Companies Better at Tracing Supply Chains for Conflict Minerals (1)

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By Andrea Vittorio

Last year marked the first time a majority of U.S. companies reporting on so-called conflict minerals could determine whether they’re sourcing from war-torn parts of Africa, according to a new government study.

Publicly traded companies such as Apple Inc. and Intel Corp. are required to report on certain minerals used in making their products that have been linked to violence and human rights abuses in the Democratic Republic of the Congo and neighboring countries. When companies started issuing such disclosures in 2014, most of them couldn’t tell if their minerals came from these countries.

By 2017, more than half of the companies could nail down their minerals’ source, the report from the U.S. Government Accountability Office shows. An estimated 53 percent of companies reported sourcing minerals from either the DRC region, elsewhere, or via scrap and recycled sources, according to a sample of filings the GAO looked at for its June 28 report.

The rest of the companies sampled either couldn’t determine their minerals’ source or didn’t disclose one.

Slightly less than half of companies could determine the source of their minerals in 2015 and 2016. The GAO’s latest finding is a sign that both companies and their suppliers are getting better at tracing their supply chains, according to Jennifer Kraus, co-founder of Source Intelligence LLC. The firm helps companies track minerals in their products.

“Suppliers are more comfortable with the data that is being requested and now have experience figuring out where to get it,” she said in an email to Bloomberg Law.

Supply Chain Challenges

The Securities and Exchange Commission’s conflict minerals reporting requirement was put in place as part of post-financial crisis Dodd-Frank reforms. The four minerals that companies must track — tin, tungsten, tantalum, and gold — are used in products ranging from cell phones and cars to jewelry and jet engines.

The SEC is now reviewing its disclosure rule in light of a court decision that struck down part of it amid pushback from the National Association of Manufacturers (NAM) and other industry groups. NAM, which has urged the commission to suspend its conflict minerals reporting requirement, didn’t want companies to be forced to say if minerals in their products aren’t conflict-free.

“The NAM supports the legislation’s underlying objective of addressing the atrocities occurring in the Democratic Republic of the Congo and its adjoining nations,” the association’s vice president of international economic affairs Linda Dempsey said in a statement provided for Bloomberg Law. “But as the GAO report indicates, while manufacturers are complying, they are facing widespread and excessively costly burdens due to Dodd-Frank mandates and more work is required by the U.S. government to identify conflict-free sourcing alternatives.”

Companies, consultants, and others interviewed for the GAO’s report said suppliers are more aware of conflict minerals, and the process for collecting data on supply chains has become more routine and standardized since reporting began.

“However, as in prior years, our review of filings found that most companies reported challenges in determining the country of origin of conflict minerals, in part due to lack of access to suppliers and complex supply chains involving many suppliers and processing facilities,” the report said.

Some ‘Uncertainty’

The report also said many of the companies that conducted due diligence on the source and chain of custody for minerals in their products still couldn’t tell whether the minerals they used actually financed or otherwise fueled armed groups.

Reports from the United Nations and others have shown progress in reducing armed groups’ exploitation of tin, tantalum, and tungsten. But armed groups are still common in gold sector, which GAO says is the toughest conflict mineral to tackle.

“No news is good news on this front,” said Sasha Lezhnev, deputy director of policy at human rights group the Enough Project.

“We were quite concerned, given all the instability in Congo, that any relaxation or deregulation in this space would lead to more armed groups going back to mines,” he told Bloomberg Law. That hasn’t happened, based on Enough’s on-the-ground research.

A few companies didn’t report on their supply chain due diligence, citing recent SEC guidance indicating it won’t enforce that requirement. Even though the commission’s stance on enforcement “raised some uncertainty,” 2017’s disclosures were in line with past years and companies generally plan to carry on with similar conflict minerals disclosures, the GAO report said.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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