A recent report from the Government Accountability Office has revealed that some American companies aren’t submitting conflict mineral reports detailing potential ties to illicit Central African minerals. According to rules instituted in 2014, American-traded companies have to file “conflict mineral” reports that state whether their products may contain tin, tungsten, gold or tantalum sourced from the Democratic Republic of Congo or its nine surrounding neighbors.
The rules were part of the 2010 Dodd-Frank Act, passed in the wake of the 2008 financial crisis, and they require U.S.-listed firms to carry out due diligence on minerals bought from the DRC and its neighbors to ensure they have no ties to illicit trade. Illicit mining and trade of these minerals have thrown the Congo region into chaos for decades, attracting criminal elements that run illegal mining operations and terrorize local communities.
Companies must submit a filing detailing their attempts to trace the origin of the conflict minerals they use in their products. If their inquiry determines that their minerals may have come from the illicit mineral trade in Central Africa, companies have to carry out further investigations to determine if the minerals came from the Democratic Republic of Congo or its surrounding neighbors. Many companies leverage standardized programs and tools such as traceability schemes, smelter and refiner audit programs and supplier surveys to trace the origin of their conflict minerals.
In its annual report on the conflict mineral rule, the Government Office of Accountability (GOA) noted that companies listed in the United States may not be reporting complete information. In some cases, the report states that these companies may not be filing any information at all due to the perception that they won’t face action from the Securities Exchange Commission (SEC) for breaking disclosure requirements for conflict minerals.
With more than 100 armed criminal groups currently operating in eastern Congo, the region has been steeped in violence for close to 30 years. These groups survive on either mining or taxing minerals and their minerals often end up in Western-made products.
Companies that discover their raw minerals may have ties to the illicit mineral trade are simply required by law to report it and face no legal repercussions. The GAO report stated that 1,005 U.S.-listed companies disclosed potential conflict mineral ties to the SEC in 2022 down from 1,321 in 2014. In addition, 51% of the companies that filed disclosures with the SEC determined that their conflict minerals may originate from DRC or its neighbors while 53% were unable to determine the country of origin of their conflict minerals.
It is important that conflict minerals are routed out from the market. Otherwise, legitimate players in the industry such as Freeport-McMoRan Inc. (NYSE: FCX) could face unfair competition from suppliers of minerals whose origin is dubious or mired in human rights violations.
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