent). Almost all of the companies (99 percent) reported performing country-of-origin inquiries for conflict minerals used. Companies GAO spoke to cited difficulty obtaining necessary information from suppliers because of delays and other challenges in communication. Most of the companies (94 percent) reported exercising due diligence on the source and chain of custody of conflict minerals used. However, most (67 percent) were unable to determine whether those minerals came from the DRC or adjoining countries (Covered Countries), and none could determine whether the minerals financed or benefited armed groups in those countries. Companies that disclosed that conflict minerals in their products came from covered countries (4 percent) indicated that they are or will be taking action to address the risks associated with the use and source of conflict minerals in their supply chains. For example, one company indicated that it would notify suppliers that it intends to cease doing business with suppliers who continue to source conflict minerals from smelters that are not certified as conflict-free.
a Covered Countries: Angola, Burundi, Central African Republic, the Democratic Republic of the Congo, the Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda, and Zambia.
Department of State (State) and U.S. Agency for International Development (USAID) officials reported taking actions to implement the U.S. conflict minerals strategy, but a difficult operating environment complicates this implementation. The agencies reported supporting a range of initiatives including validation of conflict-free mine sites and strengthening traceability mechanisms that minimize the risk that minerals that have been exploited by illegal armed groups will enter the supply chain. As a result, according to the agencies, 140 mine sites have been validated and competition within conflict-free traceability systems has benefited artisanal miners and exporters. Implementation of the U.S conflict minerals strategy faces multiple obstacles outside the control of the U.S. government. For example, eastern DRC is plagued by insecurity because of the presence of illegal armed groups and some corrupt members of the national military, weak governance, and poor infrastructure.