Tag Archives: Section 1502

Conflict Minerals is Dead! Long Live Conflict Minerals!

The deadline for filing the CY2016 SEC conflict minerals disclosure has now passed, although there are likely to be a few late filers. It is too early to glean anything from the filings and at least three analyses will be conducted, including the Development International study, which is the most comprehensive of them. We all anxiously await these reports.

The future of the SEC disclosure requirement is murky and there is a chance that this may be the last year of mandated filing in the US. Many clients and others are asking us questions about the future of conflict minerals, and what the past results have been. These are our thoughts.

Looking forward, we do not know what is in store for the SEC rule. There are many moving parts politically and publically. We will know what happens when it happens. I’d like to think there will be adequate advance notice to those impacted, but even that is not assured.

But the review mirror tells a story too. While aspects of the rule’s impact are hotly debated, one thing is indisputable – it resulted in much greater visibility into material sourcing and other companies deep in supply chains. This has allowed some companies to reduce business risk by optimizing their supply chains – concentrating spending power or diversifying their supply base to manage potential disruptions. Companies identified that, unbeknownst to them, entities sanctioned by the US Department of Treasury Office of Foreign Asset Control (OFAC) may have been present in their supply chains. Supplier audits/screening improved in many cases.  Appropriate auditor qualifications in light of global reliance on audit results has also become a major question in the scheme of things.

Of course, the rule brought human rights abuses in the DRC and other countries out of the shadows and into the light of the public. But has the population of the DRC benefitted? Experts continue to argue both sides of the question. Without taking sides, earlier this year we attempted to evaluate one major criticism of the SEC rule – that it directly resulted in hundreds of thousands, if not millions, of jobs lost in the 3TG mining sector. The question we posed ourselves was what impact did the 2008 – 2010 global economic recession have on artisanal and small miner (ASM) job losses which are currently attributed only to Dodd-Frank Section 1502? Did the timing of 1502 coincidentally occur at a time when mining jobs were already in decline because of pre-existing macroeconomic conditions?

Our intent was to rely on existing literature rather than creating original research as this was an unfunded effort on our own part. After a few months, we ran into two insurmountable obstacles:

  • The existing DRC-specific literature we found does not acknowledge or give any consideration to potential impacts of the 2008 – 2010 global economic recession. Yet analyses from The World Bank, the World Economic Forum (WEF) and the International Finance Corporation (IFC) demonstrate that global economic downturns play a major role in commodity prices and mining jobs worldwide, including ASM.
  • The DRC has a uniquely major informal economy which some literature indicated accounts for up to 80% of the country’s total economic activity annually. There is a significant gap in available information on DRC’s informal economy and what is available was sometimes inconsistent with other data on the same matter or irrelevant to our study.

We found only two sources referencing global 3TG price influence on prices paid to DRC ASMs.  Other data supported the position that a very large number of ASM miners in DRC move between multiple jobs based on income potential, so when ore prices were low in the past, miners moved to agriculture or other income sources. There was a meaningful amount of anecdotal information supporting the hypothesis that several factors other than Section 1502 (such as the DRC’s own taxation and mining policies) had a direct effect on DRC ASM job losses within the timeframe of interest, but we were not willing to rely on non-empirical information. We put down our pen (or mouse) and moved on to other things.

So the debate will continue.

There have been developments beyond just the SEC rule. The European Union adopted their own version of a conflict minerals due diligence rule that impacts a different class of companies and goes into effect in 2021. And the application of the OECD Due Diligence Framework is expanding into other materials (such as cobalt) and other geographies. At the moment, that appears to be just the beginning of that trend and that future is unknown as well.

In the end, what can be said about Section 1502 in consideration of it’s possible end? It all depends on your perspective, but it ain’t over till it’s over.  And it ain’t over.

Media Reports, Public Pressure Mounting on Cobalt as a Conflict Mineral

The Washington Post published results of their investigation into cobalt sourcing, specifically for industrial battery manufacturing.  Regardless of whether you agree with the findings or not, it is valuable reading as it continues to demonstrate the expansion of supply chain responsibility.

We increasingly refer to this as You Are What Your Suppliers Do, so you need to have full confidence in your supplier due diligence and audits.  And if you haven’t done so already, read what Harvard Business School published on the pragmatic aspects of getting meaningful and useful CSR/supplier audits.

