SEC Conflict Minerals Rule: Information on Responsible Sourcing and Companies Affected
Released: 2013-07-18T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: The eastern part of the DRC has experienced recurring conflicts involving armed groups that have resulted in severe human rights abuses. In addition, armed groups have profited from the exploitation of minerals. In 2010, Congress enacted Section 1502(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act to address the exploitation of conflict minerals, which include tin, tantalum, tungsten, and gold, and the extreme levels of violence in the DRC. As required by Section 1502(b), the SEC issued a rule in August 2012 that requires companies to disclose their use of conflict minerals and the origin of those minerals. The act requires GAO to report on the rule’s effectiveness, among other issues, beginning in 2012 and annually thereafter.

Initial company disclosure reports to SEC that would enable GAO to assess the effectiveness of the rule will not be due until May 2014. This report describes, among other issues, (1) factors that may impact whether SEC’s rule denies armed groups in the DRC benefits from conflict minerals and (2) information about companies that use conflict minerals and are not required to report to SEC under the rule.

GAO reviewed and analyzed documents and interviewed representatives from SEC, the Department of State, the U.S. Agency for International Development, industry associations, NGOs, consulting firms, and international organizations. GAO also analyzed smelter and refiner information. This report does not contain recommendations.

section_title: What GAO Found
paragraphs: Stakeholder-developed initiatives may facilitate companies' compliance with the Securities and Exchange Commission's (SEC) final conflict minerals rule, but other factors may affect the rule's impact on reducing benefits to armed groups in the Democratic Republic of the Congo (DRC) and neighboring countries. Agency and industry officials as well as representatives from international organizations and nongovernmental organizations (NGO) stated that adoption of the rule as well as stakeholder-developed initiatives--which include the development of guidance documents, audit protocols, and in-region sourcing of conflict minerals--can support companies' efforts to conduct due diligence and to identify and responsibly source conflict minerals. For example, officials GAO interviewed explained that the Conflict-Free Smelter Program enables suppliers to source conflict minerals from smelters (companies that refine the ore of the conflict minerals into metals) that have been certified by an independent third-party auditor as obtaining their minerals from sources that did not benefit armed groups. However, officials GAO interviewed cited constraining factors such as lack of security, lack of infrastructure, and lack of capacity in the DRC that could affect the ability to expand on efforts to achieve conflict-free sourcing of minerals from eastern DRC and thereby potentially contribute to armed groups' benefiting from the conflict minerals trade. For example, officials GAO interviewed noted that there is a lack of infrastructure in place that would enable companies to set up or expand operations in the DRC. Limited transportation and poor roads in eastern DRC also make it difficult to get to mine sites. Moreover, according to officials, the remoteness of mines also makes it difficult for DRC officials to validate mines and ensure that the mines have not been compromised by illegal armed groups.

Companies that are not required to file disclosures under SEC's conflict minerals rule may be affected by the rule. These companies may supply components or parts that contain conflict minerals to companies that report to SEC under the rule, many of which could be original equipment manufacturers and component parts manufacturers. Estimates provided by public commentators responding to the rule indicate that roughly 280,000 suppliers could provide products to roughly 6,000 companies that report to the SEC under the rule and may be asked to provide information on their use of conflict minerals and the origin of the minerals as part of the rule's due diligence requirements. GAO found little available aggregated information about companies that do not report to SEC under the rule. However, GAO found that for smelters and refiners there is some aggregated information, such as the types of conflict minerals they use and their location. For example, GAO found that over half of the 278 smelters and refiners of conflict minerals it identified were located in Asia, many processed tin, and most did not have a conflict minerals policy publicly available.

section_title: Letter
paragraphs: The Democratic Republic of the Congo (DRC) has long been the site of  one of the world’s worst humanitarian crises. Since 1998, over 5.4 million  people have died as a result of the conflict which has also destabilized  the eastern part of the country, created insecurity, displaced people, and  perpetuated the cycle of poverty, according to estimates by the  International Rescue Committee. In 2010 we reported that illegal armed  groups, as well as some units of the Congolese national military, had  continued to commit severe human rights abuses, including mass  killings. In 2013 the United Nations (UN) reported continuing violence by  illegal armed groups, including violence by the group known as M23.  Sexual violence has also been a feature of the conflict in the DRC at least  since the Congolese civil war of the mid-1990s. The illegal armed groups  and units of the Congolese national military committing these atrocities  also profit from the illegal mining of minerals. In response to the  humanitarian situation in the DRC, Congress included in the Dodd-Frank  Wall Street Reform and Consumer Protection Act (hereafter referred to as  the Dodd-Frank Act, or the Act) provisions pertaining to the trade of DRC   Specifically, section  conflict minerals—tantalum, tin, tungsten, and gold.1502(a) of the Act states that “It is the sense of the Congress that the  exploitation and trade of conflict minerals originating in the  is  helping to finance conflict characterized by extreme levels of violence in  the eastern , particularly sexual- and gender-based violence, and  contributing to an emergency humanitarian situation therein.” Section  1502(b) of the Act required the Securities and Exchange Commission  (SEC) to issue a conflict minerals disclosure rule that requires issuers  with conflict minerals that are necessary to the functionality or production  of a product manufactured by such persons to file reports annually with  SEC to disclose whether any of those minerals originated in the DRC or  an adjoining country, and if so, to provide an additional report. In  response to section 1502 of the Act, SEC adopted the final conflict  minerals rule on August 22, 2012. The Act also required us to report,  beginning in 2012 and annually thereafter, on the effectiveness of the rule  in promoting peace and security in the DRC and adjoining countries; to  describe information that may be publicly available about entities that use  conflict minerals but are not required to report to SEC under the rule; and  report, annually beginning in 2011, on the rate of sexual violence in war- torn areas of the DRC and neighboring countries. To address the  mandate, in July 2011 we issued our first report on sexual violence and  in July 2012 we issued our second report, which focused on SEC’s  actions and stakeholder-developed initiatives involving conflict minerals  and updated information on the rate of sexual violence.

As in our 2012 report, we did not address the effectiveness of SEC’s  conflict minerals disclosure rule, as required under the legislation,  because the first disclosures of companies’ use of conflict minerals will  not be due to SEC until May 2014 and sufficient time must elapse to allow  the full impact of the rule to materialize. However, the effectiveness of the  rule in promoting peace and security in the DRC will depend in part on its  ability to limit funding by restricting the use of conflict minerals to illegal  armed groups in the region to which those groups have access. As a  result, this report describes (1) factors that may impact whether SEC’s  conflict minerals rule denies armed groups in the DRC and adjoining  countries benefits from conflict minerals; (2) available information about  entities that use conflict minerals and are not required to report to SEC  under the rule; and (3) any additional information available on the rate of  sexual violence in eastern DRC and neighboring countries since our 2012  report.

For our review, we selected smelters to interview based on the types of minerals the  smelters processed and their willingness to speak with us. We sought to speak with  officials of at least one smelter or refiner for each of the conflict minerals—tin, tantalum,  tungsten, and gold. refiners is believed to be nearly 500, worldwide. The number of gold  refiners could potentially be larger, considering that little equipment and  space is required to refine gold, and it can be refined at the mine site. The  278 smelters and refiners we were able to identify may not be  representative of others, and the information we report about these 278  cannot be generalized to other smelters and refiners of tin, tantalum,  tungsten, and gold. See appendix I for a complete description of our  scope and methodology.

We conducted this performance audit from November 2012 to July 2013  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: Conflict and Instability
paragraphs: The mineral-rich DRC, Africa’s second-largest country, has been plagued  by cycles of violence and instability. Since 1998, violent conflicts, poverty,  and disease have killed more than 5.4 million people in the country,  according to estimates by the International Rescue Committee. The DRC  was colonized as a personal possession of Belgian King Leopold II in  1885 and administered by the Belgian government starting in 1907. It  achieved independence from Belgium in 1960. For almost 30 years of the  post-independence period, the DRC, then known as Zaire, was ruled by  an authoritarian regime under Mobutu Sese Seko. Following the 1994  genocide in Rwanda and the establishment of a new government there,  some perpetrators of the genocide and refugees fled to the neighboring  Kivu provinces of eastern DRC. A rebellion began there in 1996, pitting  the forces led by Laurent Kabila against the army of President Mobutu  Sese Seko. Kabila’s forces, aided by Rwanda and Uganda, took the  capital city of Kinshasa in 1997 and renamed the country the Democratic  Republic of the Congo. See figure 1 for a map of the DRC’s provinces  and neighboring countries.

