Many of the products we use in everyday life, such as smartphones, jewelry, and electric cars, require minerals that are found in conflict-affected and high-risk areas of the world. This can lead to our innocent purchases inadvertently funding nefarious activities as demand increases for these resources.
It is estimated that six million people have been killed in the Democratic Republic of the Congo as a result of warfare related to the extraction and export of minerals. And this is one reason why legislators around the world are enacting laws related to how we source and manufacture certain minerals.
This article provides insight into conflict minerals compliance in the European Union and the United States of America. Find out which minerals the legislation refers to, how to comply with the laws, and discover best practices to follow if these substances form part of your supply chain.
In a general sense, conflict minerals are any such resources that are in high demand and which derive from countries that are affected by armed conflict or are still in a weakened post-conflict state. It also includes nations where there is weak governance or reports of international law violations, such as human rights abuses.
The EU has created a list of conflict-affected and high-risk areas (CAHRAs) as a guide.
The legislation in both the EU and the US concentrates on the four most commonly identified conflict minerals:
These four minerals are referred to as 3TG in the industry.
Conflict minerals are important because the purchase of the 3TG minerals throughout the supply chain from conflict-affected countries can fund violence, armed conflict, and human rights abuses.
In some nations, there are battles fought over the ownership of the minerals, with slave and forced labor often used in their extraction. Armed gangs or corrupt governments with control over their supply can use the payments from their purchase to cause further harm to others. Armed groups are said to profit by up to $180 million from the sale of conflict minerals, much of which is spent on weapons and facilitating further combat.
Other issues with minerals originating from CAHRA countries include smuggling of the resources out of the country, taking the funds away from that nation’s economy, and contributing to poverty for millions of people. There is also the widespread use of child labor in countries such as the Democratic Republic of the Congo, as well as the negative environmental impact of the trade.
The EU Conflict Minerals Regulation came into force in January 2021 with the aim of promoting the responsible sourcing of the 3TG minerals throughout the supply chain. EU Trade Commissioner Cecilia Malmström said of the regulation:
"The rules we agreed upon today are a huge step forward in our efforts to stop human rights abuses and armed conflict financed by trade in minerals. I'm convinced that it will have real impact on the ground, for the people suffering from such conflicts. I sincerely hope that the EU model will now set an example for other countries to follow,"
The regulation seeks to break “the nexus between conflict and illegal exploitation of minerals” and lay the groundwork for “peace, development, and stability,” specifying obligations for European importers of 3TG minerals that originate in CAHRAs.
EU importers must carry out robust due diligence on the movement of these minerals by:
Importers of minerals need to confirm when and in which country the minerals were mined, as well as the quantities they import. Both mineral and metal importers should list the trade name and type of the minerals they import and list the names and addresses of their suppliers.
Those importing from at-risk countries should report the mine the minerals came from, where the minerals were consolidated, traded, and processed, as well as details of the taxes, fees, and royalties they have paid on them.
However, the rules are different, depending on where you are in the supply chain:
Note: “Upstream” refers to those companies involved in extracting, processing, and refining raw materials, such as smelters and mining firms. “Downstream” refers to those organizations that further process the metals, including those that make the finished product.
The Dodd-Frank Wall Street Reform and Consumer Protection Act became law in 2010 with the intention of improving accountability in the financial system in the US. As part of the act, there were a number of specialist sections added regarding specialized corporate disclosures.
Section 1502 deals with conflict minerals, relating to the same 3TG minerals as the EU legislation. Often referred to as the conflict minerals provision, it aims to encourage companies to seek out precious resources where the proceeds have not been used to fund armed groups or human rights abuses.
The law places the responsibility on companies to ensure they source minerals responsibly.
Publicly listed organizations must check their supply chains for any 3TG minerals that originate in the Democratic Republic of the Congo or neighboring countries. If they do appear, the company must address any risks of these resources being used for funding combat and ensure human rights have not been abused in their extraction or export.
This involves implementing a due diligence framework and reporting on the measures taken to the Securities and Exchange Commission (SEC) on an annual basis. The company must also prove that the minerals are “necessary to the functionality or production” of a product the company makes or of which the company contracts the manufacture.
The legislation does not prevent the company from sourcing minerals from these countries but rather demands they do so with due care and attention. There are three different outcomes of the due diligence possible:
DRC Conflict Undeterminable – larger companies have two years and smaller firms four years to determine whether the minerals benefited armed groups. This means they must report on the products that contain the undeterminable minerals, the facilities that processed them, the country and specific mine of origin, if known, as well as the steps that will be taken to mitigate risks.
In the US, it is any publicly listed American company that trades in 3TG minerals from the Democratic Republic of the Congo and surrounding nations, wherever they appear in the supply chain.
In the EU, the regulation applies to all EU importers of 3TG minerals, as well as smelters and refiners within the union. However, it also affects non-EU smelters and refiners, as EU importers must check on the processes in place at these organizations within their supply chain, wherever they are based. If they do not apply a sufficient level of due diligence in their processes, EU importers may not want to trade with them in the future.
The European Commission is developing a white list of refiners and smelters who source minerals responsibly that importers can refer to.
The 3TG minerals – tin, tantalum, tungsten, and gold – are the four minerals most likely to be associated with high-risk areas where armed conflict and human rights abuses are rife. This is why both the EU and the US legislation focus on these minerals alone.
Gaining a clear understanding of the entire supply chain journey of the minerals is challenging for companies who are obliged to report on the source of their resources. It can take a great deal of time to manually uncover the information needed.
Companies that discover the relevant conflict minerals in their supply chain must add this information to their report. They should list details about the mine the minerals came from, as well as where they were consolidated, traded, and processed. The taxes, fees, and royalties they paid on them must also be documented.
Conflict minerals compliance relies on a deep knowledge of your supply chain and the ability to analyze transactions and shipments to ascertain where the products came from and how they were extracted. In both the EU and the US, there are a range of reporting requirements for companies to ensure they use only sustainably sourced minerals.
Using Beebolt’s supply chain management platform helps in finding the information you need by tracking and recording the journey of the item and improving the collaboration opportunities with your suppliers. By working better together, you can gain a better understanding of the due diligence processes each company employs and the expectations on the sourcing of minerals. Start using Beebolt for free today.
