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Conflict Minerals and Responsible Sourcing
Conflict Minerals, the Dodd-Frank Act and the SEC rule
Updated July 2013
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The US S e c u r i t i e s a n d E x c h a n g e C o m m i s s i o n (SEC)
w a s charged with defining a “rule” for compliance with the
provisions of Section 1502 by the end of 2010, but in taking into
account the contributions from various interest groups this rule
wasn’t finalised and promulgated until August 2012.
DRC is in central southern Africa, and was formerly known as
the Belgian Congo and later Zaire. There is a short seaboard on
the Atlantic Ocean at the mouth of the Congo River, with the port of
Matador; t h e r e i s n o d i r e c t o u t l e t t o t h e I n d i a n
Ocean.
The
surrounding
countries
are
Angola,
Zambia,
Tanzania,
Rwanda, Burundi, Uganda, Southern Sudan, the Central African
Republic (CAR) and Republic of Congo (a separate nation to the
DRC).
Requirements of the SEC Rule
Background to Conflict Minerals in the Democratic
Republic of the Congo
The main intent of the Dodd-Frank Act, Section 1502 is to reduce the
use of so-called “conflict minerals” from
the 10 covered
countries (listed above) through a regime of public reporting and
scrutiny which pressurises
producers
to
take
proper
responsibility for their supply chains. The main outcome of
Concern has been growing over many years in the USA
regarding the ethics of using materials sourced from the Democratic
Republic of the Congo (DRC), particularly in the electronics
manufacturing sector. The reason for this concern was that the sale
of this material by armed militias was funding the civil war in the
region, leading to exploitation of and the use of violence against the
local population. In April 2009, a Congo Conflict Minerals Act was
introduced in the USA, to require electronics companies to verify and
disclose their sources, but this legislation died in committee.
this initiative will be an increased knowledge of the supply chain,
and knowledge of where materials originate. The intent is to
enable continued sourcing of “conflict-free” minerals from these
regions as they provide essential income to a highly impoverished
population. Similar approaches have been successful in other
industry sectors particularly forestry, diamonds (The Kimberley Process)
and clothing.
The SEC Rule refers to Section 1502 of Dodd Frank in defining
“conflict minerals” as:
In the aftermath of the Enron and other financial scandals in the
USA, a major amendment to the Securities Exchange Act of 1934
was formulated. This new law, the Dodd–Frank Wall Street Reform
and Consumer Protection Act of 2010, was passed by the US
Senate on 20 May 2010 before being signed into law by President
Obama on 21 July 2010. Section 1502 deals with conflict minerals.
The original 1934 act has been amended to include this text.
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(B) any other mineral or its derivatives determined by the Secretary
(A) columbite-tantalite (coltan), cassiterite, gold, wolframite, or
of State to be financing conflict in the Democratic Republic of the
their derivatives; or
Congo or an adjoining country.
Conflict minerals and their uses
The primary focus of the SEC rule is on the metals in category A; tin, tungsten, tantalum and gold – often known as “3TG”. The table below
shows the source and some of the more commonplace uses for these materials, together with an approximation of the proportion of the mineral
arising from the DRC region.
Ore
 Element
Examples of uses
Sources and comments
Approx. world supply
from covered countries
(2007)
Cassiterite
 Tin
Solders, solderable coatings, corrosion
resistant coatings, bronze alloys, glass
additive, flame retardants, biocides
Many other sources outside this geography.
1%
Wolframite
 Tungsten
High temperature applications (e.g. lamp
filaments, engines, lubricants, welding,
photomultiplier tubes), hard alloys (e.g.
turbine blades), tungsten carbide drill bits
etc., munitions, radiation shielding, coatings
on ceramics and on silicon ICs.
Many other sources outside this geography.
Major Source (2007) : P R China 85.9%
<1%
13%
Rwanda*
Columbite-Tantalite
(Coltan)
 Tantalum
Tantalum capacitors, high refractive index
glass, power resistors, high temperature
alloys, corrosion resistance.
Few alternative sources outside this
geography.
9% DRC*
9% Rwanda*
Various
 Gold
IC wire bonding, plating, electric contacts
and connectors.
Major Source (2007) : P R China : 43%
Major Source (2007) : Australia 60.7%
Many other sources outside this geography.
< 1%
Major Source (2007) : South Africa 10.8%
Source: USGS unless marked with * in which case EU Communication COM (2011) 25 final, 2 Feb 2011 for 2008/9.
Many of these uses are ubiquitous in electronics and one source of
raw materials will inevitably be the DRC.
Originate) and if so report on where they originated. In doing so they
should take into account that national borders are somewhat “leaky”.
For example, it is thought that Rwanda exports many times the
The S E C Rule applies directly to any organisation (or person),
known as an “issuer”, required to file reports with the SEC under the
Securities and Exchange Act of 1934. This includes parties who:
Are the brand owner of a product.
Contract to have the product manufactured specifically for
themselves.
Have influence over the “product’s manufacturing”.
This would therefore include parties who have design authority over
a product or buy in large volume which is often the case for large
retailers and distributors for example.
They must assess whether any of the covered products contain
elements arising from these minerals (irrespective of where they
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Amount of tin than is actually mined in that country,
which
may
not
be
immediately
apparent
from information received up the supply chain.
The essential steps that an issuer needs to carry out
are summarised in this diagram (right).
Where Issuers manufacture
or contract to
manufacture products and conflict minerals are
‘necessary to the functionality or production’ of these
products, Issuers must make a
‘Reasonable
Country of Origin Inquiry’ (RCOI) to assess if any
conflict minerals originate from any of the 10
‘covered
countries’
.