A period of civil war among rival rebel groups ensued. In 2001 Laurent  Kabila was assassinated and leadership shifted to his son Joseph Kabila,  while the civil war continued. Starting in 1999 the UN Security Council  authorized peacekeeping operations in the DRC which have been  operating as the United Nations Organization Stabilization Mission in the  Democratic Republic of the Congo (MONUSCO). Initially, the  operation’s focus was on the ceasefire and disengagement of forces and  maintenance of liaison with all parties involved with the civil war but then  expanded to include the effective protection of civilians, humanitarian  personnel and human rights defenders under imminent threat of physical  violence. The presence of illegal armed groups, such as M23, has  continued to be an issue that MONUSCO has monitored in recent years.  In November 2012, M23 occupied the city of Goma, a provincial capital in  eastern DRC in the North Kivu province, and other cities in eastern DRC  and clashed with the Congolese national army. During this time, the UN  reported cases of sexual violence perpetrated by armed groups and  members of the Congolese national army against women and children.  While M23 eventually withdrew from the cities, the group’s presence in  the region continues. In February 2013, the UN reported that eastern  DRC continues to be plagued by recurrent waves of conflict, chronic  humanitarian crises, and serious human rights violations, including sexual  and gender-based violence. The report added that contributing factors to  the cycles of violence have been the continuing presence of Congolese  and foreign armed groups taking advantage of security vacuums in the  eastern part of the country, the illegal exploitation of resources,  interference by neighboring countries, and the weak capacity of the  national army and police to effectively protect civilians and the national  territory and ensure law and order. In March 2013, the UN Secretary- General appointed a Special Envoy to the Great Lakes Region of Africa to  support the implementation of the 11-nation “Peace, Security and  Cooperation Framework for the Democratic Republic of the Congo and  the Region” adopted in February 2013. According to the UN, the  agreement seeks to end the recurring cycle of conflicts and crisis in the  eastern DRC and to build peace. Additionally, on March 28, 2013, the UN  Security Council authorized the deployment of an intervention brigade  within the current peacekeeping operations in DRC to address imminent  threats to peace and security. The objectives of the new force based in  North Kivu province are to neutralize armed groups, reduce the threat  they pose to state authority and civilian security, and make space for  stabilization activities.

section_title: U.S. Government Response to Situation in the DRC
paragraphs: Congress has focused on issues related to the DRC for almost a decade.  In 2006, Congress passed the Democratic Republic of Congo Relief,  Security, and Democracy Promotion Act of 2006. The act stated that it is  the policy of the United States, among other things, to engage with  governments working for peace and security throughout the DRC and  hold accountable individuals, entities, and countries working to destabilize  the government. In July 2010, Congress included several provisions in  section 1502 of the Dodd-Frank Act related to conflict minerals in the  DRC and adjoining countries. Specifically, section 1502(a) of the Act  states that “it is the sense of Congress that the exploitation and trade of  conflict minerals originating in the  is helping to finance conflict  characterized by extreme levels of violence in the eastern Democratic  Republic of the Congo, particularly sexual- and gender-based violence,  and contributing to an emergency humanitarian situation therein,”  warranting the provisions of Section 1502(b) of the Act. Section 1502(b)  requires SEC, in consultation with State, to promulgate disclosure and  reporting regulations regarding the use of conflict minerals from the DRC  and adjoining countries. 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  responsible supply chain solutions regarding conflict minerals from the  DRC and neighboring countries. The PPA supports pilot programs, with  the ultimate goal of producing scalable, self-sustaining systems, to  demonstrate a fully traced and validated conflict-mineral supply chain in a  way that is credible to companies, civil society, and government.  According to USAID, in addition to the PPA, the U.S. government’s  contribution to the Responsible Minerals Trade Program in the DRC  region has amounted to almost $19 million and includes activities focused  on the protection of artisanal mining communities, institutional and human  capacity building for responsible minerals trade, and capacity building in  mining sector security, among other issues.

section_title: SEC’s Final Conflict Minerals Rule
paragraphs: The SEC Commissioners adopted the final conflict minerals rule on  August 22, 2012, after a number of delays during the drafting process.  SEC reported that during its rule-making process it received more than  400 letters commenting on the draft rule. As adopted, the final rule  applies to any issuer that files reports with SEC under Section 13(a) or  Section 15(d) of the Securities Exchange Act of 1934 (Securities  Exchange Act) and uses conflict minerals that are necessary to the  functionality or production of a product manufactured or contracted by  that issuer to be manufactured. According to SEC, issuers that have a  reporting obligation are domestic and foreign companies that offer shares  publicly and file forms 10-K, 20-F, or 40-F with SEC. For the purposes of  our report, we refer to those issuing companies affected by the rule as  “SEC-reporting companies under the rule.” (See app. II for more  information on the steps a company needs to take to fulfill its reporting  requirements.) Under the rule, such companies must file a disclosure  report and conduct a “reasonable country of origin inquiry” to determine   Companies that  whether they must also file a conflict minerals report.are required to file a conflict minerals report must exercise due diligence  on the source and chain of custody of their conflict minerals. The due  diligence measures used by companies must conform to a nationally or  internationally recognized due diligence framework, such as the due  diligence guidance approved by OECD. If a company determines that its  products are “DRC conflict-free” because they may have originated from  the covered countries but did not finance or benefit armed groups, then  the company must obtain an independent private sector audit and provide  certification that it conducted an audit. If a company’s products have not  been found to be “DRC conflict-free,” then the company must provide  additional information in its conflict minerals report. For a temporary  period—4 years for smaller reporting companies or 2 years for all other  reporting companies—if a company is unable to determine whether the  minerals in its products originated in the DRC or the adjoining countries or  financed or benefited armed groups in those countries, then those  products are considered “DRC conflict undeterminable” and no audit is   Under the rule, all companies will need to file their first  required.disclosure report to SEC on May 31, 2014, which covers the 2013  calendar year, and on May 31 annually thereafter. Figure 2 shows the  reporting time frames for SEC-reporting companies under the rule.

In October 2012, the U.S. Chamber of Commerce, the National  Association of Manufacturers, and the Business Roundtable filed a  lawsuit against SEC regarding the final conflict minerals rule. In their  petition, the two industry associations asked that the rule “be modified or  set aside in whole or in part.” The petitioners have asked the court to  review, among other things, whether SEC’s economic analysis is  inadequate and whether SEC’s interpretations of certain key terms in  section 1502 of the Act are consistent with congressional intent.

section_title: Conflict Minerals Description and Supply Chain
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  predominantly mined in China, Indonesia, Peru, and Bolivia, as well as in  the DRC, while tantalum is reportedly predominantly mined in areas such  as Australia, Brazil, and Canada. From 2006 through 2011, the majority of  tungsten production—reportedly 77 to 87 percent of global production— was mined in China. Gold, however, 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  12 percent of the global tantalum supply and less than 1 percent of the  global tungsten supply was mined in the DRC in 2011. About 3 percent of  the global tin supply, and less than 1 percent of the global gold supply,  was mined in the DRC in 2010. As we reported in our 2012 report,  various industries, particularly in manufacturing, use these minerals in a  wide variety of products and in varying amounts. For example, many  industries use tin in the form of tin solder, which is used to join metal  pieces together.in 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 electronic products such as cell phones   According to company representatives, tin is also found  and computers.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.

