Issuers' 2015 Conflict Minerals Filings Improving in Detail, Clarity: Early Reviews

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By Yin Wilczek

June 5 — Companies' conflict minerals disclosures have improved this year, commenters told Bloomberg BNA June 5.

Although more filings could be submitted in the next few days, around 1,260 companies have filed their disclosures so far, most on or before the June 1 deadline. Twelve of the filings were submitted June 2.

About 60 of the filers are new, not having submitted conflict minerals disclosures in 2014.

As before, only a handful of companies—including Intel Corp.—have undertaken independent private sector audits (IPSAs) of their due diligence programs.

Significant Improvement 

“We're seeing significant improvement this year in terms of the quality and the detail that’s in the filings,” said Christopher McClure, who leads the Midwest Forensic Practice of consulting firm Crowe Horwath LLP.

McClure told Bloomberg BNA that he continues to evaluate the filings, but among other improvements, the submissions this year are more clearly written, align better with the Organisation for Economic Co-operation and Development (OECD) framework and list more smelters.

“Companies take this very seriously and they’re very focused on sourcing responsibly,” he said. “Over time, we’ll continue to see that not only in the filings but in new corporate policies and programs.”

Based on the Dodd-Frank Wall Street Reform and Consumer Protection Act and Securities and Exchange Commission requirements, companies must disclose their use of tantalum, tin, gold or tungsten—the so-called “conflict minerals”—from the Democratic Republic of Congo and surrounding areas.

About 1,315 companies filed their first-ever submissions in 2014 disclosing their use of the minerals the year before.

SEC spokesman John Nester declined to comment for this article.

More CMRs 

In other initial findings from the 2015 filings, Responsible Sourcing Network (RSN) said that as of June 1, the percentage of companies that filed detailed conflict minerals reports (CMRs) has increased compared to 2014.

In addition, the nongovernmental organization found that 42 companies that filed only a specialized disclosure form—or Form SD—in 2014 expanded their disclosures to include the full CMR this year.

A review by BBNA also found that many companies disclosed that at least one of their suppliers used gold refined by the Central Bank of the Democratic People's Republic of Korea, the central bank of North Korea. North Korea is on the Treasury Department's sanctions list.

Elm Sustainability Partners LLC said in a June 2 blog post that of the 60 or so new filers, six are companies that are either newly regulated due to initial public offerings or that filed in 2014 under another name.

RSN research analyst Andrew Arriaga agreed that the disclosures appear to be improving.

“We have already seen some improvement in the filings we are looking at, which is exactly what advocates of the Conflict Minerals legislation predicted,” Arriaga told BBNA in an e-mail. “Overall there are more detailed filings, with a higher ratio of filers submitting a full report on their due diligence process.”

Kudos to Verizon 

Arriaga singled Verizon out for praise, saying the company submitted a “very strong and detailed report” that showed the benefits of having a risk assessment program in place. “Companies in high exposure industries should follow Verizon’s proactive approach to reporting,” he suggested.

Arriaga added that RSN intends to use its performance metrics—which the NGO unveiled in a report, “Mining the Disclosures,” in May—to provide feedback to investors as to how companies in high-exposure industries performed. Arriaga was lead author of the report.

Michael Hermsen, a partner at Mayer Brown LLP in Chicago, noted for his part that the disclosures are becoming a “much more routine part of life” for covered companies. Issuers were able to review last year's filings, which brought some consistency to the 2015 submissions, he said.

Hermsen added that issuers also had another year to refine their internal processes, which is starting to lead to better disclosures.

“This shows that issuers are taking advantage of the two-year period provided by the rules before they can no longer use the DRC conflict undeterminable category to get their internal processes right and to get their disclosures where they want them to be,” he said. “I would expect there to be continued improvement next year as this two-year period ends.”

Addressing Risks 

However, Global Witness Assistant Policy Advisor Carly Oboth said that from the NGO's initial review, companies still are failing to reassure the public that they are doing all they can to address risks in their mineral supply chains.

“A majority of companies’ conflict minerals reports leave important questions unanswered about the quality and thoroughness of the due diligence they have undertaken,” she told BBNA in an e-mail.

Oboth noted, for example, that the majority of companies’ due diligence efforts appear focused on their immediate suppliers and “only a very few are engaging with their smelters and refiners to learn about their minerals’ journey from the mine.”

Oboth also suggested that more companies should secure IPSAs. Covered companies “should include an audit of their due diligence, a critical part of risk-based due diligence,” she said. “These audits will help ensure that the reports submitted to the U.S. regulator are accurate and credible.”

In April, Global Witness and Amnesty International issued a blistering report stating that last year, more than three-quarters of U.S. companies failed to meet their conflict minerals reporting obligations.

As conflict minerals reporting becomes standard business practice, companies must improve their disclosures or run the risk of reducing their filings to “box-ticking” exercises, Oboth said. “The SEC should impose penalties on companies that have filed incomplete, false or misleading reports,” she added.

More IPSAs?

Looking ahead, McClure suggested that the number of IPSAs will increase in 2016. Many companies now are planning for the audit and anticipating that they will need it, he told BBNA. In addition, companies are using the audit to understand how their process is going, he said.

Under current requirements, companies only have to file an IPSA if they voluntarily describe their products as DRC conflict-free. Alternatively, companies can bypass an IPSA if they say their products are conflict undeterminable.

Although the pending case in the U.S. Court of Appeals for the District of Columbia adds some uncertainty, the ability to use the “undeterminable” label expires next year.

The D.C. Circuit is considering an appeal filed by the SEC over a ruling in 2014 that found that parts of the agency's conflict minerals rule violated the First Amendment.

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Ryan Tuck at

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