The U.S. Securities and Exchange Commission (SEC) in August 2012 adopted a new rule, as mandated by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, requiring companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo (DRC). The new rule took effect in November 2012 and was intended to provide visibility to conflict minerals that funded armed conflict and human rights abuses in the DRC and adjoining countries.

Under the rule’s timeline, filers and suppliers of tantalum, tungsten, tin and gold (also known as 3TG minerals) were required to report in 2012 regardless of origin. In 2014, they were required to complete Form SD and to file a Conflict Minerals Report with the SEC. These documents disclose processing facilities, the country of origin as well as efforts undertaken to determine mine locations.

This year marks the end of the so-called “transition period” during which products could be classified as “conflict undeterminable.” As the regulation was phased in, a company could state that they were unable to determine whether the tantalum, tungsten, tin and gold used in its products came from countries in conflict (specifically the DRC and neighboring countries), or if armed groups in those countries benefited from the sales of these minerals.

The DRC is located nearly in the center of the African continent. However, beginning in 2015 companies will no longer be able to use those phrases. Instead, they will have to prove to the SEC that they are making supply chain transparency improvements and are conducting in-depth track-and-trace verifications. IHS and iPoint experts offered insights into the changing regulatory dynamics during a recent webinar.

“We have had, if you will, these few prep or practice years, and here we are now in 2015 at the end of that transition phase,” says Marc Church, president for U.S. Sales and Operations at iPoint. “Out of the initial filings, we have seen in the last couple of years, approximately 20% of (SEC) filers did take the time to file (conflict minerals reports).” A majority of those filings, he says, used the terms “undeterminable” or “dual determination” in describing the origin of material.

As this tranistion period ends, new challenges will arise for many high-tech and electronic companies.

“This is an annual requirement, so companies will have to survey their supply chain every year to get updated info as well as to show improvement in their year-over-year supply chain transparency,” says Jared Connors, technical sales manager for material compliance, sustainability and conflict minerals at iPoint. “This means you have to demonstrate from 2014 to 2015 that you know more about your sources then you did last year.” Connors says that the law’s primary objective is to verify that companies are not supporting armed conflict in the DRC. “But I would argue,” he says, “that the intention is to prove that you have transparency to all your material sources of origin regardless of where they come from.”

Areas Needing Improvement

How much transparency exists is debatable. While some companies are going as far downstream in their supply chain as they can, others are not. To date, initial filings with the SEC lack specific details, as the filings focus mostly on survey collection and provide little if any explanations as to how companies derived their conclusions, Church says. In addition, little information is provided about planned follow-up actions, how the information gathering process will be improved year-over-year or what kind of feedback companies offered their suppliers to improve data quality.

These shortfalls should change as more required audits are completed and companies continue to survey their supply chain partners.

To help improve this process, the webinar speakers recommended following these steps.

• Refine the data collection process. Because this is an annual requirement, it is worth the effort to refine the process and improve efficiency and effectiveness.
• Give feedback to suppliers. Suppliers may have the obligation to give information, but SEC filers also have the obligation to provide feedback to suppliers, the panelists say. Companies should map out a plan for reviewing supplier data, lay out steps for offering feedback and identify what information is missing.
• Create a systematic approach to address your company’s unique needs and keep supply chain partners informed. Although the regulations are general, the way companies track their conflict minerals use and origin will vary. Helping everyone understand how the process works will smooth out rough spots.

On the Horizon

Addressing the unique needs of supply chain partners is already starting to play out. Previously, companies requested general information about where minerals came from, but now the trend is toward part-level-specific data.

That means companies are breaking down their information requests because they want to know which of their product segments is potentially conflict-free. For instance, if a company makes laptops, mobile phones and other consumer devices, they may refine their supplier surveys to get conflict minerals snapshots of individual parts that are intended for each device. In some cases, it makes sense for companies to have a product-specific conflict-free declaration rather than a company-wide declaration, Connors says.

Proposed legislation in Europe may soon make conflict minerals reporting mandatory for EU importers of 3TG for manufacturing consumer goods. This represents a change in direction as the EU was on track for a voluntary self-certification program for conflict minerals, says Scott Wilson, content solution strategist for the Electronics & Media Group at IHS.

An estimated 880,000 potentially affected EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products, will be obliged to provide information on the steps they take to identify and address risks in their supply chains for the minerals and metals concerned.

“The European conflict minerals regulation is in many ways aligned to U.S. legislation, but it extends the geographic scope to consider all areas of conflict and high risk where conflict minerals are sourced, not only DRC,” Wilson says.