Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

GAO noted in a recent report that as a result of country-of-origin inquiries, an estimated 19 percent more companies that filed Form SD with the SEC reported that they knew or had reason to believe they knew the source of the conflict minerals in their products in 2015 than in 2014, based on a generalizable sample of filings GAO reviewed. However, after an estimated 79 percent of the companies that filed a Form SD performed due diligence, an estimated 67 percent of them reported they were unable to confirm the source of the conflict minerals in their products, and about 97 percent of them reported that they could not determine whether the conflict minerals financed or benefited armed groups in the Democratic Republic of the Congo (DRC) and adjoining countries.

According to GAO facilities that process conflict minerals pose challenges to the disclosure efforts of companies filing a Form SD because:

  • these facilities generally rely on documentary evidence about the origin of conflict minerals, which may be susceptible to fraud; and
  • multiple levels of processing operations introduce fraud risk and may increase the cost associated with disclosures.

Industry and other stakeholders have developed or are pursuing efforts to mitigate these risks, such as chemical “fingerprinting” to verify documentary evidence.

The GAO reported highlighted that as of July 2016, the Department of Commerce had not submitted a report that was required in January 2013, assessing the accuracy of the Independent Private Sector Audits, referred to as an IPSA, filed by some companies that filed a Form SD, nor had it developed a plan to do so.  Ten companies filed the audits between 2014 and 2015 as part of their Conflict Minerals Reports, none of which Commerce has assessed. Commerce officials said they established a team in March 2016, but they noted that they did not have the knowledge, skills, or expertise to conduct IPSA reviews or to establish best practices. As a result, Congress lacks information on the accuracy of the IPSAs and other due diligence processes used by filing companies.


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