Tungsten is used in automobile manufacturing, drill bits  A company’s supply chain for products containing tin, tantalum, tungsten,  and gold can be complex and can vary considerably in the way it  operates, according to industry association and company representatives.  Generally, however, the supply chain for companies using conflict  minerals begins at the mine site, where tin, tantalum, and tungsten ore  are extracted from the ground using mechanized or artisanal mining  techniques. supply chain for all four conflict minerals.

section_title: Stakeholder- Developed Initiatives May Facilitate Compliance with Conflict Minerals Rule, but Other Factors May Affect the Rule’s Impact on Reducing Benefits to Armed Groups
paragraphs: SEC’s adoption of the final conflict minerals rule on August 22, 2012, has  raised companies’ awareness regarding conflict minerals and the due  diligence necessary to identify whether conflict minerals may have  benefited armed groups. Specifically, officials representing industry  associations stated that the final conflict minerals rule has acted as an  impetus for some of their members to start thinking about whether the  rule impacts them and some have also started collecting information to  comply with the rule. Officials stated that stakeholder-developed  initiatives, such as in-region and global sourcing initiatives, may increase  companies’ assurance that conflict minerals they are using are not  benefiting armed groups in the DRC and neighboring countries. However,  constraining factors such as the lack of security, lack of infrastructure,  and capacity constraints could undermine companies’ ability to ensure  conflict-free sourcing from the region.
subsections: section_title: Adoption of the Final Rule Has Raised Companies’ Awareness Regarding Sourcing of Conflict Minerals
paragraphs: Since SEC issued the final conflict minerals rule pursuant to the Dodd  Frank Act, companies have become more aware of the issues  surrounding conflict minerals and have started to consider the source of  materials used in products, given the requirement in the final rule for a  company that uses tin, tantalum, tungsten, or gold to exercise due  diligence on the source and chain of custody of its conflict minerals, if  there is reason to believe that they may have originated in the DRC or an  adjoining country. According to some industry officials we interviewed,  the final rule has helped resolve some uncertainties, such as the breadth  of the industries covered, that existed before the promulgation of the rule.  Numerous industry officials and representatives from international  organizations and NGOs we interviewed have indicated that the creation  and promulgation of the SEC rule has increased visibility into the issue of  conflict minerals and raised awareness of the due diligence process,  particularly for those companies that are not required to report under the   Specifically,  rule but that may still be impacted indirectly by the rule.officials of industry associations representing member companies that  use tin, tantalum, tungsten, or gold in their products stated that many  companies are aware of the SEC rule, especially the larger companies  that may file a disclosure report with SEC, and are working to start  complying with the rule. Some smaller companies, which may not be  required to report under the rule, may not be as aware of or familiar with  the rule but are receiving information from industry associations on how  the rule may impact them. For example, some officials from industry  associations stated that they were putting together guidance documents  that break down the SEC rule and had also sent questions to SEC  seeking to clarify points in the rule. Agency officials stated that the SEC  rule has raised visibility globally of conflict minerals. For example, State  reported in February 2013 that the issuance of the SEC rule was a vital  step in establishing a clear and harmonized global framework for  responsible minerals trade from the DRC region. Furthermore, State  indicated that the SEC rule has also shaped and influenced initiatives to  create a conflict-free supply chain by the International Conference of the  Great Lakes Region (ICGLR) and the governments of the DRC and  Rwanda. We provide a more detailed discussion later in this report on the  ways in which companies required to report under the rule, in order to  comply, are interacting with companies not required to report under the  rule.

section_title: Stakeholder-Developed Initiatives May Increase Companies’ Assurance That Conflict Minerals They Use Are Not Benefiting DRC Armed Groups
subsections: section_title: Stakeholder-Developed Initiatives May Aid Companies’ Due Diligence Efforts
paragraphs: Some agency officials we interviewed stated that stakeholder-developed  initiatives focused on sourcing of minerals may enhance companies’  ability to achieve the SEC rule’s desired outcome of denying armed  groups in the DRC benefits from conflict minerals. As mentioned in our  2012 report, stakeholder-developed initiatives—which include the  development of guidance documents, audit protocols, and in-region  sourcing—support efforts by companies reporting to SEC under the rule  to (1) conduct due diligence of their conflict minerals supply chain, (2)  identify the source of conflict minerals within their supply chain, and (3)  responsibly source conflict minerals. These initiatives can be classified as  in-region or global, and some are now being expanded.

In-region sourcing initiatives, as we reported in 2012, may support  responsible sourcing of conflict minerals from Central Africa and the  identification of specific mines of origin for those minerals. Regional  sourcing initiatives in the DRC and neighboring countries focus on tracing  minerals from the mine to the mineral smelter or refiner by supporting a  bagging and tagging program or some type of traceability scheme.  Examples of such initiatives include the ITRI Tin Supply Chain Initiative  (iTSCi) and the Conflict-Free Tin Initiative (CFTI). (See app. III for more  detailed information on these and selected other in-region sourcing  initiatives). The iTSCi initiative was developed by a tin industry  association known as ITRI. The initiative supports responsible sourcing of  tin, tantalum, and tungsten from Central Africa and was launched in  Rwanda in December 2010 and in the Katanga province of the DRC in  March 2011. iTSCi expanded its activities in the Maniema province of the  DRC in December 2012. We reported in 2012 that iTSCi is a traceability  and due diligence program that creates auditable and verifiable chains of  custody for tin, tantalum, and tungsten through (1) tagging and bagging of  materials and the collection of tagging data and (2) regular incident  reporting and continuous monitoring of mines and companies  participating in the program. In October 2012, the Dutch government, with  industry partners such as iTSCi, started the Conflict-Free Tin Initiative  focused on conflict-free tin sourcing from South Kivu in the DRC, a region  that is prone to insecurity and violence by illegal armed groups. This  initiative is a traceability and due diligence mechanism that brings  partners along the supply chain together, from mine to smelter to end- user. This also includes consumers as well as the DRC government and  civil society and uses the OECD due diligence guidance. According to  an implementer, the progress of the initiative will depend on how the  security situation in South Kivu develops.

While the in-region sourcing initiatives have focused on tin, tantalum, and  tungsten to date, one of the most recent in-region initiatives in the DRC is  through the Public-Private Alliance for Responsible Minerals Trade (PPA)  and is focused on a pilot gold traceability scheme. In fall of 2012,  Partnership Africa Canada began work on establishing an in-region gold  traceability project partially funded by PPA. According to information from  PPA, the project aims to create a traceable conflict-free mineral chain for  artisanal gold from the eastern DRC, in the Orientale province, thus  demonstrating the feasibility of creating artisanal gold chains with full  traceability from mine site to gold refiner.

According to industry and agency officials, in-region sourcing programs  can provide better economic incentive for miners to sell minerals that do  not benefit armed groups. For example, iTSCi reported in February 2013  that the tin initiative in South Kivu had led to a number of immediate  benefits for the local population, which depends on mining as its source of  income. Specifically, the price paid to the miners for conflict-free minerals  mined at the site had more than doubled. iTSCi further reported that the  additional income had allowed the mining cooperatives to invest in basic  equipment such as electricity generators and to improve productivity and  working conditions. Additionally, some agency officials stated that in- region initiatives can help develop capacity in the DRC.

We reported in 2012 that global sourcing initiatives may minimize the risk  of minerals that have been exploited by illegal armed groups from  entering the supply chain and support companies’ efforts to identify the  source of the conflict minerals across the supply chain around the world.  (See app. III for more detailed information on selected global sourcing  initiatives.) One such global initiative is the Conflict-Free Smelter  Program, co-developed by the Global e-Sustainability Initiative (GeSI)  and the Electronics Industry Citizenship Coalition (EICC). The Conflict- Free Smelter Program is a voluntary initiative in which an independent  third party audits smelters’ procurement activities—–among other  activities—–and determines if the smelters demonstrated that the  minerals they processed originated from conflict-free sources. Companies  that can trace their conflict minerals supply chain back to compliant  smelters or refiners can claim that the minerals in their products are from  a smelter whose processes reasonably assure conflict-free  production.

