Download this article in PDF format.
In 2010, Congress passed the Dodd-Frank Act, which includes rules requiring certain companies to disclose their use of conflict minerals if those minerals are “necessary to the functionality or production of a product” manufactured by those companies. Under the act, those minerals include tantalum, tin, gold or tungsten (aka, the “3TG” metals).
Congress enacted Section 1502 of the act due to concerns that the exploitation and trade of conflict minerals by armed groups is helping to finance conflict in the DRC region and is contributing to an emergency humanitarian crisis. The final rule applies to a company that uses minerals including tantalum, tin, gold or tungsten if:
- The company files reports with the SEC under the Exchange Act.
- The minerals are “necessary to the functionality or production” of a product manufactured or contracted to be manufactured by the company.
The final rule requires a company to provide the disclosure on a new form to be filed with the SEC (Form SD). Those filings are due on May 31, 2024 and include a few new requirements for the 2023 calendar year.
According to law firm Ropes & Gray, there’s a new non-governmental organization (NGO) report for companies to consider as they review the 2023 smelter and refiner information received from supply chains over the next few months. In mid-October, C4ADS published a report alleging linkages between selected Chinese gold mines and refiners and the Xinjiang region of China.
In addition, Russia sanctions have continued to evolve. For example, in 2023, the firm says multiple jurisdictions strengthened sanctions relating to Russian gold and tungsten. It also cautions companies not to take a one-size-fits-all approach to conflict mineral compliance, knowing that a company’s internal and supply chain-specific factors will impact how the information is gathered and reported.
Early Preparation is Key
In “Your essential conflict minerals compliance checklist,” Crowe outlines some of the steps that organizations should be taking as the May 31st conflict mineral compliance filing deadline looms. Here are four strategies the public accounting firm suggests:
Refresh your policy and procedures. Review your existing conflict minerals policy to edit old ideas and expectations and align them with how to manage responsible sourcing now. “Over the last 10 years, expectations of suppliers or risk mitigation efforts have changed – in some cases, drastically,” Crowe points out. “Policy language should sync with the SEC’s current requirements as well as evolving industry terminology.”
Educate internal teams. Communicating policies, procedures, and goals to new team members during onboarding is critical, as is making sure current team members are notified of any policy updates.
Communicate with suppliers clearly and often. Including conflict minerals and any other compliance requests in these financial business meetings will emphasize their importance and help set expectations. “Suppliers should be aware of companies’ conflict minerals policies and supplier codes of conduct,” Crowe adds. “Additionally, training sessions for suppliers can help communicate these policies and expectations.”
Enhance your supplier engagement methods. Complex supply chains include manufacturers and distributors that may not have direct reporting obligations under the SEC’s conflict minerals rule. “Communicating with suppliers regularly about conflict minerals expectations is important,” says Crowe, which tells companies to ask questions like:
- Does the company require all suppliers to submit a conflict minerals reporting template (CMRT), or can it accept general statements and letters?
- Is the company confident with its identification of “No 3TG” suppliers—those that do not use tin, tungsten, tantalum and gold at a company-wide level?
- How does the company expect its suppliers to respond if there is a high-risk smelter in the supply chain?
- And finally, are a company’s suppliers expected to reach a targeted response rate for their own due diligence?
