GAO s Work Under Section 1502 of the Dodd-Frank Act: A Conflict Minerals Webinar Hosted by Ropes & Gray November 3, 2016

Transcription

1 GAO s Work Under Section 1502 of the Dodd-Frank Act: A Conflict Minerals Webinar Hosted by Ropes & Gray November 3, 2016 Kimberly Gianopoulos Director, International Affairs and Trade Godwin Agbara Assistant Director, International Affairs and Trade Jeffrey Baldwin-Bott Senior Analyst, International Affairs and Trade Andrew Kurtzman Senior Analyst, International Affairs and Trade

2 Outline of Discussion Mission and Sources of Work Work Before Dodd-Frank Mandate Under Section 1502 of D-F Work Since Section 1502 of D-F 2016 Report on Conflict Minerals Report Second-Year Filings Conflict Minerals Processing Facilities and Due Diligence U.S. Department of Commerce Responsibilities

3 GAO s Mission and Sources of Work Support the Congress in meeting its constitutional responsibilities and to help improve the performance and ensure the accountability of the federal government for the benefit of the American people Provide Congress with timely information that is objective, factbased, nonpartisan, nonideological, fair, and balanced GAO has three sources of work: 1) Congressional mandate one time or recurring 2) Request letter from congressional committee leadership or members 3) Comptroller General Authority (CGA)

4 GAO s Work on the DRC Pre Dodd-Frank 2007 (Mandate): Review of U.S. Actions Toward Achieving Congressional Legislation on the DRC Relief, Security, and Democracy Promotion Act of 2006 (GAO ) 2010: Congressional request: (GAO )

5 GAO s Mandate under Dodd-Frank July 2010: Congress included in the Dodd-Frank Wall Street Reform and Consumer Protection Act provisions pertaining to the trade of DRC conflict minerals. GAO s mandates under Section 1502 includes these provisions: (1) Assess the rate of sexual violence in the DRC and adjoining countries (annually 1 st report due July 2011) (2) Evaluate the effectiveness of SEC s conflict minerals disclosure rule (annually 1 st report due July 2012) Report to (8) congressional committees of jurisdiction

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7 GAO s Work Since Dodd-Frank The Democratic Republic of the Congo: Information on the Rate of Sexual Violence in War-Torn Eastern DRC and Adjoining Countries (GAO ) Conflict Minerals Disclosure Rule: SEC s Actions and Stakeholder- Developed Initiatives (GAO ) SEC Conflict Minerals Rule: Information on Responsible Sourcing and Companies Affected (GAO ) Conflict Minerals: Stakeholder Options for Responsible Sourcing Are Expanding, but More Information on Smelters Is Needed (GAO ) SEC Conflict Minerals Rule: Initial Disclosures Indicate Most Companies Were Unable to Determine the Source of Their Conflict Minerals (GAO )

8 GAO s 2016 Conflict Minerals Report GAO : a continuation of GAO s annual reporting requirement under Dodd-Frank Act Methodology: analyzed a generalizable random sample of SEC filings interviewed relevant officials, and performed fieldwork in the United States and Asia

9 Review of Second-Year Filings in Response to SEC Rule

10 Second-Year Filings: Increases in Information Fewer companies in 2015 (1,283) than in 2014 (1,321) Majority were domestic companies (86%) RCOI: An estimated 19% more companies than in 2014 disclosed that they knew (or had reason to believe they knew) the source of conflict minerals in their products Similar estimated rates of information received from suppliers in response to their RCOI information requests about the conflict minerals in their products (55% in 2015)

11 Company Determinations from Reasonable Country-of-Origin Inquiries, 2014 and 2015 Company Determinations from Reasonable Country-of-Origin Inquiries, 2014 and 2015

12 Figure: Simplified Conflict Minerals Supply Chain Showing the Path of Companies Due Diligence Inquiries

13 Second-Year Filings: Uncertainties Remain about Mineral Sources Some companies reported difficulties in getting sufficient information for country of origin determinations Due diligence: majority of companies ultimately reported that they were unable to determine the country of origin or benefit to armed groups in the Covered Countries Companies reported a range of actions taken or planned to improve due diligence efforts

14 Conflict Minerals Processing Facilities and Companies Due Diligence Efforts

15 Conflict Minerals Processing Facilities and Due Diligence Due diligence efforts at processing facility level made more challenging by: uncertainties about source and chain of custody of conflict minerals earlier in supply chain complexity of processing operations Processing companies may purchase and commingle products from multiple suppliers Sourcing and chain-of-custody complexities, which companies reported to be a challenge, may increase required disclosure cost or result in missing information

16 Figure: Ore from Multiple Sources May Be Commingled at Several Stages of Processing In this example, Companies 1 and 2 have similar business models, but only Company 1 s minerals are conflict free. Company 3 purchases intermediates (such as a powder) from 1 and 2, which are commingled to produce refined, non-conflict-free metal.

17 Conflict Minerals Processing Facilities and Due Diligence Industry participants may be reducing cost of disclosures by encouraging participation of processors in certification programs and through efforts to standardize the audit process Industry participants improving the completeness of information available for the audit process Tools such as chemical fingerprinting may strengthen certification programs by mitigating document fraud Limitations to efforts to mitigate challenges to due diligence efforts

18 Status of U.S. Department of Commerce Efforts Regarding Its Conflict Minerals Responsibilities

19 U.S. Department of Commerce Responsibilities Commerce produced annual reports in 2014 and 2015 listing known conflict minerals processing facilities to comply with Dodd-Frank Act As of August 2016, Commerce had not: submitted required assessment of the accuracy of IPSAs or recommendations for improving the accuracy of the IPSAs developed a plan for doing so

20 Recommendation To improve the effectiveness of the SEC s conflict minerals disclosure rule, the Secretary of Commerce should take the following action: Submit to the appropriate congressional committees a plan outlining steps that Commerce will take, with associated time frames, to assess the accuracy of the independent private sector audits (IPSA) and other due diligence processes described under section 13(p) of the Securities Exchange Act of 1934; develop recommendations for the process used to carry out such audits, including ways to improve the accuracy of the audits and establish standards of best practices for such audits; and acquire the necessary knowledge, skills, and abilities to carry out these responsibilities.

21 GAO Contacts GAO on the Web Web site: Public Affairs Chuck Young, Managing Director, (202) , U.S. Government Accountability Office 441 G Street, NW, Room 7149, Washington, DC 20548