What is Conflict Minerals Compliance?

by Source Intelligence

on July 26, 2022

Conflict minerals compliance is the process of conducting mandatory due diligence to identify the source of conflict minerals in a supply chain and reporting on utilized smelters and/or refiners. Both the United States and the European Union require conflict minerals compliance from companies, suppliers, importers, etc., within the scope of their respective laws. The purpose of conflict minerals compliance is to ensure the sourcing of conflict-free minerals from regions around the world.

What are Conflict Minerals?

Conflict minerals are natural resources extracted from conflict-affected areas by armed groups. Currently, four minerals are considered conflict minerals by both the U.S. and the EU - tantalum, tin, tungsten, and gold. The extraction of these four minerals - often referred to as 3TG - plays a primary role in supporting the continuation of conflict and human rights violations in high-risk areas across the globe.

Profits from the extraction of conflict minerals are used to purchase weapons and pay combatants. This cycle perpetuates war, regional instability, international law violations, and a wide range of human rights abuses, including unsafe working conditions, child labor, and food insecurity.

In efforts to combat unethical practices revolving around the extraction and trading of 3TG, both the U.S. and the EU took action to regulate the sourcing of 3TG in supply chains in the form of the U.S. Dodd-Frank Act and the EU Conflict Minerals Regulation.

While the U.S. Dodd-Frank Act and the EU Conflict Minerals Regulation serve a shared purpose – to ensure that 3TG is ethically sourced from areas not impacted by armed conflict and human rights abuses – they differ in scope, due diligence, and reporting requirements.

Dodd-Frank Act Section 1502 on Conflict Minerals

The U.S. Congress passed the Dodd-Frank Act in 2010. Section 1502 of the Dodd-Frank Act requires publicly traded companies to report on their use of conflict minerals. If 3TG is utilized at any point in a company's manufacturing process and the minerals are “necessary to the functionality or production” of a product manufactured or contracted to be manufactured by the company, the company must file a report with the U.S. Securities and Exchange Commission (SEC).

If a product falls under the scope of Dodd-Frank Section 1502, public companies are required to trace the 3TG minerals back to the smelter of origin via a Reasonable Country of Origin Inquiry (RCOI). The purpose of tracing the smelter of origin is to determine if the 3TG originated in the Democratic Republic of the Congo (DRC) or any surrounding countries. The surrounding countries covered under Section 1502 of the Dodd-Frank act include Angola, Burundi, Central African Republic, Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda, and Zambia.

After conducting the RCOI, companies must complete the Form SD to verify its determination of the origin of the 3TG used in their products. If the 3TG did not originate from the DRC or any of the surrounding countries, the results of the RCOI must be disclosed on Form SD. However, if the 3TG did originate from the covered countries, and the minerals were not sourced from scrap or recycled materials, companies are required to conduct due diligence on the source of the 3TG and file a Conflict Minerals Report. They must also make the report publicly accessible on their website.

European Union Conflict Minerals Regulation

The EU Conflict Minerals Regulation was enacted in January of 2021 and applies to EU-based importers of 3TG. Imported 3TG sourced from conflict-affected and high-risk areas (CAHRAs) fall within the scope of the EU regulation (meaning its scope is larger than that of the U.S. act, which only focuses on the DRC and surrounding countries). The EU regulation addresses upstream and downstream companies and expects compliance at different levels with various requirements.

Downstream companies, including 3TG importers, are required to trace conflict minerals back to their smelter or mine of origin to ensure their supply chain is not connected to or supporting conflict in CAHRAs. Upstream companies that source finished components or distribute end-user products are currently not required to report on their use of 3TG but are encouraged to report voluntarily.

Currently, the EU Conflict Minerals Regulation does not have a specified reporting process for conflict minerals reporting. However, EU-based importers are required to conduct their due diligence via the Organization for Economic Cooperation and Development (OECD) Guidance. Importers must also share the information gathered from their supply chain due diligence investigations with their downstream purchasers. Finally, importers must publicly report their conflict minerals due diligence policies and practices, along with a summary report of annual third-party audits of their supply chain.

Conflict Minerals Compliance Software

Our award-winning Conflict Minerals reporting solution is designed to comply with due diligence requirements for both Section 1502 of the Dodd-Frank Act and the EU Conflict Minerals Regulation. The customizable, technology-driven platform requests and collects Conflict Minerals Reporting Templates (CMRTs) from your suppliers to gather data on the origin of 3TG in your supply chain. The platform also allows you to monitor supplier responses and analyze supplier data with concise, visual reports.

What does this mean for you? Simple, effortless compliance. We’ve helped thousands of companies achieve comprehensive supply chain transparency. Request a demo today to discover how our Conflict Minerals compliance software can make a difference.

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