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Conflict Minerals Regulations Involve Entire Supply Chain
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2014-05-28
The new U.S. Conflict Minerals Regulations can affect the entire supply chain, directly or indirectly, consultant Lawrence Heim told the joint meeting of the National Fastener Distributors Association and the Pacific-West Fastener Association.
Conflict minerals are mined in areas of armed conflict and human rights abuses, especially in Africa’s eastern Congo provinces.
Minerals involved are tin (cassiterite), tungsten (wolframite) and tantalum (coltan) – dubbed the 3T’s or the 3TGs including gold – and are used principally by multinational electronics companies for manufacturing mobile phones, laptops, and MP3 players.
The law is “disclosure-based” – anticipating consumer behavior as “financial enforcement,” Heim explained.  Ultimately the law is about “incentives to stop buying from the DRC.” It does not ban DRC-source material, require product labeling or supply chain audits. The required reporting is with SEC Form SD and due annually starting May 31, 2014, and must have an “executive officer” signature – though not necessarily the CEO or CFO.  The report describes products, due diligence, processing facilities and country of origin.  The information must be published on the company’s website for one year. Third party audits must provide “opinion/conclusion” and the “design of the due diligence framework.”  Audits focus “on the ‘processes’ supporting CMRs, more than the results,” Heim said. Audits do not include supplier audits, verification of DRC Conflict free or material testing/certification.
The law applies to materials originating in the Democratic Republic of the Congo (DRC) and adjoining countries: Angola, Burundi, Central African Republic, Congo Republic, Rwanda, Sudan, Tanzania, Uganda and Zambia. The law puts the U.S. Securities & Exchange Commission in charge of implementation. Regulations require U.S. and certain foreign companies to report and make public the use of so-called “conflict minerals” from the DRC or adjoining countries in their products. Other countries also are considering ways to discourage DRC minerals. 
“Contained in” is a key factor, Heim said.  For example, do materials used in an intermediate chemical process remain in the final product?  Tools, computers and other equipment supporting production are excluded, he noted.
Products containing 3TG can be determined “DRC Conflict Free” if verified as coming from scrap or recycled sources and do not directly or indirectly finance armed groups in the DRC or adjoining countries.
The law applies to publicly-traded companies subject to SEC regulations, including manufacturers, processors and smelters and private label contract manufacturers. Suppliers should (1) determine if the rules apply to their products, (2) inquire about country of origin and (3) provide due diligence. Subject public companies must file Form SD and CMR development by May 31, 2014. Supplying companies may not be subject to SEC jurisdiction.
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2014-05-28

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