by Cydney Posner

As required by section 1502(d)(3)(C) of Dodd-Frank, the U.S. Commerce Department has compiled and posted (albeit more than a year late) a list of ”all known conflict mineral processing facilities worldwide.”  Without the slightest hint of irony, Commerce notes that the list does “not indicate whether a specific facility processes minerals that are used to finance conflict in the Democratic Republic of the Congo or an adjoining country. We do not have the ability to  distinguish such facilities.”  Sweet.

Why was Commerce forced to make this jaw-dropping acknowledgement? During its research, Commerce encountered “certain hurdles,” primarily related to the prevalence of

“artisanal miners that process small amounts of materials and are known to be employed in eastern Congo. Because these producers of metals are ‘off the grid,’ it is very difficult to trace exactly where these small amounts of materials are smelted. There is also evidence of guerilla smelting operations throughout Africa that create makeshift smelters which produce an intermediary product of tantalum, tungsten and tin, and then ship the product overseas to scrap yards and informal metal traders and exchanges. The materials are often transshipped to another country and then flaked or shaved prior to being sent to a smelter. Finally, we note that gold purchased through the Shanghai Gold Exchange (SGE) accounts for 15-20 percent of all the gold used for commercial purposes. It is also recognized that the vast majority of the gold sold worldwide is [commingled] at the SGE. The SGE has not released, nor does it keep, records of where its gold is sourced. Therefore, any material that is purchased through the SGE is untraceable to a smelter, refiner, or processor of origin.”

The disclosure by Commerce may be helpful for issuers in a couple of ways. The list of smelters and refiners produced by Commerce may actually be useful for issuers in their conflict minerals compliance efforts because it compares and reconciles information about smelters and refiners from a number of sources.  Moreover, the admission of the challenges faced by Commerce (with all of its resources) highlights and legitimizes the difficulty that issuers have faced in trying to comply with the conflict minerals rules.  We can only hope that the acknowledgement by Commerce of its inability  to distinguish which facilities are used to finance conflict in the DRC will encourage the SEC to be a bit indulgent in the conduct of whatever type of  review-and-comment process it may undertake for conflict minerals reporting and perhaps lead to some constructive and practical guidance or even revisions of the rules, where necessary.

Posted by Cydney Posner