It is worth pointing out, however, that the issues related to cobalt mining that WaPo reports – however horrific – are different from the criteria under Section 1502 of the Dodd-Frank Act to be considered a “conflict mineral.”  The law specifically limits the expansion of the term to “any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of Congo or an adjoining country.”  Child labor not directly associated with financing such conflict and environmental degradation from uncontrolled mining are outside the definition.

While internal conflict minerals due diligence processes can generally be easily adapted to address cobalt (beyond funding conflict), doing so is voluntary or in response to customer requirements only.

June 2 Update on Conflict Minerals Filings

June 3 UPDATE:  Twelve other companies have filed so far after the June 1 deadline, and one other filed an amended SD.

Theoretically, all conflict minerals Form SD and CMRs should have been submitted to the SEC as of midnight last night.  So we ran another report this morning and this is what we came up with for filings made between January 1, 2015 – June 2, 2015:

  • 1255 total filers for CY2014, as compared to 1328 for CY2013
  • 61 CY2014 filers are “new” and did not file for CY2013.
  • Of those 61, we found 6 companies that are either newly regulated due to IPOs, or actually did file for CY2013 under another company name.

There may be additional submittals after the June 1 deadline, but we wouldn’t expect many.

The Checkered Flag Comes Down on Conflict Minerals Filings

UPDATE as of 8:00pm Eastern time:

  • 1248 total Form SDs have been filed covering CY2014
  • 541 were filed today alone
  • We are still only able to find 6 IPSAs as indicated below.


Today is June 1, 2015 – the deadline for submitting to the Securities and Exchange Commission the CY2014 Form SDs and Conflict Minerals Reports.  Interesting statistics will be changing by the hour, but as of 8:00am eastern time today:

  • 750 Form SDs have been filed
  • at least 31 CY2014 filers did not file last year.  Four more initially seem to be new filers this year, but that is due to minor changes in the name of the company for CY2014 and in reality, they did file last year under their old name.
  • 6 IPSAs were conducted – 3 by CPAs and 3 by non-CPAs.

Stay tuned for updates through today and this week as well.

Top 10 Falsehoods in the New Global Witness/Amnesty International Report

In an update to our previous post on the recent Global Witness/Amnesty International report blasting US corporate implementation of the US Securities and Exchange Commission (SEC) conflict minerals disclosure requirements, we take a page from David Letterman.  Below is our Top 10 list of inaccurate and erroneous accusations made by the organizations.

Claim #1: Seventy-nine percent of the company reports we analyzed did not meet the minimum requirements of the U.S. conflict minerals legislation.

 The Truth: This claim is completely erroneous. Certain reporting elements not actually mandated are portrayed by Global Witness/Amnesty International (GW/AI) as being required by the SEC. In reality, only three of the twelve criteria used by GW/AI are mandated by the SEC requirements without discretionary implementation. GW/AI acknowledged for those three reporting elements, they found 99% compliance. There is a sharp drop in the “compliance” percentages for those elements that are based on discretionary implementation.

Claim #2: Only fifteen percent of companies reported that they had contacted, or attempted to contact the facilities that process the minerals in their products (smelters or refiners). Most companies limited their due diligence efforts to their direct suppliers.

The Truth: The SEC regulation specifically allows issuers to focus their efforts on direct suppliers and rely on industry initiatives such as the CFSI. OECD’s Final downstream report on one-year pilot implementation of the Supplement on Tin, Tantalum, and Tungsten (January 2013) also clarifies that downstream companies should focus their efforts on direct suppliers. The purpose of the CFSI program is to eliminate the need for every filer (or their suppliers) to contact the smelters/refiners directly. The CFSI program significantly reduces redundant efforts by the filers and prevents the smelters/refiners from being completely overwhelmed by responding to thousands of identical information requests.

Claim #3: Forty-one percent of companies failed to show that they had a policy to identify risks in their supply chain 

The Truth: There is no requirement for issuers to have a policy to identify risks. Instead, companies operationalize risk identification through their RCOI processes, operating procedures and data review. Filers described their RCOI procedures either directly, or stated that their framework is consistent with the OECD Framework, which includes risk identification. Finally, as described below, the basic fact that the 100 companies filed a Conflict Minerals Report demonstrates that risk identification processes were developed and implemented.

