Supply Chain Risk - Conflict Minerals

In 2012, the U.S. Congress directed the Securities & Exchange Commission (SEC) to require companies to publically disclose their use of the conflict minerals (primarily, tin, tantalum, tungsten and gold).

These minerals were and are being used by armed groups from central Africa to finance civil conflicts and wars in the region, contributing to an on-going humanitarian crisis there.

As a result, companies that make products with tin, tantalum, tungsten or gold must collect, track and report on their use at both the product and part level across multiple tiers of their supply chains. Company executives are liable for violations of the act.

Because these minerals are used in a wide range of industries, including automotive and aerospace, medical and dental equipment, and electronics and communications, many large companies have been affected by the act.

But many smaller companies also will be affected if they are part of the supply chains of the global companies subject to the Conflict Minerals provision’s reporting requirements.

Need to Know

A company that uses any of the designated minerals is required to conduct a reasonable “country of origin” inquiry that must be performed in good faith and be reasonably designed to determine whether any of its minerals originated in the covered countries or are from scrap or recycled sources.

Companies also must exercise due diligence on the source and chain of custody of their conflict minerals, and their due diligence measures must conform to a nationally or internationally recognized due diligence framework, such as the due diligence guidance approved by the Organization for Economic Co-operation and Development (OECD).

If a company cannot reasonably conclude after its inquiry that its gold is from recycled or scrap sources, then it is required to undertake due diligence in accordance with the OECD Due Diligence Guidance, and get an audit of its conflict minerals report.

Currently, gold is the only conflict mineral with recognized due diligence framework for determining whether it is recycled or scrap. For the other three minerals, if a company cannot reasonably conclude after its inquiry that its minerals are from recycled or scrap sources, it is required to describe the due diligence measures it exercised in determining that its conflict minerals are from recycled or scrap sources in its conflict minerals report.

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