Helping to build responsible supply chains.

Many companies’ conflict mineral disclosures list implausible COO and SOR countries

DSC_1956By Mike Loch and Chris Bayer, PhD

September 28, 2016

Many companies submitting conflict mineral disclosures to the SEC under Dodd-Frank Section 1502 failed basic plausibility tests concerning the Tin, Tantalum, Tungsten and Gold (3TG) Country of Origin (COO) and the 3TG Smelter or Refiner (SOR) countries in their annual reporting this year.

As far as we know, no smelter or refiners processing tin, tungsten, tantalum and gold ore are located in the DRC.  Notably, the DRC is not listed as an SOR country in the CFSI’s latest CMRT template (version 4.10), which names 525 SORs and their countries.  Yet 24 companies list the DRC as an SOR country in their supply chains.

More troublesome is that a considerable number of companies, over 250, cite countries as the source of their 3TG that are highly unlikely to be the actual source.  As advised in the OECD Due Diligence Guidance, a red flag should be automatically raised if:

The minerals are claimed to originate from a country that has limited known reserves, likely resources or expected production levels of the mineral in question (i.e. the declared volumes of mineral from that country are out of keeping with its known reserves or expected production levels).”

At least nine (9) countries which are cited as COOs in Conflict Mineral Reports (CMRs) do not have their own 3TG deposits.  They are: Hong Kong, Taiwan, UAE, Switzerland, Netherlands, Belgium, Singapore, Israel, Luxemburg.

Of the 981 companies that submitted CMRs, over 550 did list their 3TG COOs.  Of these, more than half submitted one or more of these 9 implausible countries of origin, each which should have trigged a red flag.

“Cross-referencing COO data with that of the U.S. Geological Survey and the U.S. Department of the Interior Mineral Commodity Summaries 2016, an annual publication, would be a good place to start,” advises Mike Loch.

“This is midfield due diligence,” comments Dr. Chris Bayer, who led the research analyzing the 1,216 filings evaluated for Reporting Year 2015.  “An issuer reporting to the SEC such data is an admission of not having finished their homework.”

Finally, among the companies submitting implausible COO, four (4) companies made a “DRC conflict free” product determination and underwent an IPSA.  These four IPSA’s were performed by three different audit firms.

These findings illustrate the fact that the two IPSA objectives in the SEC Rule do not take into account the accuracy of the content and conclusions, but solely focuses on:

Objective #1 – Does the design of the Company’s due diligence framework as set forth in the Conflict Minerals Report conform with, in all material respects, the criteria set forth in the OECD Due Diligence Guidance?

Objective #2 – Is the Company’s description of the due diligence measures it performed consistent with the due diligence process that the Company undertook?

While the systems and processes that companies are using to meet their reporting obligations are new and evolving, this analysis highlights the need for these systems and a company’s due diligence process to keep improving.

Cocoa trees also grow in Belgium, haven’t you heard?!?

For more information, please contact:

Mike Loch


Chris N. Bayer, PhD