Claim #4: No companies in our sample disclosed an example of a risk in their supply chain. This is despite some companies disclosing to the SEC that gold from North Korea may have entered their supply chain, which is a possible violation of U.S. law. Many others stated that they could not rule out the minerals they were sourcing were benefitting armed groups. 

The Truth: This claim is completely erroneous. Although U.S. trade with North Korea is prohibited, North Korea is not a covered country under Dodd-Frank Section 1502 and is outside of SEC conflict minerals reporting. Under the Section 1502 disclosure requirements, the Reasonable Country of Origin Inquiry (RCOI) is the risk identification/assessment step that precedes due diligence – due diligence is only needed when a risk is identified. Given that all 100 of the companies sampled by GW/AI conducted due diligence, they inherently identified a risk for which due diligence was conducted. Further, in a spot check of 20 of the 100 companies, we found 15 that disclosed the presence of covered country sourcing – by definition “high risk areas” and therefore a “risk” under SEC and OECD.

Claim #5: Companies should follow the SEC rule and OECD guidance in full to be in compliance with Section 1502 of the Dodd-Frank Act.

The Truth: There is no requirement for any entity to follow the OECD guidance “in full”. The SEC final release, the OECD Guidance and the OECD Final downstream report on one-year pilot implementation of the Supplement on Tin, Tantalum, and Tungsten (January 2013) all state multiple times that companies are expected to implement the framework in a way that is appropriate and relevant to their own circumstances and position in the supply chain. The Guidance document contains numerous suggested or desirable tasks, activities and attributes for each of the five steps. The Guidance document recommendations for implementation are themselves split into those applicable to upstream and downstream supply chain actors. Further, the first audit objective for the Independent Private Sector Audit (IPSA) states that the auditor is to offer an opinion as to whether the due diligence framework used by the issuer is in conformity with, in all material respects, the OECD Guidance – not full conformance.

Claim #6: Only forty-seven of the companies we analyzed provided any information about the number of suppliers they surveyed.

The Truth: There is no legal requirement to provide any numbers, percentages or statistics concerning suppliers surveyed or those who responded. Global Witness actually recognizes this, but still punishes filers who chose not to provide numerical supplier information: “Although it is not a legal requirement of Section 1502, companies should give information on the number of suppliers surveyed, and responses received…” Based on the Elm/Georgetown Law School review of the 1300 filings, 530 provided some form of numerical supplier information – roughly 40%.

Claim #7: Forty-five percent of the companies reported having a policy in place to address suppliers that submit inadequate survey responses. Over half of companies we analyzed did not report having any such policies in place.

The Truth: This is essentially the same as Claims #3 and #4. There is no requirement for issuers to have a “policy” in place concerning inadequate responses. Companies address inadequate responses through their RCOI and operating procedures.

Claim #8: Another approach was highlighted by
the U.S. retail giant Target which stated in its Conflict Minerals Report that it reserved the right to “conduct unannounced spot-checks of vendors” who may have produced products that contain the four minerals covered by Section 1502 and “have access to their documentation.”

The Truth: While issuers may not have stated this specifically in their CMRs, reservation of audit/site inspection rights by customers is a common condition of supplier contracts.

Claim #9: Twenty-eight percent of companies analyzed built clauses related to conflict minerals into their renewed, new and/ or existing supply contracts.  

The Truth: This doesn’t capture the approach that other companies took. Because obstacles can exist in changing contract language, a popular way achieving the same end was for issuers to amend their Supplier Codes of Conduct, which are already referenced in existing supplier contracts. Among the benefits of this approach are the CM requirements are immediately applicable and enforceable without the delays that come with modifying contract language.

Claim #10: Only forty-six percent of the surveyed companies provided information to the SEC about what they had done to follow each of the five steps in the guidance. Responsible companies should describe their supply chain checks in detail. Corporations that simply state that their supply chain checks meet a standard such as that of the OECD guidance, without providing further explanation, will likely leave interested parties, such as investors and consumers, with more questions than answers about their efforts.

The Truth: This is essentially the same as Claim #5. Regardless of GW/AI’s desires, there is no legal requirement for issuers to provide specific details about how they implemented all five steps of the OECD Guidance.




Section 1502 Not Part of New Dodd-Frank Legislative Action

Yesterday, the Republican-led U.S. House passed a bill that delays for two years one mandates of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and eliminates two others.  This is the third bill making it out of the House that attempts to pull back Dodd-Frank.

