MetalMiner is pleased to welcome Mr. Lawrence Heim, Director of The Elm Consulting Group International, LLC, an independent environmental, health, and safety consulting practice, as a guest contributor. According to their website, Elm was engaged by a leading US-based electronics manufacturing industry association to conduct the first independent third-party Conflict Minerals supply chain traceability audits, supporting the association’s “Conflict-Free Smelter” designation for tantalum.
Supply Chain Traceability Auditing Under the US Conflict Minerals Law
Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (signed into law by President Obama on July 21, 2010) establishes what has become known as the Conflict Minerals Law. This series of articles focuses on Section 1502(b), which mandates supply chain due diligence and public disclosure related to the source of the minerals.
Fundamentally, the US Conflict Minerals Law contains two closely connected requirements: independent third-party supply chain traceability audits, and reporting of audit information to the public and the Securities and Exchange Commission (SEC). However, even companies not directly regulated by the SEC will be directly impacted by the audit requirements (we will explore this issue as part of a follow-up post).
The Secretary of Commerce and by extension, the SEC is empowered with the authority for implementation, oversight, enforcement and Congressional reporting of the Law. This is critical in understanding the importance and visibility of and risks related to the supply chain traceability audits. These audits, or at least their summaries, are to be incorporated into SEC regulatory filings in some manner. (The form of the SEC regulatory disclosure is not yet known. The full supply chain traceability audit report may only need to be made publicly available on a company’s website rather than being directly incorporated into SEC filings.)
Definitions are set forth in Section 1502(e). The term “Conflict Minerals is defined as:
- Tantalum and columbite-tantalite (coltan);
- Tin and cassiterite;
- Tungsten and wolframite;
- Their derivatives; and
- Any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo (DRC) or an adjoining country (Angola, Burundi, Central African Republic, Congo Republic [a different nation than the DRC], Rwanda, Sudan, Tanzania, Uganda and Zambia).
Companies regulated by the SEC must disclose annually whether conflict minerals originated from the DRC/adjoining country and, where that is the case, submit a report conducted by an independent private-sector auditor that includes:
- a description of due diligence/audit process conducted;
- the name of the auditor;
- the facilities used to process the conflict minerals;
- country or countries of origin of the conflict minerals; and
- efforts undertaken to determine the mine or location of origin with the greatest possible specificity.
How can the presence of conflict minerals be identified in products? Companies can use general knowledge of their products and processes, as well as material identification/tracking systems like Bill of Materials (BOMs), Reduction of Hazardous Substances (RoHS) and Material Safety Data Sheets (MSDS). A basic understanding of common uses of conflict minerals is also helpful.
|Metal||Ore, Common Intermediates||Common Products, Uses|
|Tin||Cassiterite; tetrabutyl tin; tetraoctyl tin||Solder, sheet metal, electrical conductors. A component of chemicals in biocides, fungicides. Used in PVC and high performance paint manufacturing.|
|Tantalum||Columbite-tantalite (“coltan); tantalum pentoxide; potassium tantalum fluoride (KTaF)||Powder, capacitors, resistors. In carbide form, used in jet engine/turbine blades and drill bits, end mills and other tools.|
|Tungsten||Wolframite; ammonium paratungstate||Weights/counterweights, electronics, ammunition, welding equipment. In carbide form, used in tools, drill bits, end mills and other tools.|
|Gold||__||Jewelry, electronics, dental products. Also present in chemical compounds in certain semiconductor manufacturing processes.|
Is there an amount of conflict minerals considered de minimis or that otherwise exempts products from this requirement? No.
Can internal resources be used to satisfy this requirement? No, the law specifically mandates the use of independent private sector auditors who must themselves operate and be in accordance with standards established by the Comptroller General of the United States. More discussion on audit standards and where internal resources can be used will be included in a follow-up post.
What form will the disclosure and audit take? While specifics are not yet known concerning the form or content of reporting to the SEC, the full audit report must be made publicly available on the company’s website. The law does not define what is considered an appropriate due diligence effort for the audits. Instead, this is left to individual companies to take into account unique aspects of their materials and supply chains. This approach has benefits and risks. While allowing companies flexibility in meeting the requirements, audit processes may be designated by the Secretary of Commerce as unreliable. If this happens, reports based on such processes will be deemed invalid and will not satisfy the reporting requirements.
Is the audit required if conflict minerals are used as a manufacturing aid but where the end product doesn’t contain conflict minerals? The intent is aimed at conflict materials that are incorporated into a product necessary to the functionality or production of a product. An example used in the SEC-proposed regulation is if conflict minerals are present in a hand tool that is used to assemble an automobile, that tool would not trigger the audit/disclosure requirement for the automaker. This point is likely to be subject to future clarification and interpretation.
If the disclosure is required annually, does that mean new audits of the same sites/suppliers must be conducted annually? At this point, the answer appears to be “yes.
Our next post will discuss the audit aspects of implementing regulations that are currently in proposal/public comment status.
Click Below to Read More Posts in the Series: