Conflict Minerals & Your Supply Chain
By Juanita Ervin
Content
Executive Summary...........................................................1 Background on the Conflict Minerals Regulation.............. 2 Requirements, Deadlines and Impact............................... 3 Industry Response............................................................ 6 Best Practices in Managing the Supply Chain Due Diligence Process................................ 9 Teaming with Your Contract Manufacturer for Compliance Activities................................................ 10 Conclusion.......................................................................11
Executive Summary On August 22, 2012 the Securities and Exchange Commission (SEC) adopted a new rule pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that requires publicly-traded companies in the United States to report the use of “Conflict Minerals”. Under the rule, Conflict Minerals are cassiterite, columbite-tantalite, gold woframite and their derivatives which have been limited to tantalum, tin and tungsten (collectively known as the 3Ts), that are sourced from mines in the Democratic Republic of the Congo (DRC) or surrounding countries (collectively known as the “Covered Countries”.) Currently the list in the final rule includes Angola, Burundi, Central African Republic, the Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda and Zambia. Both list of Conflict Minerals and the list of Covered Countries can be revised by the U.S. Secretary of State, as needed. While the reporting requirement only applies to publiclytraded companies, it also impacts any company supplying a company that is required to report since
publicly-traded companies are requiring their suppliers to support their due diligence efforts. From an electronics industry perspective, components and commonly used materials that could contain the 3Ts include solder, tantalum capacitors, metal wires, electrodes and contacts. Additionally, gold may be used in communications and aerospace equipment. The first report will be required on May 31, 2014. For the next two years for large companies and four years for smaller companies, reporting can include the classifications of Conflict Minerals Free, not been found to be DRC conflict free or undeterminable. Beginning in 2016-18, undeterminable will not be an option and an independent audit will be required for all companies required to report. This paper looks at Conflict Minerals regulations from the perspective of a company in the electronics manufacturing services (EMS) in terms of the processes necessary to support disclosure requirements and the likely support services needed over time.
COVERED COUNTRIES
Angola
Uganda Rwanda
Burundi
South Sudan
The Republic of Congo
Tanzania
Zambia
Central African Republic 1
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Background on the
Conflict Minerals Regulation
Overview
The violent conflict in the Democratic Republic of the Congo (DRC), has been partially financed by the exploitation and trade of conflict minerals originating in the DRC. Armed groups engaged in mining operations in the region are also believed to subject workers and the local population to human rights abuses. The intent of the new SEC reporting requirements was to increase public awareness of this issue and bring greater due diligence to supply chains which may be utilizing these minerals, thereby encouraging companies to find other sources.
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Requirements Deadlines and Impact
Under Dodd-Frank Section 1502’s new rule, all SEC issuers (both U.S. and foreign companies issuing shares through U.S. exchanges) that manufacture or contract to manufacture products where “Conflict Minerals are necessary to the functionality or production” of the product are subject to the rule.
Issuers are expected to conduct a “reasonable country of origin inquiry” (RCOI) if Conflict Minerals are found. The actual steps of the RCOI are not defined. The guidelines do state the that RCOI must be designed to determine if any Conflict Minerals that are not from recycled or scrap sources originated in the Covered Countries and companies must make a good faith effort Under the rule, an issuer first needs to determine in their assessment. whether its manufactured products contain Conflict If it is determined that the Conflict Materials did not Minerals necessary to the products’ functionality or their originate in a Covered Country or came from recycled production process. If no Conflict Minerals are present, or scrap sources, the issuer fills out a special disclosure they are not required to take further action. report known as Form SD to describe the RCOI This applies both to original equipment used to reach that determination and that is Issuers manufacturers (OEMs) and those who the extent of the reporting requirement. “contract to manufacture”. Companies are expected who private label, meaning affix their If the RCOI indicates that the Conflict to conduct a brand, marks, logo or label to a Materials came from a Covered “reasonable country generic product manufactured by a Country, or the issuer believes that of origin inquiry” third party, are not subject to the rule. it may have come from a Covered (RCOI) if Conflict Companies who service, maintain or Country additional reporting and Minerals are repair products manufactured by a ultimately, third-party auditing, is third party are also not subject to the required. In the transition period of the found. rule. rule, issuers must conduct due diligence on the source and chain of custody of the Issuers subject to the rule who have products Conflict Materials originating from Covered that incorporate Conflict Minerals either for functionality Companies. The due diligence process must be based or as part of the production process, are next required on a nationally or internationally recognized due diligence to determine if those minerals originated in the Covered framework. The guidelines mention the due diligence Countries. guidance approved by the Organisation for Economic Co-operation and Development (OECD) as one example In doing that assessment, SEC guidelines also eliminate of an acceptable framework. products where Conflict Minerals occur as a by-product of the production process and instances where the Conflict If the due diligence indicates the Conflict Minerals are not Mineral is used as a catalyst but not contained in the final from a Covered Country or have come from recycled or product. scrap sources, only Form SD must be filed.
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To Be Continued
Learn the facts about Dodd-Frank section 1502's new rule on Conflict Minerals and how it will effect your company and supply chain: What role should your EMS provider have in the compliance process? What are the key milestones in "Over 6,000 issuers will the implementation timeline? be directly impacted by Dodd-Frank" How is the industry responding? -Ernst & Young Does your company's due diligence process align with the industry's best practices? 7 Pages, 92KB
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