Conflict Minerals Playbook, Understanding the New Rules

Conflict Minerals Playbook, flickr.com/photos/sourcingnetwork/

The conflict minerals law is nearing its first compliance deadline. In less than a year, manufacturers in the United States will be required to report whether their products contain conflict minerals – tin, tungsten, tantalum, or gold (3TG) from regions in and around the Democratic Republic of the Congo.

The new reports will become part of public filings required of all manufacturers under the auspices of the US SEC, and will be scrutinized by journalists, Non-Governmental Organizations (NGOs), and consumers, in the hopes of reducing the exploitation and suffering of laborers and communities in the DRC.

The rules will also be pushed down from US companies to their supply chains.

Are you ready? Do you understand the new rules your organization will have to play by? Have you thought about the processes that will lead to efficient compliance?

The compliance process is illustrated in the diagram below. First, you must determine if 3TG is contained in your products or is required for production. If not, your report is simple, and no other plays are required.

Conflict Minerals Compliance

If your products require 3TG, then you must determine if it was sourced around the DRC. If not, you need only report why you believe so.

If you get your 3TG from around the DRC, you need to perform due diligence with your supply chain to determine the origins of the materials, as specifically as possible. If it turns out that materials originated from certified “Conflict Free Smelters”, then you only need to state that in a report on your due diligence effort, and validate the report through an independent audit.

On the other hand, if armed groups benefitted from your use of the materials, then your organization faces risks of a tarnished brand in the market place.

Initially the implementation of the law includes an “undeterminable” status which only signifies that the manufacturer has sourced 3TG from the DRC region, but is currently unable to trace their supply that “last mile” to the original source. The DRC alone is nearly the size of the western United States. So, the undeterminable status is a practical admission that tracing materials to their original sources is a difficult task, but your grace period will be up after two years.

And what about the participants? Their roles can be confusing. As a football fan, I like to use sports analogies – think of it this way:

  • Manufacturers – Think of them as the team owners. They issue regulated public statements, including Form SDs and Conflict Mineral Reports (CMRs). Company officials are legally responsible for the content of their statements.
  • Report Authors – These are players and coaches, they produce the public statements that everyone wants to see. They may be employees of the manufacturer or outside consultants.
  • Auditors – Independent consultants that you hire to certify your due diligence process conforms to an accepted standard and is properly implemented. This is a similar role to financial auditors.
  • Regulators – These are the referees and league officials. They work for the SEC, either directly or indirectly, and verify that issued statements satisfy the law. It is important to understand that regulators are primarily evaluating compliance with the minimum reporting requirements. They can prosecute manufacturers and auditors if statements are found to be false or misleading, but are less concerned with the effectiveness of the actual due diligence processes themselves.
  • Journalists, NGOs, and Consumers – The devoted fans and commentators that perform deep evaluations as to accuracy of reporting and effectiveness of your due diligence efforts. They may file suits and/or bring evidence to the government, and, yes, they are often vocal in letting their teams know if they are not living up to expectations.

What does your playbook look like today? Are you collecting data  and developing new policies around conflict minerals? Are you evaluating alternate sources?

Learn more about Conflict Minerals compliance solutions.

This is the first in a new series of “playbook” posts addressing conflict minerals compliance. Subscribe to this blog for regular updates and expert commentary on conflict minerals issues.

Photo Credit: Responsible Sourcing Network on Flickr (CC BY-NC 2.0)

About Fred Smith

Fred Smith is a Houston-based PTC process architect with particular interest in supply chain matters. He has spent almost 30 years romping around product development in the aerospace, medical device, energy, and software industries. He has a BS degree in computer science from the University of Missouri, and MS degrees in electrical engineering and computer science from Washington University in St. Louis.
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4 Responses to Conflict Minerals Playbook, Understanding the New Rules

  1. Pingback: Listly List - ptc content audit as of 08-11-2013

  2. Pingback: New Conflict Minerals Rule, EU and Canada to Follow | PTC

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  4. Pingback: Executives Struggle with New Conflict-Minerals Reporting Rule | PTC

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