Recommendation: To improve the effectiveness of the SEC's conflict minerals disclosure rule, the Secretary of Commerce should submit to the appropriate congressional committees a plan outlining steps that Commerce will take, with associated time frames, to (1) assess the accuracy of the independent private sector audits (IPSA) and other due diligence processes described under section 13(p) of the Securities Exchange Act of 1934; (2) develop recommendations for the process used to carry out such audits, including ways to improve the accuracy of the audits and establish standards of best practices for such audits; and (3) acquire the necessary knowledge, skills, and abilities to carry out these responsibilities.

Agency: Department of Commerce
Status: Open
Priority recommendation

Comments: Commerce agreed with this recommendation. In response to this recommendation, Commerce indicated in an October 25, 2016 letter to GAO that it has developed a three-step approach which parallels the three distinct elements of the recommendation. To fully implement this recommendation, Commerce needs to submit the said three-step plan, including associated timeframes for their completion, to the appropriate congressional committees. Section 1502 of the Dodd-Frank Act defines "appropriate committees" to mean the Committee on Appropriations, the Committee on Foreign Affairs, the Committee on Ways and Means, and the Committee on Financial Services of the House of Representatives; and the Committee on Appropriations, the Committee on Foreign Relations, the Committee on Finance, and the Committee on Banking, Housing, and Urban Affairs of the Senate. In a January 2018 email, a Commerce official indicated to GAO that the agency had reviewed the 19 IPSA audits filed by companies in 2016, and the agency plans to complete a review of the 16 IPSA audits filed in 2017 by the end of FY 2018. However, the official noted that the "Department will not undertake the development of recommendations and best practices while the SEC is revising its rule." Commerce cited SEC staff's recent updated guidance and ongoing reviews of the conflict minerals rule, among other things, as their primary reason. However, the SEC staff's updated guidance also clarified that the guidance "does not express any legal conclusion on the rule" and is "subject to any further action that may be taken by the Commission." Therefore, the rule is still in effect, according to SEC staff. We requested a status update in October 2019 and Commerce responded: "In National Association of Manufacturers v. United States SEC, 2017 U.S. Dist. LEXIS 135732 (2017), the District Court for the District of Columbia declared an element of the relevant SEC rule unconstitutional, necessitating that the SEC determine how that decision affects overall implementation of the Conflict Minerals rule. Until the SEC completes its deliberative process, makes such determination, and implements any necessary revisions to the rule, the Department does not intend to undertake additional work under Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act with regard to the assessment of the accuracy of the audits and other due diligence processes or recommendations regarding the audits. After which point, the Department will assess how the SEC determination and any revisions to the rule affect the Department's plans for implementing GAO's recommendation."