Section 1502, the conflict minerals disclosure requirement, is unaffected by this legislation but that doesn’t necessarily mean that 1502  won’t ultimately be considered at some point.  A New York Post piece from earlier this week does a good job of explaining why and potential tactics for doing so.  At the same time, any overt changes to the law face uncertainty in the Democratic majority Senate and a potential presidential veto.


Washington Post: Enough with Enough

In response to the Enough Project’s conflict minerals rankings of jewelry companies, the Washington Post published an article critical of Enough’s study and the efficacy of Section 1502.  The article also points out the timing of the report – “just in time for the holidays”.

One of the people quoted in the piece, Kambale Musavuli (a Congolese activist) highlighted out a few flaws in the limited scope of Section 1502 :

It is silent on environmental degradation, has nothing to say on the lopsided mining contracts that have left the Congolese people impoverished and dependent. It does nothing to address matters of resource sovereignty. It only calls for the clean functioning of a fundamentally flawed and unequal extractive process that has been en force for the past 125 years.

The author is also critical of industrial mining as a solution, quoting another source that accuses mining companies of ” closed-door agreements over mining rights”.

Near the end of the piece, the author does make a particularly salient comment:

As long as Congo lacks a government able to translate the country’s mineral and gold wealth into prosperity for its people by the taxing and regulation of multinational “legal” mining, all gold has the potential to be conflict gold in the region. Artisanal mining and smuggling are a symptom of state failure and a total lack of resource sovereignty.

In other words, the real issue is one of a strong and credible cohesive government that can effectively address mining.  We agree, but would even go one step further – before the state can effectively regulate any activity, it must first address the historic and cultural foundations of its own discord.

Durbin: 1293 of the 1300 Conflict Minerals Filers Didn’t Take Their Filings Seriously

Senator Dick Durbin of Illinois, one of the fathers of Dodd Frank Section 1502 (the conflict mineral disclosure requirement of the 2000+ page law), commented last week on the status of the situation in the DRC and expressed his views on the impact of Section 1502.

Durbin was highly critical of the compliance status of all but seven SEC filers (six of whom are based in his state), saying

I am sorry to say that not all companies took this reporting requirement seriously, hiding behind the 2-year grace period that allows them to avoid questions. My hope is that these Illinois companies serve as an example for next year’s filings nationwide.

He lauded Intel (based in California) for having conducted a voluntary audit of their filing.  In addition to criticizing companies that are not based in Illinois, Durbin missed the mark on a key figure:

Almost 90 smelters (40 percent of the world’s total smelters) are certified as conflict-free…

This statement means that he believes there are only 225 conflict minerals smelters/refiners worldwide, which is inconsistent with the results of the US Department of Commerce list published only weeks ago that listed over 400 processing facilities worldwide.  That study was, of course, mandated by the very law he was instrumental in creating.  Although we know the Commerce list isn’t perfect, it isn’t THAT far off.

Readers may recall that Commerce themselves admitted they were unable to make conflict funding determinations about any of the 400+ facilities.  Maybe Durbin thinks the U.S. Department of Commerce is also “hiding behind the 2-year grace period” he accused U.S. businesses of doing (especially those outside of Illinois).


Review of Brookings Institute Conflict Minerals Seminar: Guest Perspectives

We welcome David Schatsky as a guest contributor.  David is principal analyst and founder of Green Research, a research, advisory and consulting firm focusing on clean tech, alternative energy and sustainability. He is at work on a study of the impact of the conflict minerals regulations on U.S.-listed companies and their suppliers.  David is also the founder/editor of the website Dodd-Frank Section 1502,  a valuable and timely compendium of news items on conflict minerals issues.  

Hundreds of people turned out on Tuesday, December 13 for a day-long discussion titled, “Transparency, Conflict Minerals and Natural Resources: What You Don’t Know About Dodd-Frank.” The event was held at the National Press Club in Washington, D.C. and was co-hosted by The Brookings Institution, a public policy think tank and Global Witness, a non-governmental organization that works to end conflict and poverty poor, often resource-rich, countries.

The day was organized in two parts. The morning was focused on Dodd-Frank Section 1504, dealing with extractive industries disclosure. The afternoon focused on Section 1502, the conflict minerals disclosure.

