United Kingdom

Conflict Minerals – Time To Act 

The UK’s contaminated meat scandal and building safety are just two recent examples of the pressures companies are being exposed to in their supply chain. Now it’s the turn of conflict minerals. But there is a twist. In the past, many companies’ initiatives have been driven by peer, media and NGO pressure. But this time the supply chain is being regulated.

Thousands of companies are being affected by the US Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires companies to track the source of some of the most commonly used minerals in manufacturing. The purpose of this law is to cease the trade of “conflict minerals”.

 

The Dodd-Frank Act is by no means the only initiative that will lead to greater transparency throughout the supply chain. In March 2013, the European Commission launched a public consultation that explores the possibility of an EU-wide law to encourage responsible sourcing of minerals from conflict-affected and high-risk areas. The main difference between the SEC and the EU approach is that the EU regulation will not just be limited to the Democratic Republic of Congo (DRC) and adjoining countries, like the Dodd-Frank is.

 

In addition there has been a proliferation of industry initiatives to address conflict minerals including:

 

  • The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas 
  • The World Gold Council Conflict Free Gold Standard
  • The London Bullion Market Association (LBMA) Responsible Gold Guidance

 

The objective of all the above is to help companies respect human rights and avoid contributing to conflict through their mineral sourcing practices.

 

Regulatory requirements around the supply chain look set to increase, which makes the importance of having a flexible and institutionalised process all the more critical. Any company that supplies an SEC registrant is already affected, irrespective of where they are based and the indications are that conflict mineral reporting will extend beyond the US in the future. No-one can afford to sit back and watch.

 

What are conflict minerals?

 

According to the Dodd-Frank Act, the term ‘conflict minerals’ covers four specific minerals mined in the DRC and adjoining countries. The four minerals are: Gold, Cassiterite (Tin); Columbite-tantalite, (Tantalum); and Wolframite, (Tungsten).  Collectively, they are referred to as ‘3TG’.

 

On the other hand, the OECD -  and by reference the WGC and LBMA -  although also referring to the 3TG, does not constrain the definition of conflict to the DRC.  It refers to “conflict” and “high-risk areas” where “conflict” is defined as the presence of armed conflict, widespread violence or other risks of harm to people.  “High risk” on the other hand includes areas of political instability or repression, institutional weakness, insecurity, collapse of civil infrastructure and widespread violence. So for example, a company that wishes to comply with both the Dodd-Frank and the LBMA guidelines will not be able to restrict the definition of “conflict” to the DRC.

 

What sectors are affected?

 

3TGs are used in a wide range of products. Typically, they are components of products in the Electronics and Communications, Aerospace, Automotive, Jewellery and Industrial Manufacturing sectors; however they are also known to be found in components in the Fast Moving Consumer Goods Industry, e.g. tin in food cans or in the screw caps of shampoo bottles.

 

What does the Dodd – Frank Act require?

 

Section 1502 of the Dodd-Frank Act requires companies to determine if 3TG metals are used in the manufacture of their products and, if so, determine whether they originated in the DRC countries. Companies are required to trace the supply chain for the source and produce an independently audited report on their due diligence efforts. If the metals did not originate in the DRC, companies must report how their origin was determined.

 

Who must comply with the Act?

 

The Act applies to any company that files an annual report with the US Securities and Exchange Commission (SEC). SEC registrants will also need to gain assurances from their Tier 1 suppliers about the source of minerals used in the manufacture of their products. Even companies which are not registered with the SEC but who supply SEC registrants will need to put processes in place to trace and provide evidence of their materials’ origins.

 

From when do the rules apply?

 

Companies are required to produce a report for each calendar year, irrespective of their own fiscal reporting dates. The first reporting deadline in respect of the 2013 calendar year is 31 May 2014 and the reporting deadline will fall on 31 May in each subsequent year.

 

Clients use our services to

 

  • Design and implement a supply chain management tools, including designing governance, monitoring and reporting structures
  • Identify and assess risks in the supply chain by identifying suppliers of 3TG metals and designing a process of necessary due diligence for those suppliers. The most successful due diligence processes have been designed to be repeatable and adaptable to new suppliers through the development of standard operating procedures.
  • Manage their reporting and audit requirements. This includes: compilation of Conflict Minerals Report including documentation of due diligence steps taken; knowledge transfer and roll out plan; and audit preparation. Find out more about our Audit Services in Conflict Minerals  

 

To download our latest Thought Leadership on Conflict Minerals please visit our Centre of Excellence on Conflict Minerals (Global link)
 

Share this

Share this

Contact us

Lynton Richmond

Lynton Richmond

Partner

KPMG in the UK

020 7311 4701

Email Lynton