Under the US Dodd-Frank Act, the SEC adopted the US Conflict Minerals Law. More details about this law and its applicability are available on this page, which provides a clear overview of the context of this new law.
Requirements of the US Conflict Minerals Law
Under the final rule, a company must determine whether any of the designated minerals is coming from the DRC or from one of the covered countries. The covered countries are defined as the countries that share an internationally recognized border with the DRC: Angola, Burundi, the Central African Republic, the Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda and Zambia.
a) Country of origin inquiry
The companies must perform a country of origin inquiry in order to determine “whether any of its minerals are originated from one of the covered countries or if they are from scrap or recycled sources” (Fact Sheet “The Use of Disclosing Minerals” published on the US Securities and Exchange Commission Website). The two statements to be verified during the inquiry are:
- The company knows that the minerals did not originate in the covered countries or are from scrap or recycled sources.
- The company has no reason to believe that the minerals may have originated in the covered countries or may not be from scrap or recycled sources.
If one of the two statements above is proven to be right, then the company must publish the decision, the description of the investigation and research undertaken and their conclusions on its website and report it to the SEC.
b) The Conflict Mineral Report
Are the previous statements proven wrong, the company must undertake further steps. The statements to be verified are then:
- The company knows or has reason to believe that the minerals may have originated in the covered countries.
- The company knows or has reason to believe that the minerals may not be from scrap or recycled sources.
If both statements are proven wrong, the company must then perform due diligence on the source and chain of custody and present a Conflict Mineral Report to the SEC and to the public. The due diligence measures must be undertaken in compliance with an US or internationally recognized due diligence framework such as the OECD Due Diligence Guidance.
DRC Conflict Free products
If the company concludes that the products originate from one of the covered countries, but did not finance or benefit armed groups, then the company must undertake an independent audit of its Conflict Mineral Report. The products are then specified as “DRC Conflict Free”.
Not Been Found to Be “DRC Conflict Free”
If a company’s products are Not Been Found to Be “DRC Conflict Free”, then the company must provide following information in its Conflict Mineral Report:
- the products manufactured or contracted that have not been found to be “DRC Conflict Free”
- the facilities used to process the conflict minerals in those products
- the country of origin of the conflict minerals
- the efforts to determine the location of origin of the conflict minerals with the greatest possible accuracy.
DRC Conflict Undeterminable
If a company is unable to conclude that the minerals contained in its products and coming from one of the covered countries do not contribute to the financing or the well-being of the armed groups of these countries, then those products are classified in the category “DRC Conflict Undeterminable”. This category can be granted to a company for a period of two years only. For a smaller company, the period can be extended to four years.
In the Conflict Mineral Report, the company must also describe its products that are in this category; if known, the facilities used during processing if known and their country of origin; and every steps already taken or planned to mitigate these risks, including steps to improve due diligence. The company is not obliged in this case to undertake an independent audit of the Conflict Mineral Report.
Recycled or Scrap Due Diligence
For products containing recycled or scrap minerals, special rules are to be applied, as it is considered as “DRC Conflict Free”. If the inquiry conducted by the company does not confirm that the product is containing minerals that are not from recycled or scrap sources, then it needs to conduct the same due diligence measures as previously mentioned.
Useful are the Fact Sheet summarizing the law and the Final rule published by the US Securities Exchange Comission. They can be found here.
See also the report published by Global Witness that has the aim to provide an overview about the Dodd-Frank Act and precise information on the content and scope of the reports that companies are required to submit to the SEC. Visit this page to access the report.