Conflict Minerals Disclosure Rule: SEC's Actions and Stakeholder-Developed Initiatives
Published: 2012-07-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In eastern DRC, armed groups continue to commit severe human rights abuses and profit from exploitation of minerals and other trades. In 2010, Congress included a provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act to address the trade of conflict mineralstin, tantalum, tungsten, and gold. Section 1502(b) of the act requires SEC to issue a disclosure rule for companies using these minerals in their products. The act also requires GAO to assess the rules effectiveness and the rate of sexual violence in war-torn areas of DRC and neighboring countries.
Since a rule has not been issued, this report examines (1) steps SEC has taken toward issuing a conflict minerals disclosure rule; and (2) stakeholder-developed initiatives that may help covered companies comply with the anticipated rule. This report also examines (3) any additional information available on the rate of sexual violence in eastern DRC and neighboring countries since GAOs 2011 report on that subject.
GAO reviewed and analyzed reports and documents from SEC, other U.S. agencies, industry associations and other nongovernmental stakeholders; and interviewed representatives from those organizations.
section_title: What GAO Found
paragraphs: The Securities and Exchange Commission (SEC) has taken some steps toward developing a conflict minerals disclosure rule, but it has not issued a final rule. For example, SEC published a proposed rule in December 2010 and has gathered and reviewed extensive input from external stakeholders through comment letters and meetings. SEC has also announced, on several occasions, new target dates for the publication of a final rule. In July 2012, SEC announced that the Commission will hold an open meeting in August 2012 to consider whether to adopt a final rule. According to SEC officials, various factors have caused delays in finalizing the rule beyond the April 2011 deadline stipulated in the act, including the intensity of input from stakeholders and the public; the amount of time required to review this input; and the need to conduct a thorough economic analysis for rule making.
Various stakeholders have developed initiatives that may help covered companies comply with the anticipated rule, but some initiatives have been hindered by SECs delay in issuing a final rule. Industry associations, multilateral organizations, and other stakeholders have developed global and in-region sourcing initiatives, which include the development of guidance documents, audit protocols, and in-region sourcing systems. These initiatives may support companies efforts to conduct due diligence and to identify and responsibly source conflict minerals. In the absence of SECs final rule, however, stakeholders note that uncertainty regarding SECs reporting and due diligence requirements has complicated their efforts to expand and harmonize their initiatives. For example, in the absence of a final rule, one initiative is facing difficulty engaging additional participants, while stakeholders efforts to harmonize two initiatives have been hindered.
Little additional information on the rate of sexual violence in eastern Democratic Republic of the Congo (DRC) and neighboring countries has become available since GAOs 2011 report on that subject. For example, only one population-based survey has been published on sexual violence in Rwanda, and it reports that 22 percent of women ages 15-49 have experienced sexual violence there in their lifetimes. No additional surveys have been conducted in eastern DRC; however, one organization is currently conducting a survey and another is planning to conduct a survey there in 2012.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Chairman of SEC identify remaining steps and associated time frames to issue a final rule. SEC neither agreed nor disagreed with the recommendation, but noted that it will expedite the completion of its rule making to provide certainty.

section_title: Letter
paragraphs: The eastern portion of the Democratic Republic of the Congo (DRC) has  long been the site of one of the world’s worst humanitarian crises, and  violence there continues. Large numbers of civilians in war-torn areas of  the DRC have been the victims of horrific sexual violence, including rape,  mutilation, and sexual slavery carried out by armed groups. In addition, as  we previously reported, illegal armed groups, as well as some units of the  Congolese national military, have continued to commit severe human rights  abuses, including mass killings. The illegal armed groups and units of the  Congolese national military committing these atrocities also profit from the  illegal mining of minerals and the illicit taxation of other trades, such as  charcoal and timber. Citing the continuing urgency of the human rights  situation and the need to take action, in July 2010, Congress included in  the Dodd-Frank Wall Street Reform and Consumer Protection Act  (hereafter in this report referred to as the Dodd-Frank Act, or the Act)  provisions pertaining to the trade of conflict minerals. The Act defines  conflict minerals as columbite-tantalite (coltan), cassiterite, wolframite, and  gold ores, or their derivatives. When these ores are processed they yield  the following metals used in industrial and other applications: tantalum, tin,  tungsten, and gold, respectively. Hereafter in this report, the term “conflict  minerals” will refer to either these ores or these metals. Section 1502(b) of  the Act requires the Securities and Exchange Commission (SEC) to issue a  conflict minerals disclosure rule (hereafter referred to as a rule) for  “persons” (hereafter referred to as covered companies) that must file  reports with SEC to disclose whether necessary conflict minerals used in  their products originated in the DRC or in an adjoining country and, if they  did, to provide an additional report with certain disclosures. The Act also  requires us to report on the effectiveness of SEC’s rule and on the rate of  sexual violence in war-torn areas of the DRC and adjoining countries. We  issued our first report on sexual violence in these areas in July 2011.
As specified in our 2011 report, we will identify any additional information available from  eastern DRC and the neighboring countries of Burundi, Rwanda, and Uganda. organizations—including the International Conference on the Great Lakes  Region (ICGLR), NGOs, consulting firms, industry associations,  companies—including five smelters and one refiner encompassing all four  minerals—and a gold industry expert. We traveled to the United Kingdom,  France, Belgium, and Germany to interview representatives from the  OECD Secretariat, foreign government officials, and representatives from  foreign companies—including smelters, industry associations, and  consulting firms. To address the third objective, we conducted interviews  with representatives from State, USAID, the Department of Defense,  relevant NGOs, and researchers, and gathered and analyzed relevant  documents from these organizations, to determine if any new data on  sexual violence were available. We also conducted Internet literature  searches to identify new academic articles containing any additional data.  See appendix I for a complete description of our scope and methodology.
We conducted this performance audit from August 2011 to July 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: History of the DRC: War and Instability
paragraphs: The DRC is a vast, mineral-rich nation with an estimated population of  approximately 72 million to 74 million people in an area that is roughly  one-quarter the size of the United States. It was colonized in 1885 as a  personal possession of Belgian King Leopold II and administered by the  Belgian government starting in 1907. It achieved independence from  Belgium in 1960. For almost 30 years of the postindependence period,  the DRC was known as Zaire and was ruled by an authoritarian regime  under Mobutu Sese Seko. Following the 1994 genocide in Rwanda, some  perpetrators of the genocide and refugees fled into eastern DRC. See  figure 1 for a map of the DRC and adjoining countries.
The Mobutu regime was toppled in 1997 by Laurent Kabila, who led a  rebel group from eastern DRC with the assistance of Rwanda and  Uganda. Kabila was assassinated in 2001 and leadership shifted to his  son, Joseph Kabila. During the period of the senior Kabila’s regime, the  nation experienced a period of civil war during which numerous rebel  groups, with the assistance of Rwanda, Uganda, and other neighboring  countries, captured significant parts of the DRC. The war continued into  the regime of Joseph Kabila, and resulted in the deaths of an estimated  5.4 million people by 2007. As we reported in 2010, illegal armed  groups and some Congolese national military units are consistently and  directly involved in human rights abuses against the civilian population in  eastern DRC and are involved in the exploitation of conflict minerals and  other trades. We also reported that there is a culture of impunity in  eastern DRC in which those who have committed human rights abuses  do not face justice for the crimes they have committed. After decades of  instability and war, the central government in the capital, Kinshasa,  currently has little administrative capacity and control over remote  regions, including eastern DRC. The long distances between the capital  and eastern DRC and the rudimentary infrastructure, which make  transportation and communication difficult, further limit the central  government’s control in eastern DRC.
section_title: U.S. Government Response
paragraphs: In 2006, Congress passed the Democratic Republic of Congo Relief,  Security, and Democracy Promotion Act of 2006.the policy of the United States to engage with governments working for  peace and security throughout the DRC and hold accountable individuals,  entities, and countries working to destabilize the country. According to  State officials, improving security in the eastern portion of the DRC is  central to U.S. efforts. In August 2009, the Secretary of State traveled to  the eastern portion of the DRC where, after seeing the consequences of  the conflict firsthand, she called for action to assist victims of sexual  violence. Recognizing that the exploitation and trade of conflict minerals  originating in the DRC is helping to finance conflict, in July 2010   The act stated that it is  Congress included a provision in section 1502(b) of the Dodd-Frank Act  that requires SEC to issue a rule for covered companies to disclose  whether necessary conflict minerals used in their products originated in  the DRC or in an adjoining country and, if they did, to provide an  additional report with certain disclosures. The United States is the  largest donor to the United Nations Organization Stabilization Mission in  the Democratic Republic of the Congo (MONUSCO), contributing  almost one-third of MONUSCO’s $1 billion annual budget. Furthermore,  in November 2011, State and USAID, in collaboration with NGOs,  industry, and other governments, launched the Public-Private Alliance for  Responsible Minerals Trade (PPA) to support supply chain solutions to  conflict minerals challenges in the DRC and neighboring countries.
section_title: Minerals Covered by the Conflict Minerals Legislation: Origins, Uses, and Supply Chains
paragraphs: The four conflict minerals covered by section 1502(b) of the Dodd-Frank  Act are mined in various locations around the world; for example, tin is  mined in China, Indonesia, Peru, Bolivia, as well as the DRC. Similarly,  tantalum is reportedly mined in areas such as Australia, Brazil, Canada,  and the DRC. While the majority of tungsten—reportedly 77 to 84 percent  of global production from 2006 through 2009—is mined in China and a  very small amount is mined in the DRC, gold is mined in many different  countries, including the DRC. Our review of United States Geological  Survey data on tantalum, tin, tungsten, and gold mined in the DRC  showed that about 17 percent of the global tantalum supply, about 4  percent of the global tin supply, less than 1 percent of the global tungsten  supply, and less than 1 percent of the global gold supply, was mined in  the DRC in 2009. However, according to a December 2011 report by  the United Nations Group of Experts on the DRC (UNGoE), mineral  production and exports from eastern DRC have recently fallen.
Various industries, in particular manufacturing, use these minerals in a  wide variety of products and in varying amounts. Tin is utilized by a  multitude of industries in tin solder, which is used to join metal pieces   According to company representatives, tin is also found in  together. food packaging, in steel coatings on automobile parts, and in some  plastics. According to industry association and company representatives,  the majority of tantalum is used to manufacture tantalum capacitors,  which enable energy storage in electronics products such as cell phones  and computers. Tungsten is used in drill bits and cutting tools and other  industrial manufacturing tools; it is also the primary component of  filaments in light bulbs. In addition to its use as currency and in jewelry,  gold is also used by other industries, such as the electronics industry.
Figure 2 below depicts a simplified conflict minerals supply chain for all  four conflict minerals. For the purposes of this report, it provides a basic  overview of how conflict minerals move from the mine of origin to the end  consumer.
At mines throughout the world, mineral ores are extracted using  mechanized industrial or artisanal mining techniques.mining occurs in some provinces in the DRC, such as the Katanga  province, artisanal mining is the dominant type of mining used in eastern   While industrial  DRC where conflict is most prevalent. See figure 3 for a picture of an  artisanal mining site in eastern DRC.
For artisanal mining, the local processor or trader—an individual or  company—purchases minerals directly from mine sites and typically  processes or upgrades the material before selling it to the exporter, but  the exporter may also purchase minerals directly from mine sites rather  than going through a local processor or trader. Also, exporters may carry  out further processing or upgrading before exporting the materials to a  smelter or refiner. At the most basic level, smelting involves converting a  mineral into a metal and refining involves purifying a metal into a higher- purity metal. Although some smelters of tin, tantalum, and tungsten sell  high-purity metals through traders or exchanges, smelters primarily sell  high-purity tin, tantalum, and tungsten directly to component parts  manufacturers. Component parts manufacturers construct individual  parts—such as capacitors, engine parts, clasps for necklaces, and other  items—that they sell to original equipment manufacturers. Original  equipment manufacturers complete the final assembly of a product and  sell their products to consumers.
The supply chain for industrially mined gold, which is the dominant form  of mining conducted outside of eastern DRC, is different. Industrially  mined gold is typically shipped from mine sites directly to refiners,  bypassing local traders and exporters. Gold refiners typically sell high- purity gold to banks, for use as a store of value, or to international  exchanges and traders, where gold is bought and sold. Banks and traders  may sell gold to manufacturers, including jewelry or electronics  component parts manufacturers and some gold refiners sell gold directly  to manufacturers.
According to industry association and company representatives, in  practice, a company’s supply chain for products containing tin, tantalum,  tungsten, and gold can be complex and can vary considerably. For  example, a company’s conflict minerals supply chains may involve  several different entities taking different actions to help develop products  and move them through the supply chain. In addition, the supply chains  for some companies’ products may contain a small number of component  parts, whereas the supply chains for other companies’ products may  contain thousands of component parts, which may be sourced from  hundreds of different suppliers.
section_title: SEC Has Taken Some Steps toward Developing a Rule but Has Delayed Issuing a Final Rule
paragraphs: SEC has published a proposed conflict minerals disclosure rule and has  taken steps to gather input from various stakeholders. However, it has  delayed issuing a final rule due to a number of factors, such as  addressing intense stakeholder input and dealing with a heavy rule- making workload.
subsections: section_title: SEC Has Published a Proposed Rule and Gathered Stakeholder Input
paragraphs: SEC did not meet the deadline in the Dodd-Frank Act to issue a final  conflict minerals disclosure rule by April 2011, but it has taken some  steps toward developing a rule, including publishing a proposed rule in  December 2010 (see fig. 4).
According to SEC officials, following the passage of the Dodd-Frank Act in  July 2010, SEC announced that it would develop a rule and called for  public comments on the upcoming rule. In September 2010, SEC posted  on its website an estimated issuance date for the proposed disclosure rule  of between October 2010 and December 2010; at this time SEC also  posted on its website an estimated issuance date for the final rule of  between January 2011 and March 2011. In October 2010, SEC revised its  estimated issuance date for a final rule to between April and July 2011. On  December 15, 2010, SEC issued a proposed rule that reflected the  complicated and technical nature of the issues it covered. The proposed  rule was over 100 pages and included over 70 questions in which SEC  requested feedback from the public on specific technical issues, such as  whether reporting standards should apply to all conflict minerals equally,  whether certain companies should be exempt from reporting, and whether  there should be a de minimis threshold for the amount of conflict minerals  used in a product.
According to agency officials, in developing a proposed rule, SEC  consulted with its internal experts and State, and gathered extensive input   After  from external stakeholders through comment letters and meetings. SEC published a proposed rule in December 2010, it hosted a roundtable  in October 2011 to obtain additional public input to help inform the  development of a final rule. SEC officials also said that since July 2010— when it announced it intended to develop a rule—SEC has received a  large and steady volume of comment letters from individuals and groups  of external stakeholders, including various types of companies; industry  associations; international organizations; international NGOs and local  NGOs working in Central Africa; U.S. and foreign officials; private  individuals; and others, with over 400 distinct comment letters posted to  its website. According to SEC officials, SEC has reviewed these  comment letters and is taking them into account as it develops a final  rule.
SEC officials said that they have also received a large number of meeting  requests from external stakeholders to further discuss issues and  concerns about the proposed rule. Since July 2010, SEC Commissioners,  officials, and staff have held and documented approximately 140 separate  meetings with external stakeholders and posted brief memorandums of  the meetings on SEC’s website. According to SEC officials,  approximately 60 of those meetings involved SEC Commissioners and/or  their counsels engaging directly with external stakeholders. SEC officials  said that they are considering information and input gained from their  meetings with stakeholders as they continue to develop a final rule.
Partly in response to the volume of comments received and meetings  requested, SEC held a public roundtable in October 2011 to discuss the  proposed rule. The roundtable featured panelists from companies that will  likely be affected by a final rule, such as reporting companies, investment  companies, audit firms (which may support covered companies in their  efforts to comply with a final rule), NGOs, and affected issuers. The SEC  Chairman, three other SEC Commissioners, and relevant SEC officials  hosted the roundtable with U.S. Senator Richard Durbin and U.S.  Congressman James McDermott (via videotape) serving as guest speakers.  SEC officials said that the SEC roundtable was a helpful tool for gathering  more information as it continues its work toward developing a final rule.
section_title: SEC’s Final Rule Delayed
paragraphs: Since SEC issued a proposed rule in December 2010, it has announced,  on several occasions, new target dates for the publication of a final rule,  as shown in table 1 below:  In its December 2011 announcement concerning the target publication  date for a final rule, SEC estimated that it would issue a final rule by June  2012; however, SEC did not issue a final rule by the end of June 2012.  On July 2, 2012, SEC announced that the Commission will hold an open  meeting on August 22, 2012 to consider whether to adopt a final conflict  minerals disclosure rule. SEC officials said that various factors have  caused delays in developing, modifying, and finalizing a rule, as follows:
Significant learning curve. According to SEC officials, the process of  developing a rule required their staff to become familiar with several  areas that were relatively new to them. For example, they told us that  their staff had to develop contextual understanding about recent events in the DRC  and adjoining countries (including learning about the relevant in- region political and economic actors, economic arrangements  between these actors, and other evolving issues in these countries);  learn about complex supply chains and sourcing for conflict  minerals, which includes various U.S. and international companies  that can range in size from very small-scale enterprises to major  multinational corporations;  stay abreast of external stakeholder efforts to develop and  implement their own responsible supply chain initiatives for conflict  minerals; and understand the implications of using securities law to influence the  behavior of covered companies in a way that would impact the  situation in central African countries.
Intense stakeholder interest and input. SEC officials said that  responding to intense public and stakeholder interest and input on the  rule has contributed to delays. According to agency officials, the original  comment period on the proposed rule closed on January 31, 2011, but  at the request of a wide range of external stakeholders the Commission  extended the comment period to March 2, 2011. Officials also noted  that, in response to requests from some external stakeholders, the SEC  hosted a roundtable on the conflict minerals disclosure rule and the  Commission re-opened the comment period until November 1, 2011.  SEC officials further noted that the Commission continues to receive  comment letters and cited the over 400 distinct comment letters that it  has received. In addition, SEC officials said that the approximately 140  meetings between the agency and external stakeholders, the  complicated and technical nature of the issues in these letters and  discussions, and the effort required to consider and address these  issues in rule making, has also contributed to delays.
Heavy rule-making workload. SEC officials noted that Commissioners  have a heavy workload, given that they produce many rules in  addition to the conflict minerals disclosure rule. In April 2012, the SEC  Chairman testified that under the Dodd-Frank Act, SEC is mandated  to write almost 100 rules, while on average the Commission might  normally write about 20 rules in a given year.
Rigorous economic analysis in rule-making process. To support their  rule making, SEC officials said that they are working closely with SEC  economists and legal experts to develop rigorous economic analysis,  which is a complex and time-consuming process. In her April 2012  testimony statement, the SEC Chairman noted that the agency  considers economic analysis to be a critical element in the rule- making process. SEC officials also noted that some of the delays in  finalizing a disclosure rule have been necessary to make sure the final  rule appropriately addresses significant cost concerns raised by  external stakeholders. In her testimony statement, the SEC Chairman  also pointed out that recent court decisions and communications from  members of Congress have raised concerns about certain aspects of  SEC’s economic analysis in rule making, and that SEC staff recently  developed specific guidance for staff engaged in rule making to  further improve the economic analysis SEC employs in its rule  making.
section_title: Stakeholder- Developed Initiatives May Facilitate Compliance with the Anticipated Rule, but Efforts to Improve Some Initiatives Have Been Hindered by the Absence of a Final Rule
paragraphs: Various stakeholders have developed and implemented initiatives that  may help covered companies and their suppliers comply with the  anticipated rule. However, due to the uncertainty regarding potential due  diligence and disclosure requirements stemming from SEC’s delay in  issuing a final rule, some stakeholders’ efforts to improve their initiatives  through expansion and harmonization have been hindered.
subsections: section_title: Stakeholders Have Developed Initiatives
paragraphs: Although SEC has not issued a final rule, industry associations, multilateral  organizations, and other stakeholders have developed and implemented  initiatives that may help covered companies and their suppliers comply with  the anticipated rule. Stakeholders began work on most of these initiatives  before the Dodd-Frank Act was passed, but according to agency officials,  stakeholders’ interest in ensuring that initiatives will be compatible with  SEC’s anticipated final rule appears to have provided a substantial impetus  to further develop initiatives. Stakeholder-developed initiatives—which  include the development of guidance documents, audit protocols, and in- region sourcing systems—support covered companies’ efforts to (1)  conduct due diligence of their conflict minerals supply chains, (2) identify  the source of conflict minerals within their supply chains, and (3)  responsibly source conflict minerals. Table 2 summarizes global and in- region sourcing initiatives developed by various stakeholders (see app. II  for more details about each of these initiatives). The global initiatives may  support covered companies’ efforts to minimize the risk of conflict minerals  entering their supply chains and to identify the source of their conflict  minerals across conflict minerals supply chains and around the world, while  the in-region sourcing initiatives may support responsible sourcing of  conflict minerals from Central Africa and the identification of specific mines  of origin for those minerals.
