All you need to know about Conflict Minerals

20 Jun 2020

We regularly use various products most possibly containing so-called conflict minerals—rare natural resources such as tantalum, tin, tungsten and gold (3TG), the mining and trade of which results in financial conflicts and human abuse in the Democratic Republic of Congo (DRC) and the adjoining countries.

What is covered in this blog to help manufacturers and suppliers?

  • The challenges in conflict minerals reporting program.
  • Why conflict Minerals training is important for your business and your suppliers.
  • How important it is to file under SEC/ to follow/ comply with CM regulation.

What does the Dodd-Frank Wall Street Reform Act do?

Dodd-Frank 1502 was the first Financial Reform Legislation signed by Former President Barack Obama in 2010 to distinguish between conflict and conflict-free mines.

The main goal of the rule is to choke off funding for warlords and militants committing atrocities to run the mines using forced labor and abusive actions.

As many companies think, the law does not require companies to stop sourcing 3TG from DRC and also does not force to source from conflict-free mines. The law only requires companies to file under SEC to report on the RCOI (mineral sourcing) and due diligence process. It creates transparency among companies which will help to sell or buy products with assured satisfaction to the suppliers and customers. This will enhance a company’s reputation as a good corporate member by avoiding the purchase of raw minerals from conflict mines and also supporting the law against human abuse.

The law is still on its path to reduce the trade of armed militants by significantly reducing the price of conflict-free 3TGs than the price of conflict-3TGs. The high cost and lack of demand created a two-tier market with positive approach for conflict-free mines. This reduces the number of conflict mines in DRC regions.

Approximately more than 75% companies and suppliers accepted the justice behind the law and started to follow the guidelines provided by SEC.

Supplier’s interest on conducting RCOI, due diligence process and third-party audits is increasing day by day. These actions will improve the Business strategies, Compliance status, Supply chain management and financial performance of a company in the wide and wild corporate world.

How to become conflict-free?

A Company needs to form cross-functional teams to efficiently track the source of minerals through supply chain management. It is very important to decide whether to blindly comply with the requirements of the law or to perfectly agree and try to work towards the goal. As we think this is not an easy task to withstand ones Companys’ reputation and goodwill among the Competitors, no matter what, they have to stand against conflict mines and ensure that their tier suppliers also supply conflict-free minerals. It is really good to sign a Compliance agreement with the tier suppliers, distributors, smelters or refiners to prohibit the use of conflict minerals. Once the strategy is set, it is the management’s responsibility to accomplish the task efficiently.

Do you have a question that whether your company is subject to SEC rule?

According to the legislation, the law applies only to publicly traded companies of SEC jurisdiction in U.S. However, it is necessary to comply with the law even if your company does not fall under SEC rule, as your suppliers or distributors may comply with the law. Similarly, your tier suppliers down the globe may require companies including private sectors to remain conflict-free to lead a good business relationship. So, the law gives an international impact, affecting countless number of companies worldwide.

Compliance Challenges:

The first and foremost challenge would be the cost to track down the entire supply chain. The more complex a product, the more complex would be to trace the origin of the minerals used in the product. Aligning thousands of suppliers on a single chain is a huge and costly challenge. After all that, the process is time consuming and error-prone. Thus, compliance documentation becomes impractical for many companies.

Apart from challenges faced by the companies on cost and supplier tracking, Compliance activities play a high priority role in most of the industries.

Compliance Strategies:

Affected companies are under pressure to take action and develop a strategy to comply with the law. Few steps to lead the compliance path-

  • Determine whether your company complies with the SEC law. Understand the legislation established and how it affects your company.
  • Form efficient team to handle the supply chain activities.
  • Conduct a RCOI process to confirm the origin of the minerals used in the products. The RCOI can be processed through EICC and GeSI’s framework.
  • If your products are sourced from DRC regions, then go for due diligence process and third-party audits. The framework developed by OECD is the only available guidance for due diligence process.
  • Initiate trainings and seminars to make the suppliers understand the importance of the Act. Make sure your requirements are clearly explained. This include the Companies responsibility to build a good compliance chain.
  • Review the data gathered from the entire supply chain and take necessary actions. Request your suppliers to remain conflict-free.
  • Prepare a detailed Conflict minerals policy to share with your tier suppliers.
  • File the Conflict Minerals Report (CMR) annually.
  • Eliminate the contact with conflict suppliers for the next reporting as that will help to grow your business relationship with other suppliers and moreover remember that the competitors are gradually increasing in compliance field.

These steps are similar to climbing a mountain. Fortunately, there are numerous data services companies to reduce your company’s burden and support them in Compliance. This will enable your company to face and overcome the challenge of managing, collecting and reporting conflict minerals information with less time and human effort. Finally, the most important target to meet, customer’s requirement and satisfaction, will be accomplished.

Our compliance services focus on training, capacity-building and delivering strategy that allows companies to create efficiencies of their supply chain compliance. Talk to our compliance experts to learn more about being compliant to conflict mineral regulation and mitigate supply chain risks.

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