SEC’s Delay in Adopting Conflict Minerals Disclosure Rule is Impeding the Development of Initiatives for Issuer Compliance, Says GAO

According to the Government Accountability Office, because the Securities and Exchange Commission has not yet adopted a final conflict minerals disclosure rule, the process of developing initiatives to assist the companies that would be affected by this has been delayed. The GAO said that, as a result, there is now uncertainty about the SEC’s due diligence and reporting requirements, which is making it hard for multilateral organizations, industry associations, and other stakeholders to “expand and harmonize” their in-region and global sourcing initiatives. The agency has recommended that SEC Chairman Mary Schapiro identify what steps need to be completed (and when) so that the Commission can finally put out a final rule.

Per the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 1502, the SEC has to start holding the issuers of conflict minerals from the Democratic Republic and nearby countries accountable to enhanced disclosure requirements. (The Commission was supposed to make sure that this provision was implemented by April of last year.) This month, the SEC said it would consider whether to adopt a final conflict material during its open meeting in August.

The GAO has said the delay by the SEC to finalize a rule is a result of the Commission’s already heavy workload for rulemaking, the volume of stakeholder input, a high learning curve on a subject that staff wasn’t well-versed in, cost concerns by industry members, and the Commission’s concentration on cost-benefit analysis. Among the global initiatives that this delay has hampered, said the GAO, are the Conflict-Free Smelter Program and The Tin Supply Chain Initiative. The first looks to confirm that the sources of smelters processed-conflict minerals are conflict free, while the latter supports the responsible sourcing of materials from central Africa. Both provide assistance to downstream companies seeking to obtain minerals from conflict-free suppliers.

The regulator had put out a proposal about the requirements in December 2010. Back then, it estimated that out of 13,000 public companies, approximately 5,500 issuers would likely be affected. Industry opposition to the proposal was swift, with some contending that the Commission had underestimated the impact of the rule and the inevitable financial costs. Earlier this month, the U.S. Chamber of Commerce requested that the SEC issue a re-proposal of the requirements because previous cost estimates were “fundamentally deficient.”

“Events over the past few years should emphasize the need for reforms at the SEC. Most agree that the ‘securities police were not doing their job during the Madoff debacle and other widespread fraud,” said Securities Lawyer William Shepherd. “Current SEC Chairperson Shapiro was then in charge of the securities industry’s own self-regulatory organization, which had the primary duty to oversee the Madoff securities firm. Yet, she was subsequently promoted to head of the SEC. That agency is now bowing to pressure by the securities firms she was hired to police during this and other matters. Having the ‘fox in charge of the henhouse’ seems to apply here.”

Read the GAO’s report (PDF)

GAO: SEC Failure to Act on Conflict Minerals Hampers Initiatives to Aid Issuer Compliance, Bloomberg/BNA, July 17, 2012

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