SiliconExpert’s database, containing data on millions of components, reveals that nearly 25% of electronic parts contain at least one of the four minerals. Has your company completed its due diligence on conflict mineral reporting? Below is a breakdown of the most commonly asked questions about conflict minerals reporting and their answers.
What are Conflict Minerals?
Conflict minerals are organic minerals mined in conditions of armed conflict and human rights abuses, most notably in the eastern provinces of the Democratic Republic of the Congo (DRC). The most commonly mined conflict minerals are cassiterite (for tin), wolframite (for tungsten), coltan (for tantalum), and gold ore. These four minerals, known as 3TG minerals, are extracted from the Eastern Congo and passed through a variety of intermediaries before being purchased by multinational electronics companies.
What are common applications of 3TG Minerals?
3TG minerals could appear in a wide variety of products and devices, including apparel, fashion accessories, watches, eyeglasses, metallized yarns, consumer electronics, batteries, LED lights, solar panels, laboratory equipment, welding tools, dental fillings, and connectors.
The type of mineral determines which product or device it could be used in. For example, tin, or derivatives of tin, are often used in outdoor equipment such as tent poles and as solder in watches and eyeglasses, while gold is often found in zippers and other metal components, or as a composite material in or on jewelry.
What is the Dodd-Frank Act, specifically Section 1502?
The United States Dodd-Frank Act, Section 1502, is landmark legislation that requires manufacturing companies to understand and disclose the use of minerals mined in or around the DRC. This Act requires manufacturing companies to identify and disclose to the U.S. Securities and Exchange Commission (SEC) the source of 3TG minerals used in their products when those minerals originate from or nearby the DRC.
The rule calls for civil penalties against any company knowingly making a misleading or false statement. Outside of legal implications of not complying, issuers may face pressure from nongovernmental organizations, human rights activists, and consumer or other market forces to prove they are conflict-free.
Currently there is nothing that specifically addresses the applicability to intermediate chemical processes using chemicals that contain conflict minerals. There is no minimum content threshold for reporting or auditing requirements.
How has the SEC’s conflict minerals rule evolved?
The SEC’s conflict minerals rules require public companies to disclose all information relating to conflict minerals contained in their products. For the calendar year of 2015, companies subject to this rule must file a Form SD with the SEC by May 31, 2016. Previously, issuers were permitted to describe their products as “DRC conflict undeterminable” in the Form SD if they couldn’t determine the source and chain of custody of conflict minerals in a product, or whether the conflict minerals in the product financed or benefitted armed groups in those regions.
Issuers using the “DRC conflict undeterminable” designation were required to file a Conflict Minerals Report (CMR), but were not required to obtain an Independent Private Sector Audit (IPSA) to assess the minerals’ due diligence process employed by the issuer.
Beginning with Forms SD filed in 2016 with respect to the calendar year of 2015, issuers will no longer be permitted to use the “DRC conflict undeterminable” determination.
As of 2016, issuers must file a CMR as an exhibit to Form SD if they are not a smaller reporting company and are unable to determine that the conflict minerals contained in their products did not originate in the DRC or an adjoining country, while not directly or indirectly financing or benefitting armed groups. As a result of a 2014 court decision, the SEC advised that issuers are not required to describe their products as “DRC conflict free” or having “not been found to be ‘DRC conflict free.’”
Conflict minerals and the covered countries in the rule align with those identified by the U.S. State Department. This means if the State Department modifies its list of conflict minerals or covered countries, the U.S. SEC rule will automatically follow suit. Under the U.S. Conflict Minerals Law, additional minerals may be added in the future.
Alternative Sources of 3TG Minerals
The percentage of the global supply of the 3TG coming from the Congo is relatively small, from 1% to 12%, for most minerals. Tantalum is temporarily much higher, with 30% coming from the Congo, due to suspended production in Australia, the largest supplier of this mineral.
Alternative sources of these minerals include:
The rule does not ban or boycott Congolese minerals, but encourages conflict-free mineral supplies from the Congo through the development of tracing and auditing practices. To determine if the minerals in a product originate from the DRC or a neighboring country, a “reasonable country of origin inquiry” must be conducted. This analysis must be reasonably designed, and if the company knows the minerals do not originate in the region of the Congo, or the minerals are from recycled sources, a new form (Form SD for “Specialized Disclosures”) must be completed. In this case, companies will have to describe the steps that were taken to try to find out the origin of materials. A full Conflict Mineral Report does not have to be submitted to the SEC.
Will you need to submit an annual conflict minerals report?
The answer depends on two critical concepts. First, are you required to file reports with the SEC? Second, are conflict minerals necessary to the production of the product(s) you manufacture? If both are true statements, your company is responsible for filing an annual conflict materials report.