Rep. Jim McDemott (D-Wash) opened the session and Sen. Benjamin Cardin (D-Md.) presented the closing comments. The Rev. Jim Wallis spoke at lunch. The full agenda and list of speakers is available here.

The conversation was stimulating because the conveners managed to bring together a diverse group. On the panels were representatives of advocacy groups, major corporations, and consultants and a human rights lawyer. The audience consisted of journalists, clergymen, industry representatives, attorneys and more.

Despite the diverse composition of the panels, they tended to be very harmonious. There was broad support for both Dodd-Frank provisions.  The focus of disagreements was the details of the regulations now being crafted by the SEC. On the Extractive Disclosure panel, for instance, Laurel Green, group climate change executive for Rio Tinto, asserted that tracking payments by “project” was likely to be too onerous because of what she asserted was the inherent ambiguity of the term. Isabel Munilla, U.S. director of Publish What you Pay, disagreed, claiming that even local stakeholders in the affected countries want that level of disclosure.

On the conflict minerals panel, both representatives from industry, Sandy Merber from General Electric and Tim Mohin from AMD, are robust supporters of the provision but argued that a phase-in of the requirements is probably best, while some flexibility in the due diligence requirements is necessary to accommodate the different scale and capabilities of companies in the supply chain.

Some points made in the course of the panel discussion:

  • Section 1502 allows companies to rely on an industry-wide process for determining the status of the mines and smelters from which their minerals are obtained, sharing and lowering costs compared to the impractical alternative of every company tracing its own supply chain all the way back to the mines.
  • While the number of mines and suppliers may be large, the number of smelters is relatively small. Expanding the conflict-free smelter program therefore is imperative.
  • The Public-Private Alliance (PPA) for Responsible Minerals Trade, announced last month, is intended to prevent “conflict-free” from turning into “Congo –free.” (The U.S. Department of State and U.S. Agency for International Development (USAID) will invest $3.2 million in it, specifically to support conflict-free minerals certification and traceability. More than 25 companies, trade associations, and other organizations have said they will join and will contribute funds toward a goal of an additional $2 million by the end of next year.)
  • Merber of GE asked that the SEC define the “due diligence” required by the law to mean due diligence of the conflict minerals report itself and not of the supply chain, which would be much more costly.
  • Merber also asked that the SEC keep two key concepts in mind as it formulates its rules: 1) that the objective is to press the supply chain to move to conflict-free smelters; 2) to favor disclosure and transparency rather than prescriptions of what individual due diligence should look like. (This would seem to shift the bulk of the burden to the international and trade associations and away from individual companies.)
  • To those in the private sector who argue that governments must play a key role in achieving the goals of this legislation, Corinna Gilfillan of Global Witness pointed out that the Congo government has issued a law requiring companies there to implement the OECD due diligence guidelines. She also asserted that companies need not wait for final SEC rules to begin implementing procedures that follow those guidelines.
  • Bruce Calder of consulting firm Claigan Environmental commented that one of the major costs of compliance at large companies is establishing effective communication with disparate internal functions/staff.
  • Consistent with its previous comments to the SEC, Calder strongly disputed the compliance cost estimates published by the National Association of Manufacturers, citing experience with RoHS information technology systems implementation at other companies and suggesting that costs will be much more modest.
  • Merber of General Electric said he sees section 1502 as part of a broader trend toward greater supply chain transparency. GE intends to design its compliance program to be flexible so it can accommodate new transparency requirements they expect will materialize in the future.

There was broad agreement that the sooner the rules are finalized, the better if will be for industry and for the people on the ground in Congo.

Leading On-Line Metal Product/Procurement Publication to Run Series of Articles on Conflict Minerals by Elm

MetalMiner.com, one of the world’s foremost on-line publications on global procurement of metals and related products, including global pricing trends, capacity constraints, supply market M&A activity, is publishing a series of articles written by Elm on Conflict Minerals.  MetalMiner.com was founded more than four years ago and since then has become a recognized leader in providing unique insight, analysis, and tools for buyers, purchasing professionals, and everyone else for whom metals and their related markets matter.

Part 1 of Elm’s series is here.  The series will continue through this week.

Unlike other articles on the subject, MetalMiner’s series is focused on the SEC’s proposed Conflict Minerals regulations in the context of pragmatic aspects of conducting the required independent third party audits.