Industry experts we interviewed explained that if initiatives such as the  Conflict-Free Smelter Program can result in smelters refining minerals  that did not benefit armed groups, then companies can comply better with  the SEC rule requirements and have more confidence in their supply  chain sources. Specifically, one expert stated that companies that are  conducting due diligence under the rule would not have to audit the  smelter themselves, if the smelter has already been audited under the  Conflict-Free Smelter Program. Agency officials, both in Washington,  D.C., and in the DRC, reported that the Conflict Free Smelter Program  seems to be a positive initiative since the more smelters are certified as  conflict-free, the more beneficial this will be for companies reporting under  the SEC rule.

Overall, agency officials we interviewed stated that existing initiatives and  traceability schemes on the ground in the DRC and neighboring countries  have been yielding benefits of producing conflict-free minerals; however,  according to these officials, more progress could be made in the  responsible sourcing of conflict minerals from the region. Some industry  experts also indicated that while progress has been made and the  initiation or expansion of in-region sourcing initiatives is possible, factors  such as the ones described below remain a concern.

section_title: Lack of Security, Inadequate Infrastructure, and Capacity Constraints in the DRC Could Affect Companies’ Ability to Ensure Conflict-Free Sourcing of Minerals
paragraphs: Some agency officials as well as representatives we interviewed from  NGOs, industry, and international organizations cited lack of security,  inadequate infrastructure, and capacity constraints as factors that could  affect the ability to expand on efforts to achieve conflict-free sourcing of  minerals from the eastern DRC and thereby potentially contribute to  armed groups benefiting from the conflict minerals trade. We also cited  these same factors in our 2010 report and pointed out that these factors  posed challenges to tracking the mines of origin for minerals artisanally  mined in eastern DRC. While officials we spoke to for this report  discussed these factors in the context of the SEC rule, these factors are  pre-existing regional challenges that pre-date both the Dodd Frank Act  and the SEC conflict minerals rule.

Officials cited the lack of security, including weak governance, as a factor  that could impact responsible sourcing from the DRC. The UN reported  that the DRC government has been unable to exercise authority in  eastern DRC, which has become more evident as illegal armed groups  clashed in the Kivu provinces late in 2012. State also reported that lack of  security has prevented the export of conflict-free minerals from certain  areas in eastern DRC. Industry and NGO officials who work on the  ground in the DRC pointed out that the threat from illegal armed groups  poses a challenge to the conflict-free minerals initiatives operating in  eastern DRC and the neighboring provinces. Although the mining sites  are constantly monitored, the monitoring activities could be suspended at  any time as the security situation evolves. For example, an NGO reported  that tagging was suspended for days in July 2012 at an iTSCi site in the  Katanga province because of the movement of armed groups in the  vicinity of the mine sites; however, there were no reported cases of armed  groups successfully taking control of the sites or directly exploiting  minerals to fund activities.

In-region sourcing initiatives have operated in areas that have been  vetted by various stakeholders and have the support of government and  civil society actors. According to the UN Group of Experts on the  Democratic Republic of the Congo (UNGoE), the security situation at tin,  tantalum, and tungsten mining sites has improved and the trade of these  minerals has become a much less important source of financing for  armed groups. However, the UNGoE reported a “genuine risk that military  actors would move their rackets to mining activities that were not closely  supervised.” They further reported that the gold trade is linked to armed  groups and criminal networks in the Congolese armed forces. According  to the UNGoE, lack of security at gold mining sites throughout eastern  DRC remained widespread. Agency officials emphasized that armed  groups still existed in the DRC despite the initiatives in place and would  seek control of any significant revenue-producing activity in the region.

Some industry officials cited concerns about sourcing from the DRC, even  through the in-region sourcing initiatives, because of the potential impact  on brand reputation and financial risk. For example, a representative of a  smelter indicated that if the company purchased minerals from a mine  that is part of a traceability scheme that is deemed conflict-free but then  illegal armed groups infiltrated and compromised the mine in the future,  the company would not be able to say with certainty that the minerals it  had purchased were conflict-free.

Officials cited limited infrastructure as a factor that could affect the  creation or expansion of in-region sourcing initiatives. Officials from  UNGoE and industry representatives we interviewed noted a lack of  infrastructure in place that would enable companies to set up or expand  operations in the DRC. Limited transportation and poor roads in eastern  DRC also make it difficult to get to mine sites. For example, an agency  official in the DRC commented that mines may be a day’s walk from a  main road. Also, an NGO reported that in selecting a potential pilot site for  a traceability scheme, accessibility to the site by road was a key criterion  and would involve using off-road vehicles due to the significant  deterioration of roads leading to the mine. Moreover, according to an  NGO representative, the remoteness of mines also makes it difficult for  DRC mine officials to validate mines and ensure that the mines have not  been compromised by armed groups. Furthermore, State officials  indicated that the lack of infrastructure prevents trade initiatives from  developing economies of scale and expanding.

Officials we interviewed cited the lack of technical, economic, and political  capacity as another factor that may affect the creation or expansion of in- region sourcing initiatives focused on responsible sourcing in the DRC  and neighboring countries. In 2013, the OECD reported that while the  understanding of responsible sourcing is “high for those actors in the  DRC and Rwanda who have participated in such initiatives, the same is  not true for state agents” in the country. The OECD report also pointed  out that Ugandan and Burundian government officials and other entities  lack technical understanding of due diligence requirements. Some NGO  officials stated that lack of capacity can impact the due diligence process  in the supply chain, especially if the numbers of trained mining agents is  insufficient. For example, some agency officials and an NGO reported  that the DRC does not have enough mine agents to certify the mines, of  which there may be over 2,000 in eastern DRC alone, or even to  negotiate and manage mining contracts. Moreover, an NGO official stated  that mines need to be reinspected every 6 to 12 months in order to  ensure proper due diligence in accordance with OECD and ICGLR  guidance; however, the NGO official stated that the DRC government  does not have the capacity to inspect at such frequency.

Some agency officials and officials we interviewed from industry, NGOs,  and international organizations also commented that the DRC  government lacks capacity to mitigate corruption and smuggling. The lack  of capacity can impact due diligence and can contribute to illegal minerals  trade and cross-border smuggling. For example, the UN reported that  illegal trade of minerals undermines the exercise of due diligence in the  DRC and affects the credibility of due diligence-based certification and  traceability systems. According to some industry experts, mining agents may not be properly compensated, due to the lack of governance in  eastern DRC, and may look for other ways to earn money, which could  involve colluding with illegal armed groups.

With regard to smuggling, the OECD reported that as long as there are no  traceability or certification schemes in place that cover the whole region,  and most notably, the Kivu provinces, Uganda, and Burundi, smuggling  and contamination of clean materials will continue to pose a threat to  formalization of the artisanal mining sector and due diligence initiatives.  According to a 2012 UNGoE report, several tons of gold worth hundreds  of millions of dollars are smuggled from the eastern DRC through  neighboring countries, where it is ultimately smelted and sold to jewelers  in markets, such as the United Arab Emirates. Representatives from  some industry associations that we interviewed stated that armed groups  and criminal elements have shifted efforts to gold mines because it is  relatively easy to smuggle gold because of its size. Furthermore, gold’s  high value in the market makes it more viable for smuggling than tin,  tantalum, and tungsten.

section_title: Many Companies Not Required to Report to SEC under the Conflict Minerals Rule Will Likely Be Affected; Limited Aggregated Information about Them Exists
paragraphs: Even companies that are not required to file disclosures under SEC’s  conflict minerals rule will likely be affected by the rule. These companies  may supply components or parts that contain conflict minerals to  companies reporting to SEC under the rule and may be asked by such  companies to provide information specifying the origin of the minerals.  Aside from the supply chain relationship, while information is publicly  available about some smelters and refiners, there is little aggregated  information available about companies that do not report to SEC under  the rule but may trade in conflict minerals.
subsections: section_title: Companies Not Required to Report to SEC under the Rule May Provide Information on the Origin of Conflict Minerals in Their Products to Companies That Will Report to SEC under the Rule
subsections: section_title: Companies Not Required to Report to SEC under the Rule May Supply Products That May Contain Conflict Minerals to SEC-Reporting Companies under the Rule
paragraphs: Companies that are not required to report to SEC under the rule may  supply products that contain conflict minerals to SEC-reporting  companies under the rule. SEC relied on estimates provided by a  commentator indicating that 278,000 suppliers—most of which would be  companies that would not report to SEC under the rule—could be  indirectly impacted by the rule. Moreover, the release contains an  estimate that each of the nearly 6,000 companies that could be directly  impacted by the rule has roughly 1,000 first-tier suppliers, on average.  These suppliers, including first-tier suppliers, could provide products that  contain conflict minerals to companies required to report to SEC under  the rule. Examples of these products include tin solder for joining metal,  tantalum capacitors for storing energy in cellular phones, tungsten  carbide for hardened cutting tools, or gold plating for wires to increase  durability and resistance to corrosion. The first-tier supplier has a direct  commercial relationship with the original equipment manufacturer,  meaning the first-tier supplier sells materials or component parts, which  have been aggregated by suppliers throughout the supply chain, to the  original equipment manufacturer for final assembly. According to an  industry official, in general, component parts manufacturers construct  individual parts—such as capacitors, engine parts, circuit boards, and  other components—and assemble them into more complex components.

