Conflict minerals: a clearer path on the horizon.

Author:Low, Jim
Position::FINANCIAL REPORTING
 
FREE EXCERPT

Companies working to meet the mandates of the conflict minerals provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act could have a clearer path toward compliance. Further guidance from the regulators and audit guidelines from the American Institute of Certified Public Accountants (AICPA) may soon be on the way.

Many companies have faced the quandary of cutting through the complexity of the voluminous regulations around conducting their due diligence on tracing the roots of the "conflict minerals" outlined in Dodd-Frank. Meanwhile, in certain circumstances they would need to trace the source of those minerals in a manner that is auditable, furthering the challenges for companies trying to do the right thing.

The U.S. Securities and Exchange Commission (SEC) voted last August to adopt Dodd-Frank Section 1502, issuing a 357-page set of rules for compliance on conflict minerals. Those rules state that companies need to disclose whether products they manufacture contain certain minerals mined in the Democratic Republic of Congo (DRC) and adjoining countries that hold a substantial supply of mineral deposits and, therefore, could affect a large number of companies.

The conflict minerals are commonly referred to as "3TG," for tin, tantalum, tungsten and gold, which are used in a wide range of industries including electronics and communications, aerospace and automotive, jewelry, health care devices and diversified industrial manufacturing.

Congress included this provision in Dodd-Frank because of concerns that the exploitation of these minerals by armed groups is helping to finance conflict in the DRC region and is contributing to a humanitarian crisis. Congress believes that the reporting requirements will provide transparency for investors and, through that transparency, help curb the violence.

The SEC estimates the provision may affect about 6,000 companies in the United States and abroad, as well as many private companies that are part of the supply chains of the companies affected by the reporting requirements.

Three Steps to Follow

Under Section 1502, Dodd-Frank mandates three steps for companies to follow:

  1. SEC-registered companies must determine if they have any exposure to 3TG.

  2. Determine, on a reasonable basis, if the 3TG minerals they use originated in the DRC or an adjoining country. If the metals did not originate in the DRC nations or are considered scrap or recycled, companies must report how they determined...

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