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Conflict minerals – Does it concern my company?

Industry requirements for compliance to the Dodd-Frank Act

The Dodd-Frank Act was named after the two legislators who created it. On July 21, 2010, US President Obama signed the Dodd-Frank Wall Street Reform Act into law. This legislation provided a comprehensive reform of the financial market targeting eight areas of regulation, one of which involves the industrial use of conflict minerals.

Conflict minerals are those minerals that are extracted in a conflict zone and often sold to perpetuate the fighting. Section 1502 of the Dodd–Frank Act is intended to make transparent the financial interests that support armed groups in the Democratic Republic of the Congo (DRC) area. By requiring companies using conflict minerals (Tungsten, Tantalum, Tin and Gold) in their products to disclose the source of such minerals, the law is aimed at dissuading companies from continuing to engage in trade that supports regional conflicts. Section 1502 is applicable to all SEC (US Securities and Exchange Commission) issuers (including foreign issuers) that manufacture or contract to manufacture products where “conflict minerals are necessary to the functionality or production” of the product.

The SEC final rule provides for a three-step disclosure process:

  • The issuer determines if the conflict minerals are required in their product. If the answer is yes, further disclosure is required and you go to step 2.
  • The issuer is to conduct a “reasonable country of origin inquiry (RCOI)” to determine if the conflict minerals originated from the Democratic Republic of the Congo (DRC)?
  • If the minerals are not from the DRC, the Issuer must provide annually a Special Disclosure report (SD report) and brief description of the reasonable country of origin.
  • If the minerals are from the DRC, the Issuer has to complete Step 3.
  • An issuer using conflict minerals from the Congo that are not from recycle or scrap sources needs to conduct due diligence, and potentially provide a Conflict Minerals Report (CM).
  • Due diligence (DD) must be based on a nationally or internationally recognized DD framework and aim to determine whether the issuer’s minerals are financing armed groups or not (DRC conflict free). The CM report must be audited by an independent private sector auditor.

According to the law, SEC issuers have to go upstream in their supply chain to adhere to this three-step process. In addition, their suppliers have to go upstream in their supply chain, and so forth. This process is finished when the minerals in the products can be tracked back to the mining company and that information can be forwarded by the issuer to his customers. The issuer must make its Special Disclosure (SD) report or its Conflict Minerals Report available on the issuer’s Internet website for one year.

Due to these requirements, a large number of companies worldwide are affected by the law even if they are not SEC issuers. However, because this is a US regulation, there is actually no other law in place that can force a non-issuer from outside the US to certify its conflict mineral status. Of course, there is the indirect pressure that exists from competitors who can provide this information. While the legislation does not forbid the use of these minerals, it does indirectly force companies to comply based on the “name & shame” principle, since no company wants to have its name associated with the support of armed conflict and human rights abuses.

By May 31, 2014 the SEC issuers have to provide a report to the SEC with their statement. However, due to the complexity of the topic and the actions required to complete due diligence on mineral sourcing, companies will be allowed to describe their products as “DRC conflict undeterminable” for a transitional period, as long as they do not know the source of the minerals. This transitional phase will expire by 2016 for large SEC issuers (>US$ 75 million in public float (~>50 Mio revenue)) for reporting 2015 findings and in 2018 for all remaining SEC issuers for reporting 2017 findings. If the transition period has expired and there are still minerals of undeterminable origins to be reported, the issuer will have to describe them as having “not been found to be conflict free” in an audited Conflict Minerals report.

Enics unreservedly supports efforts to sever the connection between the mining of minerals and the funding of armed conflict. Enics is therefore happy to cooperate with the requirements for mineral sourcing under the Dodd-Frank legislation and is taking the appropriate actions to support its customers to avoid illegal and unethical mineral sourcing in the products that we manufacture for them.

Are you interested in learning more about this topic?
Would you like to hear about how we can support you in complying with the Dodd-Frank Act? Contact our Engineering Team (For Industrial OEMs only):
marketing@enics.com

Some additional information on what the SEC says about Conflict minerals can be found at:http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171484002.