Last week, the US Department of State published a statement on Section 1502 of the Dodd-Frank legislation regarding conflict minerals traceability and due diligence. Specifically, the statement urges companies to “begin now to perform meaningful due diligence with respect to conflict minerals. In addition, the State Department endorsed the guidance issued by the Organization for Economic Co-Operation and Development (OECD) that contains a five-step framework companies will need to consider. This framework includes the following:
- 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 diligence at identified points in the supply chain; and
- Report on supply chain due diligence.
Readers can download the OECD guidance here.
The State Department statement also specifically mentions that companies can rely on the “documented representations of suppliers further upstream so long as the company had taken care in implementing the five-step framework. Finally, the statement also gives a nod of acceptance to the use of industry-wide initiatives to “effectively discharge the due diligence recommendations contained in the guidance.
What we find of particular interest, however, involves the fact that the Department of State released the statement, but the government agency primarily responsible for the development of the regulations (as well as the enforcement) is the SEC (Securities and Exchange Commission).
We turned to our resident conflict minerals expert, Lawrence Heim of The Elm Consulting Group International for his thoughts on the significance of the statement from the State Department and the potential impact on the rules eventually promulgated by SEC. According to Heim, the law mandates that State work with the SEC.
However, Heim said, “Just because the State Department puts forth this statement, does it mean that SEC is painted into a corner? In short, he says no, the SEC can choose to take a different approach, but the reality is that so much momentum and political pressure from NGOs (non-governmental organizations) around the OECD document might make it difficult for the SEC to withstand the pressure. “At the same time, Heim continued, “the SEC will have to look at the OECD document and identify potential areas of conflict with existing SEC audit/auditor standards.
Regardless of the text on the final rules, Heim probably has it right when he says, “Companies should no longer be in a ‘wait and see’ mode. Basic planning, assessment and program development can and should begin now. If nothing more, companies should evaluate whether the OECD Guidance is the appropriate reference point. As we pointed out in an earlier post, that guidance contains a number of pitfalls and auditor impairments that may deter its use by many companies.
MetalMiner will continue to update readers on the development of the conflict minerals rules as per the SEC.
For more background on the legislation, click here to register and download a MetalMiner legislative guide.