Estimate of the Number of Companies  Required to Report to SEC under the Rule  SEC estimates that 5,994 reporting issuers  (primarily companies that issue stock publicly  and are required to report to SEC) will be  affected by the rule and will need to determine  if their products contain conflict minerals.  According to SEC, reporting issuers are  domestic and foreign companies that file  forms 10-K, 20-F, and 40-F under the  Securities Exchange Act. According to SEC  and industry officials, these companies vary in  size and revenue, but in general, tend to be  larger, mature companies that can have a  diverse product line; their revenues can range  from the millions of dollars to hundreds of  billions; they are domestic and foreign  companies; and they may have operations in  several countries. According to SEC and  industry officials, some reporting issuers may  sell products to consumers.

Using an electronics company as a model, processed metals move  through several suppliers that manufacture component parts after the  smelter—first to circuit board and computer chip manufacturers, then to  cellular phone and other electronics manufacturers, and finally to the  brand-name electronics company, which is the original equipment  manufacturer that manufactures products recognizable to the consumer,  such as cellular phones, tablets, and laptop computers. Beyond the first- tier supplier, there are tier 2-, 3-, 4-, or higher-tiered suppliers that,  beginning with the raw materials from the smelter or refiner, manufacture  component parts that are assembled into more complex component parts  as they move from higher- to lower-tiered suppliers in the supply chain, to the first-tier supplier, and finally to the original equipment manufacturer.See figure 4 for a simplified version of the supply chain, and the tiered  structure of suppliers.

While many companies will likely be directly or indirectly impacted by the  rule, some companies that use conflict minerals may not be, partly  because (1) the companies are not issuers that are required to file with  SEC under the Securities Exchange Act, and (2) these same companies  potentially do not sell components or parts to a company that will be  required to report to SEC under the rule. Industry and consulting firm  representatives have differing views on the number of companies that  purchase conflict minerals from the DRC and adjoining countries but may  not be impacted by the rule.

Suppliers that provide products that may contain conflict minerals to  companies required to report to SEC under the rule may provide  information on the minerals’ origins to those reporting companies that  request it. The SEC release does not specify the steps and outcomes for  the reasonable country of origin inquiry, and indicates that such a  determination depends on each issuer’s facts and circumstances.  However, in conducting a country of origin inquiry, issuers may inquire of  their suppliers the origin of any conflict minerals in the products.  According to the release, the issuer’s inquiry must be reasonably  designed to determine whether any of its conflict minerals originated in  the DRC and adjoining countries, and must be performed in good faith. If,  after this inquiry, the issuer has a reason to believe that its conflict  minerals may have originated in the DRC and adjoining countries, the  issuer proceeds to exercising due diligence. Industry associations such  as the EICC and GeSI have created templates for companies to use  when contacting suppliers to inquire about the types and origins of conflict  minerals in a given product. For example, companies required to report  under the rule could submit the inquiries to their first-tier suppliers. Those  suppliers could either provide the reporting company with sufficient  information or initiate the inquiry process up the supply chain, such as by  distributing the inquiries to suppliers at the next tier—tier 2 suppliers. The  tier 2 suppliers could inquire up the supply chain to additional suppliers,  until the inquiries arrive at the smelter. Smelters then could provide the  suppliers with information about the origin of the conflict minerals. Figure  5 illustrates the flow of information up the supply chain.

As discussed earlier, smelters have various means to preclude untraced  minerals from entering their supply, such as participation in the iTSCi  initiative and the Conflict Free Smelters Program. According to smelting  industry representatives, these initiatives and certifications have reduced  the burden of responding to the multiple amounts of inquiries many  smelters have already received from suppliers.

Officials from consulting firms and industry associations that we spoke  with told us that many companies that will respond under the rule have  started contacting their first-tier suppliers and providing them with country  of origin inquiries. According to these officials, several of these  companies that have submitted inquiries to their suppliers have  experienced challenges, which include identifying suppliers beyond the  first-tier suppliers, because for original equipment manufacturers,  suppliers beyond the first tier are less visible. As discussed earlier,  original equipment manufacturers purchase component parts primarily  from their first-tier suppliers and do not have direct commercial  relationships with suppliers in higher tiers of the supply chain. According  to industry representatives and agency officials, these challenges may  impact how companies file under the rule. For example, as previously  discussed, the SEC rule allows companies to disclose their products as  “DRC conflict undeterminable.” This provision allows companies to state  that the source of the conflict minerals in their products, and the likelihood  that the conflict minerals benefited or financed armed groups from the  DRC and adjoining countries, could not be determined after having  conducted due diligence to obtain that information from their suppliers.  For the reporting period beginning January 1, 2013, companies may use  this provision for 4 years for smaller reporting companies or 2 years for all  other reporting companies. Although the number of companies required  to report under the rule that may utilize the “DRC conflict undeterminable”  provision is unknown, SEC officials and representatives of industry  associations and consulting firms anticipate that many companies  required to report under the rule will utilize the provision based on the  results of their due diligence efforts.

Representatives from industry and consulting firms that we interviewed  stated that the purchasing power of issuing companies under the rule  may influence their suppliers to provide information on the source of any  conflict minerals in their products when requested. According to an  industry representative, since companies that report to SEC under the  rule tend to be large, mature corporations with great purchasing power in  their respective industries, it would be difficult for suppliers to ignore their  request for information on the origin of conflict minerals in products the  suppliers provide to them. For example, jewelry industry representatives  told us that they have advised their members, which are primarily small,  independent jewelry companies not required to report to SEC under the  rule, to respond to any requests from customers seeking information on  the origin of conflict minerals in products they supply, because the risk of  not responding could result in a loss of business for those companies.

Some information is publicly available about smelters and refiners, and  their involvement in the conflict minerals supply chain. According to SEC  officials, while smelters and refiners are not exempted from the SEC rule,  most of these suppliers will likely not be required to report to SEC under  the rule because of their filing status. Smelter and refiners are  considered the choke-point of the conflict minerals supply chain, as  previously discussed, and comprise a small portion of the overall number  of suppliers in the conflict minerals supply chain that may be impacted by  the SEC rule. While it is not possible to determine the universe of  suppliers that would not be required to report under the rule, smelters and  refiners are a more identifiable population for which there is some  aggregated information, such as the types of conflict minerals they use,   We found the following information on smelters and  and their location.refiners:

Smelters and refiners constitute a small but important portion of  suppliers that likely will not file a conflict minerals report under the  SEC rule. Organizations have estimated the number of smelters and  refiners around the world to be nearly 500; however, the actual  number of smelters and refiners of conflict minerals is unknown. We  aggregated publicly available information on smelters and refiners  from lists compiled by the EICC and GeSI, the OECD, and the London  Bullion Market Association (LBMA), which provided information on  278 smelters and refiners. As we have previously discussed, roughly  278,000 suppliers could be affected by the rule, based on the  estimate provided to SEC. Of the 278 smelters of tin, tantalum,  tungsten, and refiners of gold that we were able to identify, the  majority (271) of these companies would likely not be required to  report under the rule.