To support companies’ efforts to conduct due diligence of their conflict  minerals supply chains, which span the globe, OECD developed the  OECD Due Diligence Guidance for Responsible Supply Chains of  Minerals from Conflict-Affected and High-Risk Areas (hereafter referred to  as OECD Due Diligence Guidance). The guidance establishes a five-step  framework for detailed, risk-based due diligence, which is intended to  promote accountability and transparency in the supply chain of minerals  from conflict-affected and high-risk areas. Covered companies may use  the OECD Due Diligence Guidance to identify appropriate due diligence  actions necessary for obtaining and disclosing conflict mineral sourcing  information in accordance with the anticipated SEC rule. The guidance  may also help U.S. and foreign suppliers put due diligence processes in  place, which may help them generate conflict mineral sourcing  information for those of their customers that are covered companies.
Other global initiatives may support covered companies’ efforts to identify  the source of conflict minerals. For example, the Conflict-Free Smelter  Program and the LBMA Responsible Gold Guidance are initiatives  designed to ensure that no minerals in the smelter or refiner supply chains  have contributed to conflict through an independent audit process, and  ultimately, the aim of these programs is to enable downstream companies  to source conflict-free minerals. According to company and industry  association representatives, the smelter or refiner represents the “choke- point” in the conflict minerals supply chain—meaning that after minerals are  processed by the smelter or refiner, the origin of these minerals cannot be  verified. According to GeSI, EICC, and LBMA representatives, companies  that can trace their conflict minerals supply chains back to smelters or  refiners certified through these programs can claim that the minerals in  their products are conflict-free, which may help covered companies and  their suppliers comply with the anticipated rule.
Finally, in-region sourcing initiatives that rely on chain-of-custody systems  may help covered companies responsibly source conflict minerals from  Central Africa. For example, to support the responsible sourcing of tin,  tantalum, and tungsten from Central Africa, ITRI, a tin industry association,  developed the ITRI Tin Supply Chain Initiative (iTSCi). The initiative is  currently operating in Katanga—a province in southern DRC—and  Rwanda, and through iTSCi ITRI and its partners created a physical chain- of-custody system for tracking and monitoring minerals from the mine to the  smelter. Figure 5 shows the particular segments of the conflict minerals  supply chains that specific stakeholder-developed initiatives support to  ensure that the minerals are conflict-free (see app. II for more details  concerning each initiative). According to ITRI and NGO representatives,  iTSCi is a traceability and due diligence program that creates auditable and  verifiable chains of custody for tin, tantalum, and tungsten through the (1)  tagging of bagged materials and the collection of tagging data and (2)  regular incident reporting and the continuous monitoring of mines and  companies participating in the program. iTSCi’s traceability and due  diligence program results in mineral chain-of-custody information that  covered companies and their suppliers may use to meet due diligence  requirements; smelters may also use the information in their efforts to  comply with the Conflict-Free Smelter Program.
Some stakeholders’ efforts to improve their initiatives through expansion  and harmonization have been hindered by the uncertainty regarding  potential due diligence and disclosure requirements stemming from  SEC’s delay in issuing a final rule. For example, while 12 of the  approximately 25 tantalum smelting companies world-wide have been  certified as conflict-free through the Conflict-Free Smelter Program to  date (see fig. 6), company representatives said GeSI and the EICC are  facing challenges engaging tin and tungsten smelters in the absence of a  final rule.
According to company representatives, GeSI and EICC representatives  are finding it difficult to convince Asian—particularly Chinese—smelters to  participate in the program because the electronics industry has limited  leverage over Chinese smelters in the absence of a final SEC rule. In  addition, according to one EICC member company representative,  Chinese smelters and the Chinese government are not concerned with  improving the transparency of supply chains in the absence of any  business incentives. The limited participation by Chinese smelters may  affect the scalability of the Conflict-Free Smelter Program as Chinese  smelters processed an estimated 43 to 48 percent of the global tin supply  between 2006 and 2009, and Chinese companies mined and processed  an estimated 77 to 84 percent of the global tungsten supply between  2006 and 2009. To address this issue, GeSI and the EICC are working  with representatives from other industries that use more tin and tungsten  to expand GeSI and the EICC’s leverage over and outreach efforts to tin  and tungsten smelters. In addition, according to company  representatives, the issuance of SEC’s final rule may provide business  incentives to Chinese smelters. Specifically, the issuance of a final SEC  rule may result in covered companies’ widespread demand for conflict  mineral sourcing information from their suppliers, and the leverage  applied by all impacted covered companies may create the necessary  business incentives for Chinese and other foreign companies to  participate in initiatives such as the Conflict-Free Smelter Program.
Some stakeholders have discussed efforts to harmonize their initiatives to  further improve them, but some of these efforts have been hindered by the  absence of SEC’s final rule. For example, according to an industry  association representative, iTSCi may experience difficulty attracting  additional customers, such as smelters, and expanding the initiative until  it is successfully harmonized with the Conflict-Free Smelter Program.  Although GeSI, EICC, and ITRI representatives said their organizations  are working together to harmonize the documentation and audit systems  for the Conflict-Free Smelter Program and iTSCi, the absence of a final  rule has hindered discussions to harmonize the two initiatives. As of June  2012, only one smelter purchased tin through the program, four smelters  purchased tantalum, and no smelters purchased tungsten. While ITRI and  its partners intend to expand iTSCi into eastern DRC, without additional  customers and the resulting funding from customers, it may be  challenging to implement this expansion. In addition, according to an  industry association representative, the unstable security situation in  eastern DRC contributes to ITRI and its partners’ delay in expanding  iTSCi to the region.Smelter Program are allowed to accept conflict-free minerals from the  DRC, an ITRI representative said that some smelters have been unwilling  to purchase minerals through iTSCi’s traceability and due diligence  program, because the initiative has not been harmonized with the  Conflict-Free Smelter Program. iTSCi is closely aligned with the OECD  Due Diligence Guidance and supports continuous trading and the  implementation of risk mitigation efforts when certain risks at a supplier’s  mine site are identified through the program. However, the Conflict-Free  Smelter Program may require smelters to disengage from that supplier if  the same risks are identified at the mine site, because according to GeSI  and EICC representatives, the program’s requirements were developed to  be consistent with section 1502(b) of the Dodd-Frank Act. In particular,  section 1502(b) of the Act does not discuss mitigation efforts, while the  OECD Due Diligence Guidance endorses implementation of risk  mitigation efforts for certain risks. In the absence of SEC’s final rule, it is  unclear if the initiatives, which were developed to meet different  requirements, can or will be successfully harmonized.
section_title: Little Additional Information on the Rate of Sexual Violence in Eastern DRC and Neighboring Countries Has Become Available since GAO’s 2011 Report
paragraphs: Since our 2011 report, one population-based survey has been conducted  in Rwanda, while none have been conducted in eastern DRC, Uganda, or  Burundi. Also, we found some additional case file data available on  sexual violence for these areas; however, as we reported in 2011, case  file data on sexual violence are not suitable for estimating a rate of sexual  violence.
subsections: section_title: Since Our 2011 Report, One Population-Based Survey Has Been Conducted in Rwanda and None in Eastern DRC, Uganda, or Burundi
paragraphs: In our 2011 report on sexual violence, we found five population-based  surveys that provided data on the rate of sexual violence in eastern DRC  and Uganda. During our current review, we identified one new population- based survey—a 2010 Demographic and Health Survey (DHS) conducted  in Rwanda that estimates that 22 percent of women ages 15 to 49 have  experienced sexual violence in that country in their lifetimes. Table 3  provides further details on these six surveys.
We found no new survey data on sexual violence in eastern DRC. The  authors of the McGill study, a population-based survey conducted in  eastern DRC that was highlighted in our 2011 report, have no plans to  conduct a follow-up survey. McGill’s 2010 report was intended to serve as  a baseline study, but a lack of funding has prevented another round of data  collection.
Other organizations have plans to conduct population-based surveys in  eastern DRC. Researchers at ICF International told us that the next DHS  survey in DRC is expected to launch in 2012 with preliminary findings  expected at the end of the year; the researchers project that the final  report will be issued sometime in 2013. In our 2011 report, we also  discussed a population-based survey conducted in eastern DRC in 2008  by researchers at the University of California, Berkeley; those researchers  are now at the Harvard Humanitarian Initiative and are conducting a  follow-up survey. The results from the follow-up survey, however, will not  be available until November 2012.
section_title: Some Additional Case File Data Has Become Available on Sexual Violence since GAO’s 2011 Report
paragraphs: Following up on our 2011 report, we asked the United Nations Population  Fund, the International Rescue Committee, and other organizations if  they had any updated case file data, but representatives from the United  Nations Population Fund reported that no new case file data were  available and we received no response from the International Rescue  Committee. Our 2011 report also referenced case file data from the 2010  Report of the Secretary-General on the implementation of Security  Council resolutions 1820 and 1888, as well as State’s 2009 and 2010  Human Rights Reports. In a 2012 Report of the Secretary-General that  included an update on the implementation of Security Council resolutions  1820 and 1888, it was reported that, between December 2010 and  November 2011, 625 sexual violence assaults committed by armed  groups were documented in eastern DRC. Further, from October 2010 to  August 2011, the report notes that 9,534 sexual violence victims in  eastern DRC received medical and psychosocial assistance; however, as  the report acknowledges, the number of assisted victims does not  represent the number of new sexual violence cases during the reporting  period. In addition, the 2011 Department of State Human Rights Reports  found the following:  In DRC, between January 2010 and September 2011, the United  Nations Children’s Fund reported that approximately 21,395 sexual  violence victims received medical care, of which 12,829 were in  eastern DRC.
In Rwanda, 1,056 cases of adult rape were reported in 2010; the  police reported that they investigated 287 cases. Of those 1,056  cases, 433 were filed in courts, 201 were dropped and 422 were  pending investigation.
In Uganda, 709 cases of rape were reported in 2010 of which 252  were tried. In November 2010, the United Nations Population Fund  reported that 24 percent of women said their first sexual encounter  was violent.
In Burundi, 3,781 cases of gender-based violence were reported in  2010. In addition, according to the United Nations Children’s Fund,  approximately 60 percent of reported rapes were of children under age  18 and 20 percent of reported rapes were of children under age 12.
Also, the International Medical Corps reported that in 2011 it provided  medical and psychosocial counseling at 60 health clinics in North and  South Kivu to 1,200 sexual violence victims. As we reported in 2011, case  file data on sexual violence are not suitable for estimating a rate of sexual  violence.
section_title: Conclusions
paragraphs: As part of U.S. efforts to address sexual violence and other human rights  abuses perpetrated by armed groups in the DRC, Congress enacted and  the President signed into law legislation requiring that SEC issue a  conflict minerals disclosure rule, which would require covered companies  to disclose whether necessary conflict minerals used in their products  originated in the DRC or an adjoining country and, if they did, to provide  an additional report with certain disclosures. SEC has taken some  important steps in its effort to issue a rule, including issuing a proposed  rule that generated a large volume of public comments. However, SEC  has not yet finalized and issued a rule as stipulated in the Act, largely due  to the time and effort required for the Commission to understand the  complexities of the four conflict minerals’ supply chains, review the large  volume of comment letters, and hold the numerous meetings requested  by stakeholders.
The continued delay in issuing a final rule, however, has contributed to a  lingering uncertainty among industry and other stakeholders who expect  their actions to be guided by a final rule. Some of these industry and other  stakeholders have engaged in the development of various initiatives that  they hope may help covered companies comply with the anticipated rule,  in part by helping foreign and domestic suppliers of those covered  companies trace minerals in their supply chains. Without a final rule, it is  unclear to what extent the initiatives currently being developed or  implemented by industry and other stakeholders will achieve results  consistent with those anticipated under the conflict minerals legislation.  Moreover, in part because of the delay in the rule’s issuance, many  companies across the tin, tantalum, tungsten, and gold supply chains are  reluctant to participate in or support the global and in-region initiatives  currently being developed or implemented because they are uncertain  whether or not the initiatives will align with the anticipated rule.
section_title: Recommendation for Executive Action
paragraphs: To address the delay and uncertainty in finalizing a conflict minerals  disclosure rule regarding what covered companies will be required to do,  we recommend that the Chairman of SEC identify the remaining steps it  needs to take and the associated time frames to finalize and issue such a  conflict minerals disclosure rule.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to SEC, State, Department of Defense,  and USAID, for their review and comment. We received written comments  from SEC that are reprinted in appendix III. While SEC neither agreed nor  disagreed with our recommendation, in its comment letter, SEC said that  it would continue its endeavor to complete the rule making expeditiously  to provide certainty. It noted that, having issued a proposed rule, the  required steps for adopting a final rule are determined by the majority of  the Commission’s five members, whose deliberations are subject to the  requirements of the Government in the Sunshine Act. On July 2, 2012,  SEC announced, on its website, that the conflict minerals disclosure rule  would be on the agenda for consideration at the Commission’s “Sunshine  Act meeting” scheduled for August 22, 2012. SEC and State also  provided technical comments, which we incorporated in this report as  appropriate. The Department of Defense and USAID had no comments  on this report. We also provided relevant portions of the draft of this report  to relevant external stakeholders for their technical comments. We  received technical comments from these stakeholders, which we  incorporated throughout this report as appropriate. In addition, based on  the technical comments we received from agencies and external  stakeholders, we revised the title of our draft report to better capture the  most recent developments.
We are sending copies of this report to interested congressional  committees. In addition, this report is available at no charge on GAO’s  website at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-8980 or courtsm@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To examine the steps the Securities and Exchange Commission (SEC)  has taken to issue a conflict minerals disclosure rule, we reviewed  Section 1502(b) of the Dodd-Frank Wall Street Reform and Consumer  Protection Act (Pub. L. No. 111-203), SEC’s proposed rule, comment  letters regarding the rule submitted to and posted by SEC to its website,  and other documents from SEC. In addition, we interviewed officials from  SEC working on the rule and attended a public roundtable in October  2011, which was convened by SEC to discuss the proposed rule. To  understand the role of the Department of State (State) in supporting  SEC’s efforts to develop the rule, we interviewed officials from SEC and  State.
