Conflict Minerals Law and Supply Chain Traceability – Part Two

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In part of our continuing coverage of rare earth metals and related minor metals, 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.

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.

(Read Part One of this series here.)

SEC’s Proposed Conflict Minerals Regulations

The Conflict Mineral Law requires that implementing regulations be in place by April 21, 2011.   On December 15, 2010, the Securities and Exchange Commission (“SEC) issued its proposed regulations implementing the Conflict Minerals Law.   The proposal was published in the December 23, 2010 Federal Register (75 Fed. Reg. 80948 80975).   Originally the public comment period was to be closed on January 31, 2011, but was extended to March 2.

The regulations attempt to provide more detail on the auditing and reporting aspects of the Law.   However, the law itself mandates certain key aspects and neither the SEC nor the Secretary of Commerce has the flexibility to authorize anything different, even though comment is being sought on all elements of the proposal.   Some of the highlights of the proposal include:

  • “Reasonable inquiry. A company is to first conduct an internal evaluation of its use/possible use of tin, tungsten, tantalum and gold.   Where the company determines that these materials are used in the products in any amount that is necessary to the functionality or production of a product, the company must then conduct a “reasonable inquiry to determine if its conflict minerals originated in the DRC countries.
    • If the company determines that its conflict minerals did not originate in the DRC countries, the issuer would disclose this determination and the reasonable country of origin inquiry it used in reaching this determination in the body of its annual report.
    • If the company determines that its conflict minerals did originate in the DRC countries, or if it is unable to conclude that its conflict minerals did not originate in the DRC countries, the company must disclose this conclusion in its annual report and conduct a Conflict Minerals Report.
  • “Conflict Minerals Report. This report will be required where the mine/source information from the reasonable inquiry either (a) is inconclusive or (b) shows that material has been sourced from the DRC/adjoining countries.   As stated specifically in the statute, the Conflict Minerals Report must be developed by an independent private sector auditor and conducted in accordance with the standards established by the Comptroller General of the United States (i.e., the SEC and related Government Accounting Standards and the American Institute of Certified Public Accountants (AICPA)).   The regulation contains clarifications on the applicable auditor standards including independence, competence and attestations.  As discussed in the previous post, the SEC has the authority to deem any audits/Conflict Minerals Reports as unreliable.   If this happens, reports based on such processes will be deemed invalid and will not satisfy the reporting requirements.
  • Retailers/contract manufacturers.   While the applicability of the Conflict Minerals Law to manufacturers seems fairly clear, the law also extends to contract manufacturers and retailers of private-brand products.   The proposal clarified that the rules are to apply to companies that have influence over contract manufacturers, as well as generic products under a company’s own brand name or a separate brand name that they have established, regardless of whether those companies have any influence over the manufacturing specifications of those products.

The regulations are not intended to apply to retailers “that sell only the products of third parties if those retailers have no contract or other involvement regarding the manufacturing of those products, or if those retailers do not sell those products under their brand name or a separate brand they have established and do not have those products manufactured specifically for them.

In a follow-up post, we’ll review the SEC’s discussion of due diligence as well as the applicability of the law to scrap markets involving conflict minerals.

–Lawrence Heim

Click Below to Read More in the Series:

Part 1

Part 3

Part 4


MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

Register for the live simulcast today!

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