Over half of the smelters and refiners of the conflict minerals we  identified were located in three countries. Of the 278 smelters and  refiners of tin, tantalum, tungsten, and gold that we were able to  identify, more than half (156) were located in three countries: China  (82), Japan (39), and Indonesia (35). According to industry  representatives, participation in due diligence efforts of smelters and  refiners from these countries, particularly China and Indonesia, is  critical in assisting companies with fulfilling the reporting requirements  of the SEC rule. Several organizations, including an NGO, and  representatives from government and industry, are conducting  outreach to smelters to provide information on the SEC rule in an  effort to increase participation from smelters and refiners from these  countries. For more information on the location of smelters and  refiners we identified in our analysis, see figure 6.

Many smelters and refiners of conflict minerals in our analysis  processed tin. Of the 278 smelters and refiners in our analysis, we  were able to identify 113 that processed tin, followed by gold (78),  tungsten (54), and tantalum (33). Furthermore, over half (64 of 113) of  the tin smelters in our analysis were located in China (30) or  Indonesia (34). In addition, over 67 percent of global production  comes from mines in China and Indonesia, according to U.S.  Geological Survey data. Tin and its derivatives have wide applications  and are used in manufacturing a variety of products, including tin  soldering for joining pipes, coatings for steel containers, and a wide  range of tin chemical applications, according to the U.S. Geological  Survey. According to industry and consulting firm representatives,  around 12 to 15 smelters process nearly 80 percent of the world’s tin.

Most smelters and refiners in our analysis did not have a conflict  minerals policy publicly available. Of the 278 smelters and refiners we  were able to identify, 63 had a conflict minerals policy publicly  available on their website. Of the 63 smelters with a conflict minerals  policy publicly available, 26 smelters had successfully completed a  Conflict Free Smelter Program audit and were designated as “conflict- free” by the EICC and GeSI, while several had reportedly followed  some sort of due diligence, such as the OECD Due Diligence  Guidance or the LMBA Responsible Gold Guidance. Other smelters  in our analysis had posted policies on their website stating that the  company only sources conflict minerals outside of the conflict areas of  the DRC and adjoining countries. We were unable to identify a  website for 86 of the 278 smelters in our analysis, and 129 of the 278  smelters had no conflict minerals policy publicly available on their  website.

Some information is publicly available on companies that use conflict  minerals but are not required to report under the rule, as in the case of  many smelters and refiners we were able to identify. However, data for  the universe of these companies are limited. Specifically, based on our  analysis, aggregated data on the types of conflict minerals in the products  manufactured by these companies as well as information on how such  companies source their conflict minerals are not available, except for a  few companies. For example, several of these companies provide  information publicly about their continued participation in initiatives that  source conflict minerals from the DRC, and have agreed to purchase  conflict minerals, such as tin and tantalum, from closely monitored  sources through initiatives such as iTSCi and the Solutions for Hope, as   However, according to agency and international  previously mentioned. organization officials, in some instances buyers from small firms, mainly  from East Asia, are on the ground in the DRC and adjoining countries,  and continue to purchase untraced minerals as well as minerals that have  been smuggled out of the DRC into adjoining countries. In addition,  according to an industry representative, it may be difficult to identify  information on these companies because they tend to be small and serve  very specific markets.

Solutions for Hope is a “closed-pipeline” initiative to trace the flow of tantalum from the  mine to the end-use company.

section_title: Little Additional Information on the Rate of Sexual Violence in Eastern DRC and Neighboring Countries Has Become Available since GAO’s 2012 Report
paragraphs: Since our 2012 report, one population-based survey providing data on the  rate of sexual violence has been published in Uganda, and one is under  way in the DRC; during the same period, no similar surveys have been  conducted in Rwanda or Burundi. We also found some additional case file  data available on sexual violence for all four countries. 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 GAO’s 2012 Report, One Population-Based Survey on the Rate of Sexual Violence Has Been Published in Uganda and One Is Planned for DRC
paragraphs: We found that one new population-based survey on the rate of sexual  violence has been conducted since our 2012 report—the 2011 Uganda  Demographic and Health Survey (DHS), published in August 2012.  According to the survey, “28 percent of women and 9 percent of men age  15-49 report that they have experienced sexual violence at least once in  their lifetime.” These national estimates are based on a random sample.  Since we first reported on sexual violence in our 2011 report, we have  identified six other population-based surveys that provided data on the  rate of sexual violence in these countries.

Surveys Are More Appropriate for  Estimating a Rate of Sexual Violence  In our 2011 report on sexual violence, we  discussed two sources of data on sexual  violence in eastern DRC and neighboring  countries—population-based surveys and  case files—and concluded that population- based surveys are more appropriate for  estimating a rate of sexual violence. Case file  data have shortcomings and biases that  significantly limit their utility for estimating the  rate of sexual violence. For example, case file  data are not generated from a random  sample; are reliant on victims seeking  services to be counted, although some  victims may lack access to service; and allow  for the potential double counting of the same  sexual violence incident in the case file data  collected.

In reviewing whether there had been updates to any of the previous  surveys conducted, we found that the authors of the McGill study, a  population-based survey conducted in eastern DRC that was highlighted  in our 2011 report, had no plans to conduct a follow-up survey. We found  that fieldwork for a DHS for the DRC is expected to launch in August  2013, with data expected around September 2014.

We also found a team of two organizations that released estimates in  2010 based on survey data of sexual violence in Rwanda. Sonke Gender  Justice Network and Promundo-US conducted a probability cluster  sample in 2010 as part of its IMAGES survey and found that “57 percent  of women reported having experienced gender-based violence committed  by a partner” and “17 percent of men experienced sexual violence when  they were a child.” However, this survey was not weighted to reflect  unequal probabilities of selection, and it does not contain confidence  intervals. Therefore, we are not able to assess the accuracy or precision  of the estimates.

section_title: Some Additional Case File Data Has Become Available on Sexual Violence since GAO’s 2012 Report
paragraphs: Following up on our 2011 and 2012 reports, we asked U.S. and UN  agencies as well as researchers and NGOs if they had any updated case  file data. In April 2013, State submitted its annual country reports on  human rights practices to Congress, which provided case file information  pertaining to sexual violence in the DRC and neighboring countries. The  2012 Department of State Human Rights Reports reported the following:  In DRC, the Ministry of Gender reported 10,037 cases of sexual- and  gender-based violence in 2011 in eastern DRC.  In Rwanda, prosecutors reported that they investigated 351 cases of  rape in 2012. Of those 351 cases, 109 were filed in courts, 143 were  dropped, and 99 were pending investigation.  In Uganda, 520 cases of rape were reported in 2011, of which 269  were tried.  In Burundi, Centre Seruka, a clinic for rape victims averaged 121 rape  cases per month between January and September 2012.

Various UN entities reported other case file data. In March 2013, the UN  Secretary-General reported that 764 people had become victims of  sexual violence in eastern DRC from December 2011 and through  November 2012. In May 2013, the UN Joint Human Rights Office  reported that an armed group committed 135 cases of sexual violence  from November 20, 2012 through November 30, 2012. Furthermore, in  December 2012, the UN Office for the Coordination of Humanitarian  Affairs reported 70 rapes in Minova, a town in eastern DRC, from  November 30 through December 4, 2012. Because case file data are not  aggregated across various sources and the extent to which various  reports overlap is unclear, it is difficult to obtain complete data on case  files or even a sense of magnitude. One shortcoming of both case file  data and surveys is that time frames, locales, and definitions of sexual  violence are not consistent across data collection operations. As we  reported in 2011, case file data on sexual violence are not suitable for  estimating a rate of sexual violence because case file data are not based  on a random sample and the results of analyzing these data are not  generalizable.

section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to SEC, State, and USAID, for their  review and comment. SEC, State, and USAID provided technical  comments, which we incorporated in this report as appropriate. We also  provided relevant portions of the draft of this report to relevant external  stakeholders for their technical comment. We received technical  comments from some of these stakeholders, which we incorporated  throughout this report as appropriate.

