Conflict minerals: time to develop a compliance strategy.

Author:Low, Jim
Position:FINANCIAL REPORTING
 
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The long wait for direction on the conflict minerals provi-sion of the Dodd-Frank Wall Street Reform and Consumer Protection Act is finally over. It's time for companies to develop a strategy for compliance. On Aug. 22, the U.S. Securities and Exchange Commission completed its deliberations over Dodd-Frank Section 1502 and voted to adopt the provision and issued a 357-page set of rules for compliance.

These rules mean companies will need to disclose whether their manufacturing process or products utilize so-called "conflict minerals" from the Democratic Republic of Congo (DRC) and adjoining countries. 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 these reporting requirements will provide transparency for investors and, through that transparency, help curb the violence.

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

The DRC holds a substantial supply of tantalum and large deposits of gold and tin, which means a large number of companies will undoubtedly be affected by this provision. The SEC estimates it may affect about 6,000 companies in the United States and abroad. Private companies may also be affected if they 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:

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

(2.) Companies must 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 this in a new specialized disclosure Form SD.

(3.) If the 3TG minerals do come from the DRC region--or if the source is unknown--companies must trace the supply chain for the source and furnish an independently audited report on those due-diligence efforts.

The compliance deadlines are already within sight. Under the rules, companies will need to compile data for calendar year 2013 (irrespective...

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