Understanding
what
‘necessary…’ means is
complicated
but
in
general it would apply to materials in, or used in
production of, a product – not the machinery used to
make the product.
If the
minerals do not arise from the covered countries or
the source is scrap or recycled material the company
only has to report the result of their RCOI. If the use
of conflict minerals cannot be excluded more research
is required and a Conflict Mi nerals Report
(CMR)
produced which must disclose the methods, extent and results of the
inquiry.
Where reporting is required Issuers must complete and file ‘Form
SD’ (Specialized Disclosure Report). The Conflict Minerals Report
(CMR), if required, should be attached. An independent private
sector audit is required to be carried out to the standards laid down
by the US Government Accountability Office (GAO) in the ‘Yellow
Book’.
Free” and be subject to audit.
Public declaration is on an annual basis both to the SEC and on the
company’s public web site covering the previous calendar and must
be submitted by the end of May the following year as shown below.
The first report is due on 31 May 2014 for the 2013 calendar year.
Conflict Minerals outside the supply chain as defined in the rule prior
to 31 January 2013 do not have to be declared.
A temporary category ‘DRC Conflict Undeterminable’ is allowable for
a period of 2 years (for large companies) and 4 years (small
companies) meaning no audit is required. However from the 3rd
and 5th years, these must be described as “not found DRC Conflict
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Addressing conflict minerals - options for industry
Many companies are already coming under increasing pressure to
provide evidence that they are taking steps to address
potential conflict minerals in their supply chains from its
customers and investors among others – even if they are not
an Issuer or in an Issuer’s supply chain. Hence, doing
n o t h i n g a b o u t c o n f l i c t minerals is a high risk
strategy for any company as this could lead
to loss of business or damage to reputation.
Requesting information on conflict mineral compliance from
suppliers is essential. This is often a very difficult process and the
response a n d quality of response is frequently poor even for
relatively straightforward requirements like RoHS. The response for
conflict minerals is likely to be even worse. However, starting on this
road immediately is essential.
How to comply – due diligence
In order to comply, a company will need a detailed and extensive
knowledge of its supply chain. Thus far, the only due diligence
methodology acceptable to the SEC is that developed by the OECD
and is freely a v a i l a b l e . The guidance was developed
as a collaborative project involving the countries where “conflict
minerals” arise, industry and the UN, therefore it carries significant
credibility.
1.
2.
3.
4.
Establish strong company management systems.
Identify and assess risk in the supply chain.
Design and implement a strategy to respond to identified risks.
Carry out independent third-party audit of supply chain due
5.
diligence at identified points in the supply chain.
Report on supply chain due diligence.
Gathering essential information about conflict
minerals
As gaining information from the upstream supply chain is likely to be
long and somewhat convoluted, this activity should be started as
soon a s is prac t ic abl e . Companies should initiate a query of
suppliers
about the presence or otherwise of the
“conflict minerals” in their product, and their country of origin.
Using the EICC/Geri supply chain tool for this purpose makes sense
as this is a widely accepted format. The primary purpose is to
identify the smelters used and if they are conflict-free.
1.
Modify your product database to allow the recording of key data:
a. the request to the supplier; date sent, person sent to, etc. b.
A number of follow up contacts made, with dates and
c.
Responses
The response from the supplier (date received, how it was
e.
validated, follow-up actions)
Which “conflict minerals” may be present in the product,
and in what proportion?
The country of origin of the “conflict minerals” and any
F.
additional pertinent details on the source.
Steps being taken by the supplier to reduce the risk of
d.
“Conflict minerals” being present.
The guidance advocates a five step approach to due diligence:
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2.
As
is
the
case
with
RoHS
compliance,
any
supplier documentation should be signed off by a senior
member of their management team.
3.
The
OECD
guidance
recommends
r e t a i n i n g documentary evidence for a minimum period of
5 years.
What next?
USA
A legal challenge is under way in the USA against the SEC by a
grouping of US industry bodies on the basis that the Rule has not
been properly thought through and costed. However this should not
be used as a reason for delay in starting the supply
chain investigation. Many leading manufacturers are already
committed to eradicating conflict minerals from their products.
Europe
While there are currently no legal requirements covering the use
of conflict minerals within the EU, this has been a matter
of scrutiny
within
the European
Commission ( E C ) and
Parliament for many years. A consultation by the EC on policy
options closed in June 2013 and they intend to publish legislative
proposals by the end of 2013. It is probable that requirements will be
essentially consistent with the SEC rule. However, the EC is
particularly concerned that EU policy promotes continued
responsible sourcing of minerals from the DRC region so it is
possible that the emphasis will be different with a broader scope both
geographically and in terms of the minerals covered.
Implications and next steps for industry
While the SEC Rule applies directly only to Issuers, of
necessity it impacts their supply chains as they seek
better information on conflict minerals from their suppliers. It
is adding pressure on companies formally outside of scope to up their
game both from customers and lobby groups. Companies are
already being asked serious questions by their customers and
other parties and as such they should develop and implement a plan
to address conflict minerals as a matter of some urgency.
The requirements for meeting conflict mineral obligations are
very similar to those of meeting the EU RoHS Directive or the
REACH Regulation in that, in the event of enforcement action, an
audit trail is necessary to be able to demonstrate to the
authorities, customers and others that a process of due diligence
has been followed. A robust approach to showing due diligence
often makes reference to and uses best practice.
Please note:
The information contained in this guide is of a general nature and is not intended to address the circumstances of any particular individual or entity.
Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is
received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a
thorough examination of the particular situation.
©2013 Premier Farnell plc. Permission is granted for reproduction in whole or in part providing Premier
Farnell plc. is credited. Written in collaboration with ERA Technology Ltd (www.era.co.uk)
July 2013
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