We are sending copies of this report to appropriate congressional  committees. The report is also available at no charge on the GAO website  at http://www.gao.gov/.

If you or your staffs have any questions about this report, please contact  me at (202) 512-4802 or evansl@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 major contributions to this report  are listed in appendix IV.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To describe factors that may impact whether the Securities and Exchange  Commission’s (SEC) conflict minerals rule denies armed groups in the  Democratic Republic of the Congo (DRC) and adjoining countries benefits  from conflict minerals, we interviewed officials from SEC, the Department  of State (State), and the United States Agency for International  Development (USAID), as well as representatives from international  organizations, nongovernmental organizations (NGO), industry  associations, consulting firms, and smelters and refiners of tin, tantalum,  tungsten, and gold to get their views on the final SEC rule as well as any  impacting factors. We chose the experts and stakeholders we interviewed  to capture a range of perspectives about the types of minerals traded and  because we had established contacts with these entities on our last  review. In addition, some of the stakeholders we talked to have been  working on the ground in the DRC. These experts and stakeholders  constitute a nongeneralizable sample. The information gathered cannot  be generalized and cannot be used to infer views of other experts or  stakeholders cognizant of conflict minerals issues. We reviewed Section  1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act  (Pub. L. No. 111-203); reports and other documents from relevant U.S.  agencies, such as SEC’s final conflict minerals rule, press releases, and  statements; reports issued by the UN Group of Experts on the Democratic  Republic of the Congo (UNGoE) and the Organisation for Economic Co- operation and Development (OECD); as well as documents and reports  from industry associations and NGOs. We did not travel to the DRC or  speak with government officials in the DRC but obtained perspectives on  issues from some stakeholders who operate in the DRC.

To identify and describe available information about entities that use  conflict minerals and do not report to SEC under the rule, we interviewed  officials from SEC, State, and USAID, as well as representatives from  international organizations, NGOs, industry associations, consulting firms,  and smelters and refiners of tin, tantalum, tungsten, and gold to get their  views on the extent to which information is publicly available on  companies that are not required to report under the rule that may use  conflict minerals in their products, and the source of the conflict minerals.  We reviewed and analyzed reports and other documents from  organizations such as the OECD, London Bullion Market Association  (LBMA), and the Electronics Industry Citizenship Coalition and the Global  e-Sustainability Initiative (EICC and GeSI), as well as documents and  reports from industry associations and NGOs. In addition, we conducted  searches in the Nexis database using selected Standard Industrial  Classification (SIC) codes listed under the Manufacturing division.  Overall, there were 20 subcategories under the Manufacturing division of  SIC codes, which include subcategories such as Tobacco Products;  Paper and Allied Products; and Electronic and Other Electrical Equipment  and Components, Except Computer Equipment. We selected SIC codes  under the Manufacturing division for industries that have a higher  likelihood of using conflict minerals in their product, such as Electronic  and Other Electrical Equipment and Components, Except Computer  Equipment. Through the database analysis, we were able to determine  the filing status, location, revenue, and industry classification of the  companies. We were unable to determine the types of products the  companies produced, and the types of conflict minerals potentially used in  the manufacturing process of their products. Because SIC codes do not  indicate specific products, we were unable to use the Nexis data to  develop an aggregate description of entities that use conflict minerals but  do not report to SEC under the rule.

We compiled a list of smelters and refiners—which are a smaller universe  of companies that are primarily not required to report under the rule— from the EICC and GeSI’s Conflict Minerals Reporting Template and  Dashboard, OECD’s Final Downstream Report On One-Year Pilot  Implementation of the Supplement on Tin, Tantalum, and Tungsten, and  the LBMA’s Good Delivery List. The data were current as of March 15,  2013. We selected these smelters and refiners because information is  publicly available on the types of minerals these smelters and refiners  process; however, we did not conduct an audit to verify how these entities  sourced materials for processing. To compile our list of smelters and  refiners, we reviewed and compared the lists from each source to identify  and delete duplicate smelters and refiners. Additional duplicates were  identified and deleted as a result of Internet searches using the names of  the smelters and refiners. While we made efforts to eliminate duplicate  information where possible, smelters and refiners may be listed under  different names, and therefore, some duplicate information may exist in  the data. Information included in the list of smelters from the EICC and  GeSI, OECD, and LMBA included (1) the location of the smelter or  refiner, (2) the types of minerals smelted or refined, and (3) the due  diligence guidance reportedly followed, in some cases. We identified 278  smelters and refiners of tin, tantalum, tungsten, and gold, and analyzed  any publicly available information—mainly information posted on the  companies’ websites or information provided on the websites of  organizations such as the EICC and GeSI or the LBMA—on their  practices and policies for sourcing conflict minerals. This analysis  included examining websites of 192 of 278 smelters and refiners to  identify the types of due diligence guidance they reported to use to  determine the country of origin of their conflict minerals sources. We were  unable to identify the websites for 86 smelters or refiners on our list,  which could have been the result of a smelter not possessing a website,  or differing translations of company names from foreign characters—such  as Chinese script or the Cyrillic alphabet—to the Roman alphabet.  Additional limitations included our sample of 278 smelters and refiners, as  organizations have estimated that the number of smelters and refiners is  nearly 500, particularly if smaller smelters and refiners that process ores  into metals at the mine site are included. These smelters and refiners, or  secondary smelters, often have small operations and may not have a  website, according to an industry representative. Furthermore, the  number of gold refiners could potentially be much larger, considering that  little equipment and space is required to refine gold, depending on the  quality; and gold can be refined at the mine site. The 278 smelters and  refiners we were able to identify may not be representative of others, and  the information we report about these 278 cannot be generalized to other  smelters and refiners of tin, tantalum, tungsten, and gold.

In response to a mandate 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 DRC and  adjoining countries, we identified and assessed any additional published  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 2012 report on sexual violence in these  areas. During the course of our review, we interviewed officials from  State and USAID 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 officials from the United Nations Population Fund, United  Nations High Commissioner for Refugees, United Nations Special  Representative to the Secretary-General on Sexual Violence in Conflict;  and representatives from the Harvard Humanitarian Initiative and others.  We also conducted Internet literature searches to identify new academic  articles containing any additional data on sexual violence.

We conducted this performance audit from November 2012 to July 2013  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: SEC’s Flowchart Summary of the Disclosure Process for the Final Conflict Minerals Rule
paragraphs: The Securities and Exchange Commission (SEC) issued a flowchart  summary of the final rule to guide SEC-reporting companies affected by  the rule through the disclosure process (see figure 8). In general, the  process shows that an SEC-reporting company needs to (1) determine  whether its manufactured products contain conflict minerals; (2)  determine whether conflict minerals are necessary to the product and, if  so, whether the conflict minerals originated in the DRC or an adjoining  country; and (3) possibly conduct due diligence and potentially provide a  Conflict Minerals Report.

section_title: Appendix III: Updates of Global and In-Region Sourcing Initiatives
paragraphs: In our 2012 report, we discussed a number of initiatives that various  stakeholders developed and implemented that may help companies  reporting to the Securities and Exchange Commission (SEC) and their  suppliers comply with SEC’s conflict minerals disclosure rule. For this  report, we updated information pertaining to some of these global and in- region sourcing initiatives.
subsections: section_title: Global Sourcing Initiatives
subsections: section_title: OECD Due Diligence Guidance
paragraphs: The Organisation for Economic Co-operation and Development (OECD)  adopted 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.Diligence Guidance and the corresponding supplements provide detailed  guidance for companies operating in and sourcing minerals from conflict  areas. In addition to the basic framework, OECD developed two  supplements—one on tin, tantalum, and tungsten and the other 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 conducted  implementation pilot projects. In January 2013, OECD issued the final  downstream report, which focuses on how companies implement due  diligence in the supply chains of tin, tantalum, and tungsten, and the final  upstream report, which provides an overall assessment of the progress   The OECD Due  and initial impact of due diligence in the tin, tantalum, and tungsten  upstream supply chain.

