Dodd-Frank reporting requirements for conflict minerals
How to ensure continuous compliance
With the new "conflict minerals" reporting requirements, your company will need to ensure continuous compliance. Assess your readiness."
By Shayne Gregg
Regulations surrounding conflict minerals1 break new ground in requiring end-to-end responsibility throughout the product lifecycle. This new annual reporting requirement – with an initial deadline of May 31, 2014 – could mean either one of the following issues for you:
- A supply chain issue
- An ethical issue
- A compliance issue
And that compliance issue – the most likely your company will need to rise to – will prove difficult but not impossible.
Assess your readiness in four steps
Because the reporting is required annually, what your company is really going to need are customized control frameworks and assurance programs to ensure continuous compliance. We recommend a four-step approach that follows an initial rapid analysis phase to assess the organization’s current state of readiness and arrive at potential approaches across governance, people, process and technology.
- Assess product exposure and governance systems. This will involve establishing a conflict minerals team and structure, evaluating current sourcing policies and communication, identifying and evaluating products for conflict minerals and developing a supply chain life-cycle map.
- Evaluate risks in the supply chain. Here companies will conduct supply chain risk assessments, initiate supplier engagement and communication, assess technology capability and evaluate and develop appropriate education and training.
- Design, develop and pilot program. Based on the results of the current state assessment, a standard operating procedure will need to be developed and deployed.
- Monitor and report. Finally, companies will aggregate supply chain data, identify reporting issues and requirements and assess the completeness and accuracy of their documentation, all the while proactively working with their external assurer. Strategies to further investigate or mitigate risks will be developed at this stage.
At that point, companies will have a strong sense of where they are able to formally confirm their compliance. They will also be in a position to act and report accordingly.
Understand reporting complexities
Further complexity, meanwhile, is driven by the fact that a significant volume of these metals are constantly being recycled. But miners face similar reporting challenges as well. Whether or not you conduct exploration and mining operations in the region or run smelter operations for others, companies will need a strategy to gather and provide assurance to their stakeholders.
The reporting process is also not exactly intuitive. Registrants are required to follow a recognized framework when performing their supply chain due diligence. They must then file a new form (Form SD) describing their country of origin process and, in certain circumstances, include a Conflict Mineral Report and have an Independent Independent Private Sector Audit (IPSA) performed. This is all going to take a significant amount of effort and is not the sort of thing one wants to leave until the last minute.
Are you a manufacturer, a retailer?
The rule impacts manufacturers and retailers the most, given their limited visibility into the origin of their raw material components. If you are a manufacturer or a retailer, you should not wait until exactly this point to reach back to your suppliers and, in turn, the miners, to seek information and formal assurances.
Learn more about the regulation
In August 2012, the U.S. Securities Exchange Commission (SEC) published its final rule on a new provision (Section 1502) under the Dodd-Frank Act that would require listed companies to evaluate and disclose their use of “conflict minerals” sourced from the Democratic Republic of Congo (DRC) and adjoining countries. The provision is similar in spirit to the Conflict-Free Gold Standard set by the World Gold Council in an industry-led effort to “combat the potential misuse of mined gold to fund armed conflict.”
The regulation is not without some criticism, with the U.S. National Association of Manufacturers estimating the new data gathering and reporting processes could cost between $9 billion and $16 billion to implement, compared to the SEC’s own estimate of $71 million annually.2
- Conflict minerals are minerals like tantalum, tin, gold and tungsten sourced in the Democratic Republic of Congo (DRC) and adjoining countries.
- Drajem, Mark; Hamilton, Jesse and Michael J. Kavanagh. Businessweek, August 04, 2011.http://www.businessweek.com/magazine/a-rule-aimed-at-warlords-upends-african-mines-08042011.html