Conflict Minerals: How to Comply with SEC Rule?
What are Conflict Minerals? According to the Conflict Mineral Statutory Provision, conflict minerals are: • Cassiterite • Columbite tantalite • Gold • Wolframite • Any other minerals or their derivatives that are being used to fund conflict in the Democratic Republic of Congo (the DRC) and its neighbors (known together in the Dodd Frank Act as covered countries The Dodd-Frank Act lists the following as covered countries: • Democratic Republic of the Congo (DRC) • Central Africa Republic • South Sudan • Zambia • Angola • The Republic of the Congo • Tanzania • Burundi • Rwanda • Uganda
The SEC Conflict Mineral Rule Applicability: – Applies to a company that uses minerals including tantalum, tin, gold or tungsten if: – The company files reports with the SEC under the Exchange Act. – The minerals are necessary to the functionality or production of a product manufactured or contracted to be manufactured by the company.
– The requirements apply to both foreign and domestic issuers. – Companies that use only trace amounts of these conflict minerals have to comply with this rule.
How to Comply with SEC Rule? Compliance is a 3-step process: Step 1: Applicability of Rule • Determine if the company is: –
Subject to SEC jurisdiction
–
A manufacturer or contracts to manufacture
• Identify products that contain 3TG • Determine if 3TG in a product is: – Necessary – Intentionally added – Contained in – Outside the supply chain
Steps to Achieve Compliance Step 2: Reasonable Country of Origin Inquiry (RCOI) • RCOI process must be “reasonably designed” and performed in good faith • Reliance on supplier information is allowed – Can’t ignore applicable warning signs or other circumstances
• Includes determination if source is scrap
Step 3: Due Diligence • Full due diligence required if the company either – knows 3TG is from covered countries and is not scrap, or – has reason to believe 3TG may have originated from covered countries and may not be from scrap
Due Diligence Best Practices • Tracking and Traceability – Monitoring Supply Chain – Traceability: physical tracking of minerals at all points of the supply chain – from specific mine to their point of export. – Companies using gold should adhere to the World Gold Council’s Conflict-Free Gold Standard. – Use surveys to get feedback from suppliers, analyze Bill of Materials to gather data.
• Risk Assessment – Assess risks when choosing mineral supplier or areas to buy from. – Risk assessment should not just assess conflict-related risks, but also risks related to fraudulent chain or custody and/or traceability information. – Risk assessments of chain of custody and traceability can be done through documentation review. – On-the-ground assessment team can help . – Use cooperation of suppliers and customers such as mineral traders, transporters, exporters and smelters. – In the case of tin, the iTSCi program can be invaluable in risk assessment.
Want to learn more about SEC Conflict Mineral Rule, its requirements and best practices to comply with them? ComplianceOnline webinars and seminars are a great training resource. Check out the following links:
• Conflict Minerals Program - Responsible Sourcing a Act
• Understanding SEC Conflict Minerals Disclosure Re
• Conflict Minerals 2014: Looking Back and Looking