section_title: Conflict-Free Smelter Program
paragraphs: 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. The EICC and GeSI 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 undergoing an audit, and as of  May 1, 2013, 18 of approximately 23 tantalum smelting companies had  been certified as conflict-free. As of May 1, 2013, 5 tin smelting  companies had been certified as conflict-free, 7 tungsten smelting  companies had begun discussions with representatives of the program,  and 12 gold refining companies had been certified as conflict-free through  the program.

section_title: World Gold Council’s Conflict-Free Gold Standard and Tools
paragraphs: The World Gold Council developed and issued the Conflict-Free Gold  Standard, an industry-led approach to combat the potential misuse of  mined gold to fund armed conflict, in October 2012. The standard was  developed with council member companies, which constituted the world’s  leading gold producers, and with extensive input from stakeholders to  establish a common approach by which gold producers can assess and  provide assurance that their gold has been extracted in a manner that  does not cause, support, or benefit unlawful armed conflict or contribute  to serious human rights abuses or breaches of international humanitarian  law. According to a World Gold Council official, the participating  companies’ conformance to the Standard will be externally audited and  assured and will operationalize the requirements of OECD guidance. The  results of the audit using the standard will be recognized across other  stakeholder initiatives such as the London Bullion Market Association’s  Responsible Gold Guidance. The Standard should also support refiners in  meeting their due diligence requirements.

section_title: In-Region Sourcing Initiatives
subsections: section_title: Conflict-Free Tin Initiative
paragraphs: The Conflict-Free Tin Initiative (CFTI) is a pilot that was launched in  September 2012 and aims to create demand for conflict-free tin from  eastern DRC. The traceability and due diligence mechanism through the  ITRI Tin Supply Chain Initiative is operated by Pact, an independent  NGO, and is operated out of the Kalimbi mine in South Kivu. According to  an NGO, the Netherlands Ministry of Foreign Affairs is a neutral broker  that brought the partners along the supply chain together, from mine to  smelter to end user. The DRC government and local civil society are  closely involved in the initiative, which is structured within the framework  of the International Conference of the Great Lakes Region (ICGLR) and  will be consistent with the due diligence guidance of OECD. CFTI  reported that between October 2012 and January 2013, 210 tons of  materials were produced in the Kalimbi mine and the first container of  conflict-free tin was transported to the trader in the DRC in December  2012. In January 2013, the first two containers of conflict-free tin were  shipped to the smelter in Malaysia. The CFTI reports that next steps will  involve the conflict-free tin making its way from the smelter to soldering  companies and eventually to end users as finished product.

section_title: ICGLR’s Regional Certification Mechanism and Other Initiatives
paragraphs: The ICGLR started working with an NGO in 2010 to develop a regional  certification mechanism to ensure that conflict minerals are fully  traceable. 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. According to an official at a partnering  NGO, the first two certificates out of the region were scheduled to come  from sites in Rwanda and DRC in the late spring and from Uganda by  December 2013. However, State indicated that the certificates from  Rwanda and DRC have been delayed and will likely not be issued until  late summer 2013. Regional certificates from other ICGLR countries will  take some time because of capacity issues.

According to USAID, in addition to the regional certification mechanism,  ICGLR’s other initiatives focused on eliminating the illegal exploitation of  natural resources include harmonization of national legislation,  formalization of the artisanal mining sector, formalization of the  extractives industries transparency initiative, a whistleblowing  mechanism, and a regional database on the flow of minerals.

section_title: Appendix IV: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Godwin Agbara, Assistant  Director; Andrea Riba Miller; Kyerion Printup; Justin Fisher; Debbie  Chung; Ernie Jackson; Russ Burnett; Etana Finkler; Brian Hackney; and  Leah DeWolf made key contributions to this report.


Question-summary annotations: questions: question: What role might Stakeholder-developed initiatives play in regards to the Securities and Exchange Commission's (SEC) final conflict minerals rule?
answer: Stakeholder-developed initiatives may facilitate companies' compliance with the Securities and Exchange Commission's (SEC) final conflict minerals rule, but other factors may affect the rule's impact on reducing benefits to armed groups in the Democratic Republic of the Congo (DRC) and neighboring countries.

question: What did Agency and industry officials as well as representatives from international organizations and nongovernmental organizations (NGO) state regarding how to support companies' efforts?
answer: Agency and industry officials as well as representatives from international organizations and nongovernmental organizations (NGO) stated that adoption of the rule as well as stakeholder-developed initiatives--which include the development of guidance documents, audit protocols, and in-region sourcing of conflict minerals--can support companies' efforts to conduct due diligence and to identify and responsibly source conflict minerals.
child_questions: question: What is an example of how NGOs can support companies' efforts to conduct due diligence and to identify and responsibly source conflict minerals?
answer: For example, officials GAO interviewed explained that the Conflict-Free Smelter Program enables suppliers to source conflict minerals from smelters (companies that refine the ore of the conflict minerals into metals) that have been certified by an independent third-party auditor as obtaining their minerals from sources that did not benefit armed groups.
child_questions: question: What issues arise in the pursuit of these companies' efforts?
answer: However, officials GAO interviewed cited constraining factors such as lack of security, lack of infrastructure, and lack of capacity in the DRC that could affect the ability to expand on efforts to achieve conflict-free sourcing of minerals from eastern DRC and thereby potentially contribute to armed groups' benefiting from the conflict minerals trade.
child_questions: question: What are some examples specifying these concerns?
answer: For example, officials GAO interviewed noted that there is a lack of infrastructure in place that would enable companies to set up or expand operations in the DRC. Limited transportation and poor roads in eastern DRC also make it difficult to get to mine sites. Moreover, according to officials, the remoteness of mines also makes it difficult for DRC officials to validate mines and ensure that the mines have not been compromised by illegal armed groups.

questions: question: What might still affect Companies that are not required to file disclosures?
answer: Companies that are not required to file disclosures under SEC's conflict minerals rule may be affected by the rule.
child_questions: question: What aspects of these companies' work could fall under this rule?
answer: These companies may supply components or parts that contain conflict minerals to companies that report to SEC under the rule, many of which could be original equipment manufacturers and component parts manufacturers.

question: What do estimates reveal about suppliers' products?
answer: Estimates provided by public commentators responding to the rule indicate that roughly 280,000 suppliers could provide products to roughly 6,000 companies that report to the SEC under the rule and may be asked to provide information on their use of conflict minerals and the origin of the minerals as part of the rule's due diligence requirements.
child_questions: question: To what extent was GAO able to quantify information about companies that do not report to the SEC?
answer: GAO found little available aggregated information about companies that do not report to SEC under the rule.
child_questions: question: How did smelters and refiners differ regarding the availability of information?
answer: However, GAO found that for smelters and refiners there is some aggregated information, such as the types of conflict minerals they use and their location.

question: In what continent were most smelters and refiners of conflict minerals located?
answer: For example, GAO found that over half of the 278 smelters and refiners of conflict minerals it identified were located in Asia, many processed tin, and most did not have a conflict minerals policy publicly available.

questions: question: What area of the DRC has experienced recurring conflicts involving armed groups?
answer: The eastern part of the DRC has experienced recurring conflicts involving armed groups that have resulted in severe human rights abuses.
child_questions: question: From what have these armed groups benefit?
answer: In addition, armed groups have profited from the exploitation of minerals.

question: What does the Dodd-Frank Wall Street Reform and Consumer Protection Act address?
answer: In 2010, Congress enacted Section 1502(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act to address the exploitation of conflict minerals, which include tin, tantalum, tungsten, and gold, and the extreme levels of violence in the DRC.
child_questions: question: What does the SEC require of companies and GAO due to Section 1502(b) require?
answer: As required by Section 1502(b), the SEC issued a rule in August 2012 that requires companies to disclose their use of conflict minerals and the origin of those minerals. The act requires GAO to report on the rule’s effectiveness, among other issues, beginning in 2012 and annually thereafter.