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On Tuesday, The Monetary Policy and Trade Subcommittee of the US House of Representatives Committee on Financial Services held a hearing entitled “Dodd-Frank Five Years Later: What Have We Learned from Conflict Minerals Reporting?” with the following witnesses:

Jeff Schwartz, Professor of Law, S. J. Quinney College of Law, University of Utah
Kimberly Gianapoulos, Director for International Trade, US Government Accountability Office (GAO)
Evode Imena, Minister of Mines, Ministry of Natural Resources, Republic of Rwanda
Karen Woody, Assistant Professor of Business Law and Ethics, Kelley School of Business, Indiana University
Mr. Per-Olof Loof, Chief Executive Officer, KEMET Electronics Corporation

Opinions of whether or not Dodd-Frank Section 1502 has been effective were expressed by the witness panel.

Kimberly Gianopoulos, in relation to the the subcommittee meeting, released a statement, “SEC CONFLICT MINERALS RULE — Insights from Companies’ Initial Disclosures and State and USAID Actions in the Democratic Republic of the Congo Region” concluding:

87 percent of the companies that filed with the SEC for Dodd-Frank 1502 were based in the United States.

99 percent reported performing country-of-origin inquiries for conflict minerals used.

A common challenge of companies was obtaining necessary information from suppliers because of delays and other challenges in communication.

94 percent reported exercising due diligence on the source and chain of custody of conflict minerals used.

67 percent were unable to determine whether those minerals came from the DRC or adjoining countries (Covered Countries).

None could determine whether the minerals financed or benefited armed groups in those countries.

Dodd-Frank section 1502, as with many regulations, has a multi-year rollout plan, giving companies ample time to achieve compliance. Companies subject to the rule had two years to investigate their supply chain and file “undeterminable” before being required to disclose whether or not 3TG minerals originating from DRC or its adjoining countries existed in their supply chains.

As affected companies are about to enter year three of reporting, the first reporting year where the “undeterminable” distinction will no longer be an option, it seems premature to state claims about the efficacy of Dodd-Frank 1502. In addition, increased NGO scrutiny for companies to have more transparency in disclosures means that conflict minerals reporting in year three will likely be more detailed. Hence, relying solely on filing data from year one and two to determine whether or not minerals originating from the Democratic Republic of the Congo and adjoining countries is a feasible effort could produce skewed results.

While many companies may have had a de minimis approach to filing with the SEC during the the two year “grace-period”, some companies like Kemet and Intel have been aggressive in not only identifying the origin of minerals in their supply chain, but also purposefully sourcing minerals from conflict-free mines. Kemet Electronics went so far to create their own mine. Olof Louf, CEO, Kemet Electronics states, “It is possible to succeed in business while being economically and socially responsible.” The mine that Kemet built, which is certified conflict free by the CFSI, brings in over $50 million annually while also empowering a small community in DRC. In his opinion, Dodd-Frank 1502 has been very good for the tantalum industry as it has allowed a clear path to ethically sourced tantalum from DRC, a feat that did not previously exist for Kemet.

For further information on how to overcome challenges of investigating your supply chain for conflict minerals, watch Conflict Minerals Reporting, How To Get It Right By May 2015.