3E Perspective: U.S. Conflict Minerals in the Face of Continuing Uncertainty
Conflict minerals and responsible sourcing requirements have become an enduring part of doing business. Beyond the U.S. law, the EU has passed a conflict minerals regulation, private companies such as Apple and Google are independently dedicated to requiring responsible sourcing in their supply chains, and the U.S. has sanctions in place against companies which source “illicit natural resources” from the Democratic Republic of the Congo (DRC).
3E remains committed to delivering a conflict minerals compliance solution that can address business-to-business obligations as well as legal risks which persist in the U.S., Europe and other countries.
The systems and protocols put in place for conflict minerals form a valuable platform for companies, which can leverage such frameworks to meet other obligations such as REACH substance information, California’s Proposition 65 and human trafficking laws like that affecting companies doing business in the UK.
3E continues to evolve with the business landscape, and we encourage our customers to do the same, by building and maintaining strong compliance programs that are resilient in the face of constant change.
New Development on the U.S. Rule
In the latest twist in U.S. conflict minerals compliance, the Securities and Exchange Commission (SEC) published on April 7, 2017 a Public Statement on the effect of the court of appeals decision on the Conflict Minerals Rule. In this Statement the SEC, under direction of the Acting Chairman, announced that they “will not recommend enforcement action” if companies fail to file a “Conflict Minerals Report” along with their Form SD.
What Does this Mean?
Basically, if companies subject to the U.S. conflict minerals law choose to only conduct the Reasonable Country of Origin Inquiry (RCOI) – that is, if you undertake efforts to determine the source (origin) and chain of custody of the tin, tantalum, tungsten or gold (3TG) in your supply chain – the SEC is now saying you can describe this effort in Form SD, and that they will not hold you accountable for taking further steps, which include filing a Conflict Minerals Report on related due diligence on 3TG that is found to possibly originate from the Congo region.
How Should Companies React?
The bulk of conflict minerals work – particularly the work of gaining information on 3TG sources from your supply chain – is still in effect and enforceable. Thus, conflict minerals programs will not be vastly affected by this Statement. While it would be easy to use the SEC’s Statement as a pretext to dial down conflict minerals efforts, this could be a mistake.
First of all, the SEC’s Statement may be unconstitutional. The other current SEC commissioner was quoted in the Wall Street Journal as questioning the SEC Acting Commissioner’s ability to unilaterally change a law passed by Congress and upheld by the courts. This sentiment was echoed by the Enough Project, one of the leading organizations behind the cause of helping to end the extreme violence in the Congo region, which immediately responded to the SEC Statement by calling into question the constitutionality of the Statement.
Secondly, regardless of U.S. law, many companies with large influence on the marketplace – Tiffany’s, Apple, Intel, Google, Microsoft, H&M, among others – have stated their commitment to execute conflict minerals programs regardless of legal developments. Thus, many of your downstream customers are likely to continue demanding due diligence from their supplier network. Industry standards and norms also continue to carry heavy weight in the compliance landscape, many of which include responsible sourcing provisions. U.S. sanctions remain a risk. Companies can also still expect the nonprofits/NGOs to continue high amounts of public pressure on conflict minerals companies.
The Bottom Line
The bottom line is: You must still maintain a program with the aim of knowing the origin of 3TG in your products. The law is still in force. Your Reasonable Country of Origin Inquiry and submission of Form SD is still “enforceable” by the SEC. Thus, you must still have a program in place to determine the original source and chain of custody of the 3TG in your products.
Outside of the U.S. rule, there are substantial legal reasons to sustain a vigorous conflict minerals program at your company:
- The EU now has its own conflict minerals regulation, creating new pressure on European manufacturers to prevent the sourcing of 3TG from conflict affected areas throughout the globe.
- The U.S. has an Executive Order in place making it a sanctioned offense to source “illicit natural resources” from the Democratic Republic of the Congo (DRC).
- There are a number of U.S. state-level laws that may impose further requirements if the federal regulation is weakened.
Both business-to-business obligations and legal risks will persist regardless of U.S. law.
Moving Forward with 3E
3E will continue offering a full service conflict minerals compliance solution. The systems and protocols put in place for conflict minerals form an extremely valuable platform for companies, which can also be used as a framework for a whole host of other obligations.
Our team recommends that companies file Form SD and Conflict Minerals report in May 2017 as planned. Customer relationships, NGO rankings of companies’ filings, consumer and responsible investor pressure will continue, despite the current volatility around the rule.
While the marketplace landscape evolves, 3E continues to evolve with it. We encourage you to do the same, by building and maintaining strong compliance programs that are resilient in the face of constant change.