Get Ahead of Dodd-Frank Conflict Mineral Mandates

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Dr. Nicholas Garrett is a Director of RCS Global and an internationally recognized expert in the company’s six core work areas: supply chain due diligence and conflict minerals compliance, transparency, artisanal and small-scale mining, responsible supply chains, human rights and public policy and institutional reform. He has worked on more than 50 projects for over 10 years and regularly advises a range of clients, including AngloGold Ashanti, AVX, the EITI, Nokia, the Organization for Economic Cooperation and Development, Trafigura, the World Bank, and the World Gold Council, the British, German, Japanese and U.S. governments, the World Wide Fund for Nature (WWF) and World Vision. MetalMiner welcomes his perspective on conflict minerals compliance.

A lack of clarity on how and when key provisions of Dodd-Frank Wall Street Reform and Consumer Protection Act will be fully implemented is leaving downstream businesses in limbo — many of whom are looking to enhance their minerals sourcing compliance.

Conflict Minerals Flowchart

RCS Global’s simple IPSA flowchart. Source: RCS Global.

When passed, the implications of Dodd-Frank 1502 looked game-changing, significantly increasing the obligations on downstream companies using “conflict minerals,” but following an upheld appeal, the requirement to undertake an audit under Dodd-Frank 1502 is in stasis, leaving many companies either unsure as to how to validate their compliance obligations linked to the bill, or whether they should even attempt to validate at all.

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Nevertheless, at some point in the not too distant future, more than 6,000 Securities and Exchange Commission issuers producing products containing tantalum, tin, tungsten and gold — better known as the 3TG — will be forced to make significant efforts to improve transparency, monitoring and oversight of their supply chains, and ultimately determine the source of the materials in a vast range of everyday products.

In research we recently published, RCS Global demonstrate that, despite legislative uncertainty, an increasing number of companies are actually moving beyond the regulators and starting to ‘future-proof’ their compliance programs. Indeed, many companies have stated they will continue to focus on responsible sourcing regardless of the fate of 1502.

Why Compliance Makes Sense

While this may seem surprising to some, we suggest it makes good business sense for several reasons. First, there is general industry acceptance that responsible sourcing as an issue is not going away. Even if Dodd-Frank stalls, E.U. and Chinese regulations — which have the same underlying reporting stipulations as 1502 — are already coming into play. Second, and perhaps most significantly, corporate opinion on the ethics of supply chains is changing as many companies see it both as a customer requirement and a means to promote themselves.

For a small but growing band of companies, responsible supply chains are therefore becoming less of an imposition and more of a preference. Aware of increasing media scrutiny and legislative burden, these compliance trailblazers are choosing to get ahead of the curve and drive reform themselves. Such a forward-thinking approach is likely to pay dividends in the years to come, not only from the perspective of understanding and clarifying their supply chain and supplier base, but also in terms of positive impact on their global brand reputation.

Regulations Will Grow

As consumer and regulatory pressure grows, those companies — able to account for the supply chain journey of their materials — are likely to see greater customer loyalty, find it easier to do business globally (including obtaining investment), and avoid the significant costs of retrospective action to demonstrate compliance with global legislative requirements.

How should companies respond in the new compliance context? Companies are increasingly turning to Independent Private Sector Audits (IPSA) a tool to conclusively demonstrate good practice. It is specifically designed to meet the conflict minerals reporting requirements defined in Dodd Frank 1502, and require companies to demonstrate compliance with the OECD’s Due Diligence Guidance on conflict minerals, globally accepted standard.

Fundamentally, the IPSA tests against two aspects of the company’s due diligence program: first, is the program designed in conformity with the OECD Due Diligence Guidance? And second, has the company done what it has stated it does in conflict minerals reporting to the SEC?

IPSA-audited businesses can pre-empt Dodd Frank 1502, and at the same time align their reporting with both Chinese and E.U. reporting obligations. But the IPSA, or IPSA readiness assessment, goes further. By testing the implementation — as opposed to just the design — of the due diligence program, it reviews whether the systems in place successfully gather supply chain monitoring information, meaning the audit process can actually help improve a company’s practice and operations rather than function solely as a box-ticking exercise.

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The ability to comprehensively demonstrate the source of materials used in a company’s products can no longer be seen as a “nice to have” aspect of doing business. The obligation — from both a regulatory and CSR perspective — is being firmly placed on global companies that use such minerals and metals in their products. The window for getting ahead of fundamental legislative reforms such as DF1502 is closing; but the opportunity to join the growing band of reformers and industry leaders remains.

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