To identify and examine initiatives developed by industry, multilateral  organizations, and other stakeholders that may help covered companies  comply with the anticipated SEC rule, we reviewed documents from State  and the United States Agency for International Development (USAID),  such as press releases and a presentation; reports issued by the United  Nations Group of Experts on the Democratic Republic of the Congo  (UNGoE); guidance documents and reports from the Organisation for  Economic Co-operation and Development (OECD); and guidance  documents, reports, and presentations from the International Conference  on the Great Lakes Region (ICGLR). We also reviewed numerous  documents and reports by industry associations, companies,  nongovernmental agencies (NGOs), and consulting firms.
Throughout the course of our review, we met and corresponded with over  40 U.S. and foreign government officials and other representatives,  including representatives from ICGLR and several NGOs, to discuss the  actions relevant stakeholders have taken to develop and implement  initiatives that may help covered companies comply with the anticipated  rule. Specifically, we met with officials from State, USAID, the United  Kingdom Foreign and Commonwealth Office, the European Union, and the  German Federal Institute for Geosciences and Natural Resources (BGR).  We also interviewed and corresponded with representatives from 4  multilateral organizations; 11 industry associations, including  manufacturing, electronic, automotive, gold, and jewelry industry  associations; 10 companies, including component parts manufacturers and  original equipment manufacturers from various industries; 5 smelters,  including companies processing tin, tantalum, and tungsten, and 1 gold  refiner; 4 NGOs; 3 consulting firms; and 1 gold industry expert. To help  gather information for the review, we traveled to the United Kingdom,  France, Belgium, and Germany to interview representatives from the  OECD Secretariat, foreign government officials, and representatives from  foreign companies—including smelters, industry associations, and  consulting firms. Where company names were used in the report, we  obtained permission from said companies.
In response to a requirement in the Dodd-Frank Wall Street Reform and  Consumer Protection Act that GAO submit an annual report that assesses  the rate of sexual violence in war-torn areas of the Democratic Republic of  the Congo (DRC) and adjoining countries, we identified and assessed any  additional information available on sexual violence in war-torn eastern  DRC, as well as three neighboring countries that border eastern DRC— Rwanda, Uganda, and Burundi—since our 2011 report on sexual violence  in these areas. During the course of our review, we interviewed officials  from State, USAID, and the Department of Defense and interviewed NGO  representatives and researchers to discuss the collection of sexual  violence-related data—including population-based surveys and case file  data—in the DRC and adjoining countries. Specifically, we followed up with  researchers and representatives from those groups we interviewed for our  prior review on sexual violence rates in eastern DRC and neighboring  countries, including a researcher from the Department of Defense (Office of  the Assistant Secretary of Defense for Health Affairs), officials from the  United Nations Population Fund, representatives from the International  Rescue Committee and the Harvard Humanitarian Initiative, and others. In  addition, we interviewed representatives from the International Medical  Corps for this review, a group with which we had not previously met. We  also conducted thorough Internet literature searches to identify new  academic articles containing any additional data on sexual violence.
We conducted this performance audit from August 2011 to July 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Descriptions of Global and In- Region Sourcing Initiatives
paragraphs: Various stakeholders have developed and implemented initiatives that  may help covered companies and their suppliers comply with SEC’s  anticipated conflict minerals disclosure rule. Some of these initiatives can  be characterized as global because they may support covered  companies’ efforts to identify the source of their conflict minerals across  conflict minerals supply chains around the world. Other initiatives can be  described as in-region sourcing initiatives because they may support  responsible sourcing of conflict minerals from Central Africa and the  identification of those minerals’ specific mines of origin.
subsections: section_title: Global Initiatives
subsections: section_title: OECD Due Diligence Guidance
paragraphs: In consultation with a multi-stakeholder workgroup, OECD developed the  OECD Due Diligence Guidance for Responsible Supply Chains of  Minerals from Conflict-Affected and High-Risk Areas (hereafter referred to  as OECD Due Diligence Guidance) to promote accountability and  transparency in conflict minerals supply chains. In July 2009, prior to the  passage of the Dodd-Frank Act, Leaders of the Group of 8 (G-8)  reaffirmed their commitment to the implementation of initiatives that help  reduce conflict that is fuelled by revenues from natural resources;  supported the ICGLR’s efforts to address illegal exploitation of natural  resources; and encouraged the OECD and other multilateral  organizations to work with the ICGLR to further develop practical  guidance for businesses operating in countries with weak governance. In  response, OECD began consulting with various stakeholders in  December 2009 to learn about conflict minerals supply chains, and in  April 2010, OECD created a multi-stakeholder workgroup—consisting of  representatives from the UNGoE, ICGLR, NGOs, companies, industry  associations, and others—to develop due diligence guidance. The  workgroup endorsed the draft OECD Due Diligence guidance in  November 2010 and OECD formally adopted it as an OECD Council  Recommendation in May 2011. Several organizations, including some  industry associations and companies, and individuals have submitted  letters to SEC recommending that SEC’s final rule suggest the use of the  OECD Due Diligence Guidance. In addition, in December 2010 the heads  of states from the 11 member countries of the ICGLR endorsed the  OECD Due Diligence Guidance and called upon companies sourcing  minerals from the Great Lakes Region to comply with the guidance; in  July 2011 State endorsed the framework set forth in the guidance and  encouraged companies within the conflict minerals supply chains to  exercise due diligence in accordance with the framework; and an UNGoE  report noted that in September 2011 the DRC Ministry of Mines issued a  law requiring all mining operators in the country to comply with the  guidance. Moreover, various stakeholders have shown their support for  the OECD Due Diligence Guidance by aligning their own global and in- region sourcing initiatives with it.
The OECD Due Diligence Guidance and the corresponding supplements  provide detailed guidance for companies operating in and sourcing  minerals from conflict areas. For example, steps two and three of OECD’s  Five-Step Framework call for the implementation of a strategy to identify  risks and support the development of risk mitigation efforts to respond to  risk, when appropriate. The guidance allows a company to continue  trading with suppliers during the implementation of risk mitigation efforts.  In addition to the basic five-step framework, OECD developed two  supplements—the Supplement on Tin, Tantalum and Tungsten and the  Supplement on Gold—to provide companies with specific guidance  relevant to the conflict minerals supply chains.
To increase awareness of and to develop emerging practices for  implementing the OECD Due Diligence Guidance and the Supplement on  Tin, Tantalum, and Tungsten, OECD is conducting an implementation  pilot project. The project began in May 2011 and includes companies  spanning the entire supply chain from the mine site to the original  equipment manufacturers that use some of the derivatives of conflict  minerals in the products they sell. Approximately 100 companies— including mining companies, traders, smelting companies, component  manufacturers, product manufacturers, original equipment manufacturers,  and industry associations—are voluntarily participating in the pilot project.  Participating companies are completing surveys to report on their  progress and any challenges faced while implementing the OECD Due  Diligence Guidance. According to representatives from the OECD  Secretariat and representatives from two consulting firms, at the end of  the project emerging practices will be identified to assist companies in  implementing the OECD Due Diligence Guidance. OECD launched a  similar implementation pilot project for the Supplement on Gold in May  2012.
The first two phases of the implementation pilot project have  demonstrated positive developments in participants’ efforts to implement  the OECD Due Diligence Guidance. For example, recently, mining  cooperatives, local traders, and other groups involved in mining activities  in the DRC have started collaborating with civil society to create SAVE  ACT MINE/DRC, a non-profit organization that aims to increase  understanding of the OECD Due Diligence Guidance by translating the  guidance into local languages and by hosting workshops. One  representative from the OECD Secretariat opined that, although this is  still a nascent effort, SAVE ACT MINE/DRC represents a significant  development because the private sector in the DRC has begun to  recognize that they are responsible for their supply chains and should  take ownership over the implementation of international standards. In  addition, some original equipment manufacturers participating in the  project are putting pressure on other companies within their own conflict  minerals supply chains to implement due diligence standards through  contractual clauses, which will support the companies’ efforts to collect  sourcing information from suppliers.
United Nations Security Council (UNSC) resolution 1896 (2009) called on  UNGoE to provide recommendations for due diligence guidelines for  importers, processors, and consumers of minerals originating from the  DRC. UNGoE participated in the OECD Due Diligence Guidance multi- stakeholder workgroup, and in a November 2010 report provided a  recommendation to the UNSC that companies adopt the five-step  framework for detailed due diligence that the OECD workgroup  developed. UNSC resolution 1952 supported UNGoE’s due diligence  guidance recommendations; UNGoE’s recommended due diligence  guidelines are similar to and fully consistent with the OECD Due Diligence  Guidance. Individuals and entities may be subject to UN sanctions for not  applying the due diligence guidelines.
The Global e-Sustainability Initiative (GeSI) and the Electronic Industry  Citizenship Coalition (EICC) have co-developed the Conflict-Free Smelter  Program to verify the sources of conflict minerals processed by smelters  and refiners. The aim of this program is to enable companies—both  covered companies and their suppliers—to source conflict-free minerals.  Companies that can trace their conflict minerals supply chains back to a  conflict-free smelter can claim the minerals in their products are   conflict-free.
The Conflict-Free Smelter Program is a voluntary program in which  smelters undergo an independent third party audit, in accordance with the  OECD Due Diligence Guidance, to verify the origin of minerals processed  at their facilities. GeSI and the EICC have also developed audit protocols  for the program in consultation with a number of stakeholders—including  NGOs, smelters, component manufacturers, original equipment  manufacturers, and industry associations within and outside the  electronics industry—to ensure wide-spread support for the program. In  December 2010, the first tantalum smelter was certified conflict-free  through the program after successfully completing an audit, and as of July  2012, 12 of approximately 25 tantalum smelting companies had been  certified as conflict-free. As of July 2012, two tin smelting companies had  been certified as conflict-free, five tungsten smelting companies had  begun discussions with representatives of the program, and five gold  refining companies had been certified as conflict-free through the  program.
Representing top gold mining companies, the World Gold Council (WGC)  is developing a global initiative to help support gold mining companies in  their efforts to responsibly mine gold worldwide. For this initiative, WGC is  creating the Conflict-Free Gold Standard, an assurance framework, and a  toolkit, with the input from mining companies, refiners, and other relevant  stakeholders. The Conflict-Free Gold Standard establishes a common  approach for gold mining companies to demonstrate that the gold they  extract does not fuel conflict or human rights abuses. The standard is  aligned with the OECD Due Diligence Guidance, and covers the industrial mining supply chain from the mine to the refiner. However, the  standard does not cover gold from recycled sources or gold mined by  artisanal miners. WGC is also developing an assurance framework, which  can be used by third-party auditors to monitor mining companies’  compliance with the standard, and tools to support mining companies  through the audit process. According to WGC representatives, WGC  plans to release the final standard, the assurance framework, and other  tools before the end of 2012. Although the standard only covers gold  mining companies, it may support certification programs at the refiner  level. For example, according to gold industry representatives, the  standard was developed with input from the London Bullion Market  Association (LBMA), and it will support the efforts of those refiners  purchasing gold from mining companies in compliance with the WGC  Conflict-Free Gold Standard to comply with the LBMA Responsible Gold  Guidance.
Distinct from WGC, whose standard covers the gold supply chain from  mine to refiner, the LBMA has developed its own Responsible Gold  Guidance to ensure that the gold refiners it accredits only purchase  conflict-free gold. In January 2012, LBMA finalized and published its  guidance, which is based on the OECD Due Diligence Guidance, and  plans to develop and finalize audit protocols and other tools for use with  the standard by July 2012. According to an LBMA representative, by  December 2013 LBMA gold refiners will need to comply with the LBMA  guidance and pass a third-party audit verifying their compliance to  maintain their accreditation. Similar to the Conflict-Free Smelter Program,  the goal of the LBMA initiative is to enable companies to say that the gold  in their products is conflict-free if they can trace their gold supply chains  to an LBMA accredited gold refiner (see fig. 7). According to industry  representatives, in May 2012 LBMA, GeSI, and the EICC began the  process to harmonize the two smelter and refiner certification programs to  avoid duplicative efforts and any unnecessary burden on refiners.
The Responsible Jewellery Council (RJC)—a diamond and precious  metals industry association—created a chain-of-custody certification  program in March 2012 to help its member companies identify and track  conflict-free gold throughout their supply chains. RJC designed a  certification standard and developed several tools for the program— including a certification handbook, guidance, and an assessment toolkit— in collaboration with industry associations, companies, NGOs, and  independent experts. According to RJC representatives, RJC began  developing the program in early 2010 to support responsible sourcing,  and after the passage of the Dodd-Frank Act, RJC incorporated  measures into the program to support covered companies’ compliance  with section 1502(b) of the Dodd-Frank Act. Conflict-free mined, recycled,  and grandfathered gold is tracked through the supply chain from mine to  end user with the use of RJC tracking records to ensure a proper chain of  custody is maintained. Participating RJC members must be  independently audited to be certified, in accordance with the OECD Due  Diligence Guidance, and RJC recognizes and accepts audits completed  under the GeSI and EICC Conflict-Free Smelter Program, as well as  WGC’s and LBMA’s initiatives.
Two factors may limit the efficacy of RJC’s chain-of-custody certification  program. First, certification under RJC’s program is voluntary and  companies may determine which parts of their business and which  materials they want to certify. Second, companies certified under RJC’s  program are not prevented from sourcing from mining entities outside the  program; gold purchased from a mine outside the program simply has to  be segregated from gold from certified suppliers. While some refiner  representatives report that segregation of gold in their facilities is difficult,  several gold refiners have been certified as conflict-free through the RJC  chain-of-custody certification program.
section_title: In-Region Sourcing Initiatives
subsections: section_title: ITRI Tin Supply Chain Initiative (iTSCi)
paragraphs: ITRI, an international tin industry association, began developing the ITRI  Tin Supply Chain Initiative (iTSCi) in 2008 to improve due diligence and  traceability within the tin, tantalum, and tungsten supply chains. ITRI  initially designed the initiative to support the responsible sourcing of tin  from Central Africa, but in 2010 ITRI began working with the Tantalum  Niobium International Study Center to include tantalum. At that time, the  initiative was also expanded to include tungsten. iTSCi has three  components: (1) a physical chain-of-custody system to track and monitor  minerals from the mine to the smelter; (2) independent third-party risk  assessments of mine sites, transport routes, and companies involved in  mining and transport to identify and manage conflict-related risks; and (3)  independent third-party audits of all participants in the initiative. iTSCi  helps companies comply with the OECD Due Diligence Guidance through  these three components. According to an industry association  representative, as of June 2012, iTSCi was being implemented at tin,  tantalum, and tungsten mine sites, including approximately 1500 mine  areas in the Katanga Province in the DRC and at approximately 400 mine  areas in Rwanda, and the programs in both countries support  approximately 45,000 artisanal miners.
