Even the Commerce Department can't find the conflict minerals
Tuesday, September 9, 2014 at 10:08AM
Nina Mohseni in Commerce Department, Conflict MInerals, Congo, Dodd-Frank Act of 2010, Gold, National Association of Manufacturers, Shanghai Gold Exchange, Tantalum, Tin, Tungsten, titanium

Image courtesy of the Conflict Minerals ConsortiumThe U.S. Department of Commerce has finally published its long awaited list of all known facilities that process tin, tantalum, tungsten, or gold -- the so-called “conflict minerals.” Despite taking an additional year and seven months past its original deadline set in the 2010 Dodd-Frank Act, and despite using the combined resources and efforts of the Commerce Department, the OECD, and the U.S. Geological Survey, the list is inconclusive.

The Commerce Department has now acknowledged that it does “not have the ability to distinguish” which facilities are used to finance the conflict in the Democratic Republic of Congo and adjoining countries. The results show the tremendous burden on the publicly traded companies required to comply with the SEC's conflict minerals disclosure rule.

Section 1502 of Dodd-Frank requires public companies to report on the origin of tin, tantalum, gold, and tungsten -- conflict minerals -- in their products. The burden is on the reporting companies to determine if the disclosure rules apply and to demonstrate due diligence measures to the SEC -- such as questioning their entire supply chain on the presence and origin of conflict minerals and conducting third-party audits.

The Commerce Department said in compiling its conflict mineral producers list, it was tripped up in a few ways. It couldn't always determine the smelting location of materials because of “off the grid” artisanal miners in eastern Congo. And throughout Africa, it said, there are guerilla operations where makeshift smelters produce an intermediary product of the minerals that's then shipped overseas to scrap yards and informal metal traders. Finally, gold purchased through the Shanghai Gold Exchange, which accounts for 15 to 20 percent of all gold used for commercial purposes, is untraceable. Compounding the problem, the vast majority of the gold sold worldwide is comingled at some time at the Shanghai Gold Exchange, which doesn't even keep sourcing records.

Regardless of the limitations, the Commerce Department said its list includes over 400 refinery and smelter sites and “is the most comprehensive list to date of all known processing facilities in the world.”

Separately, the U.S. Government Accountability Office reported  in June 2014 that the Conflict-Free Smelter Program, an industry-led effort founded in 2008, now identifies 85 conflict-free certified smelters/refiners (up from 26 in 2013) with an additional 25 smelters/refiners working towards conflict-free certification.

Another issue for companies subject to the SEC's conflict minerals disclosure rule is whether the D.C. Circuit Court will decide to rehear its decision in National Association of Manufacturers. The court ruled in May that the disclosure requirement violates the free speech guarantees of the First Amendment by forcing companies to say whether their products are “DRC conflict-free.” The SEC has asked the court for a rehearing en banc. The court's decision whether to rehear the case is pending.

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Nina Mohseni is an associate at Hodes Keating & Pilon, a customs and international trade law firm in Chicago.  She serves as the Vice President of Organization of Women in International Trade, Chicago Chapter and is the founder and past chair of the International Corporate & Trade Law Committee of the Chicago Bar Association, where she remains active.  

Article originally appeared on The FCPA Blog (https://www.fcpablog.com/).
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