Chances are that you are aware of the push for transparency and increased due diligence in supply chains. One of the drivers of this pressure comes from a regulation passed in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Section 1502 of the Dodd-Frank Act requires all Securities and Exchange Commission (SEC) reporting companies to disclose whether their products contain minerals from the Democratic Republic of the Congo (DRC), or one of its neighboring countries.

The regulation set in motion a due diligence effort by hundreds of companies to examine their entire supply chains to ascertain if any of their products contain tin, tantalum, tungsten, or gold (3TGs). Companies are required to file a Form SD with the SEC and, if due diligence reveals the presence of 3TGs in their products, companies need to file an additional Conflict Minerals Report describing the due diligence undertaken to locate the source of the minerals.

The regulation was finalized in 2012, with the first reports filed in 2014. Since 2014, between 1,100 and 1,400 companies have filed annual forms with the SEC that describe the due diligence efforts taken to locate the source of the minerals in their products.

In 2017, however, the SEC stated that it would suspend enforcement of the due diligence and audit requirements of the conflict minerals regulation. Does this mean that companies need not worry about conflict minerals in their supply chains? Not at all. Supply chain transparency efforts for 3TGs are not going away. Despite relaxed enforcement by the SEC, the regulation remains in force, and companies are expected to continue to file disclosures about the source of minerals in their products. Additionally, Maryland, California and Oregon have state regulations that mirror Section 1502 of the Dodd-Frank Act.

EU Conflict Minerals Regulation

Companies with global supply chains need to be aware of international measures similar to Dodd-Frank Section 1502. In January 2021, the European Union (EU) Conflict Minerals Regulation will go into effect. Like Section 1502 of the Dodd-Frank Act, the EU regulation targets 3TGs and requires companies to disclose the origin of the minerals. Unlike Section 1502 of the Dodd-Frank Act, the EU provision applies to importers of the minerals rather than the end product companies. Additionally, the EU regulation does not categorize conflict minerals as only those mined from the DRC and its neighbors; instead, the regulation considers conflict minerals as those originating from any conflict zone or high-risk area. High-risk countries can include those that have weak or non-existent governance structures, or have systematic violations of international law, including human rights abuses.

Why This Matters

Companies in the U.S. should continue to perform due diligence on their supply chains. In particular, companies with SEC reporting requirements and 3TGs in their products should continue to comply with the mandatory disclosure requirements. Companies based in the EU, or with subsidiaries in the EU, should be aware of the upcoming EU reporting requirements.  Although the EU law only applies to EU-based importers, companies upstream and downstream should be aware of the due diligence efforts required.

Section 1502 of the Dodd-Frank Act and the similar EU Conflict Minerals Regulation will not be the end of the push for transparent supply chains. It is in the interest of companies to begin efforts to understand and know the extent of their supply chains, even if 3TGs are not present. The pressure for transparency will only increase, both in the U.S. and internationally.

Karen Woody is an Assistant Professor of Law at Washington and Lee University School of Law, specializing in securities law, financial regulation and white-collar crime. Her expertise on conflict minerals regulations saw her testify for the U.S. House of Representatives Financial Services Committee, and her work on the subject has been widely cited. Prior to her work in academia, she practiced law at several firms, advising corporate clients and individuals on compliance issues, securities and accounting fraud and international corruption, among other subjects.

Karen Woody

Professor, Washington & Lee University School of Law – Professor Karen Woody teaches at Washington and Lee University School of Law, focusing her research on securities law, financial regulation, 

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