Although iTSCi was started and overseen by ITRI, it was developed with  input from local and national officials in the DRC and Rwanda and it is  being implemented by local organizations and national officials in their  countries, with support from Pact, a NGO, and Channel Research, an  independent auditor. Pact manages the initiative’s field operations and  performs initial mine risk assessments; coordinates with DRC and  Rwandan government officials and local NGOs to implement the initiative  at mine sites; continuously monitors activities on the ground; and helps  train government officials to build their capacity. Channel Research is in  charge of conducting pre-audits, governance assessments, and company  audits of the companies participating in iTSCi.
Through audits, assessments, and continuous monitoring of the initiative,  ITRI and its partners identified a number of problems with current  operations. For example, ITRI representatives reported a number of  problems with the iTSCi system, including duplicate tags, tags appearing  in the wrong places, and bag weights increasing between check points in  the supply chain. ITRI began addressing these concerns in 2011 through  the development of an incident reporting template that staff are using to  record and report incidents. According to an iTSCi document, the new  protocol will ensure a timely and consistent identification and response to  incidents. According to an iTSCi report, incidents have been reported, but  at a low frequency in comparison to the amount of material bagged and  tagged.
According to BGR representatives, since 2008 the German government’s  Federal Institute for Geosciences and Natural Resources (BGR) and its  partners have helped build capacity within the DRC and Rwandan  governments through several initiatives, including a certified trading  chains program and the development of a national certification and  traceability system. BGR and its partners have developed and piloted the  certified trading chains program in eastern DRC and Rwanda to help the  governments formalize the artisanal mining sectors (see fig. 8). BGR and  its partners work with the host government and other stakeholders to  develop standards by which mines are independently assessed, and the  organization provides technical support for the host government to  implement the program. According to BGR representatives, BGR and its  partners are currently conducting a pilot program for the certification of  four mine sites in South Kivu, in eastern DRC. In Rwanda, three of the  five mine sites audited between November 2008 and June 2011 have  been certified through the program. BGR representatives noted that  they are planning to implement the certified trading changes program at  additional mine sites in North and South Kivu in 2012. However, they also  noted that the security situation in eastern DRC remains a challenge to  the implementation of initiatives in the region.
BGR and its partners have also been helping the DRC government  develop a national certification and traceability system for tin, tantalum,  tungsten, and gold since 2009; the certification system is based on the  certified trading chains project. As part of the governments’ efforts to  develop the system, BGR and its partners are working with  representatives from the DRC government and others to inspect mine  sites in eastern DRC. Specifically, the mine site validation missions are  joint missions supported by BGR and include representatives from the  local and national governments, civil society, industry, the United Nations  Organization Stabilization Mission in the Democratic Republic of the  Congo (MONUSCO), and ITRI. According to BGR officials, the goal is to  regularly monitor the security situation at the mine sites, as part of the  government’s efforts to map mining sites and armed group locations. In  June 2011 and August 2011, the mine site validation teams conducted  some mine site qualification reviews; however, the DRC government  published the results of the mine site qualification reviews over 8 months  after the mine site validation missions occurred, limiting the public’s  access to timely information concerning the security situation at the  mines.
According to BGR officials, BGR and its partners’ in-region sourcing  initiatives provide companies that purchase minerals through the program  with assurances that artisanal miners participating in the initiative produce  and trade minerals in accordance with accepted standards. BGR and its  partners provide these assurances by certifying mine sites and helping to  build the capacity of Congolese and Rwandan government officials. In  addition, the maps being developed by the DRC government, in  conjunction with BGR and other groups, may serve as a tool for  companies to determine the conflict status of a mine site when conducting  due diligence.
With technical support from several NGO partners, ICGLR designed a  regional chain-of-custody tracking system and standards to ensure that  conflict minerals are fully traceable from the mine site to the point of  export; however, the implementation of the system is only in the nascent  stages and is dependent on the actions of the participating national  governments. In December 2006, the heads of the 11 African states that  form the ICGLR signed the Pact on Security, Stability and Development in  the Great Lakes Region, which included the Protocol Against the Illegal  Exploitation of Natural Resources. In accordance with the protocol,  ICGLR member states agreed to put in place regional rules and  monitoring mechanisms for combating the illegal exploitation of natural  resources. To curb the financing of rebel groups through the illegal  exploitation of natural resources, ICGLR developed and approved six  tools for implementation in the Great Lakes Region. ICGLR worked with  Partnership Africa Canada to develop one of the tools, a regional  certification mechanism, which was approved by the ICGLR member  states in December 2010. ICGLR’s regional certification mechanism may  enable member countries and their mining companies to demonstrate  where and under what conditions minerals were produced; through the  regional certification mechanism, individual member governments are to  issue ICGLR regional certificates for those mineral shipments that are in  compliance with the standards of the mechanism.
Several partners support ICGLR and member countries’ efforts to  implement the mechanism. For example, one NGO is helping the ICGLR  develop a regional database, which would house data collected at the  mine site and at the point of export, to track mineral flows through the  region. At this time, the development of the databases and collection of  data is an ongoing process. In addition, the German International  Cooperation is consulting with ICGLR as it begins to set up a regional  audit committee, which will be responsible for accrediting third-party  auditors and overseeing the mechanism’s audit system. Partnership  Africa Canada and BGR are also supporting the national authorities in  Burundi with implementation of the regional certification mechanism.
According to a report by GeSI and the EICC and an ICGLR  representative, ICGLR member countries are expected to harmonize their  national legislation with the regional certification mechanism and develop  a national certification and traceability system prior to issuing ICGLR  regional certificates. According to an ICGLR representative, a report by  GeSI and the EICC, and a report by the International Peace Information  Service, the DRC government incorporated the ICGLR Regional  Certification Manual into the national legal framework in February 2012,  and Rwanda is expected to adopt similar legislation shortly. BGR’s and  ITRI’s initiatives support the implementation of the regional certification  mechanism at the national level, because all activities undertaken through  these initiatives are incorporated into the DRC and Rwandan national  efforts to develop national certification and traceability systems. As of  April 2012, none of the ICGLR member states had issued an ICGLR  regional certificate.
section_title: Appendix III: Comments from the Securities and Exchange Commission
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Godwin Agbara, Assistant  Director; Ian Ferguson; Amanda Bartine; Justin Fisher; Ernie Jackson;  Debbie Chung; Debra Johnson; Fang He; Etana Finkler; and Jeremy  Sebest made key contributions to this report.