(Dodd-Frank Act, Section 1502 and the pursuant SEC rule), and EU policy proposed, the pressure on the supply chain is increasing. Non-compliance is always a significant issue for business, but conflict minerals carry a highly emotive political and ethical payload.
It is estimated that over five million people have died in the violence engulfing the Democratic Republic of Congo (DRC) since 1998 – the most major war since World War 2. For a company to have its products implicated with the use of illegally sourced tin, tantalum, tungsten, or gold (3TGs), the proceeds of which may be used to fund illegal groups, is no small matter.
One reaction has been for companies to turn their backs on the DRC region to ensure they do not get their hands dirty, but in doing so this has devastated communities who rely on subsistence mining to survive. The European Union is well aware of this and is seeking to minimize such an effect arising from in its own policy response. The European Commission calls this “responsible sourcing” and the principle elements of this are:
- No focus on any particular region – but instead any “conflict affected and high-risk area.” This could in principle include sources from many other mining regions such as in South America, South East Asia, Eastern Europe, and elsewhere.
- Limited to the 3TGs for now – but there is recognition that conflict doesn't just affect these metals leaving the door open for broadening of scope in due course.
- No regulation – instead voluntary self-certification of “responsible importers” of minerals/metals based on OECD guidance, but requiring 3rd party audit.
Hence the focus would be on the “pinch point” in the supply chain, the smelters and refiners of the metals rather than the US approach which targets the top tier of hardware producers.
In a recent webinar by Edif ERA for Compliance & Risks , we asked the audience what they thought would be the most effective compliance solution for conflict minerals in the EU. We provided three options:
Our predominantly downstream industry audience identified the most effective approach, with 58% of the vote, as mandatory certification of importers (i.e. regulation). Meanwhile, 24% favoured mandatory due diligence by the party putting the product on the market in the EU (similar to the U.S. law). The Commission's proposed approach (option 1) attracted only 19%.
These results neatly set out the main positions, which will be debated in 2015 by the European Parliament, Commission and Council of Ministers – with input from many other interests. This may even see the downstream industry aligned with some campaigners regarding regulation of importers of minerals and metals – though they are more likely to differ on regulation of the final product maker/importer. Even so there is serious intent in industry to do what they can to clean up the supply chain – what they want is legal certainty and a level playing field.