What Do You Know About Conflict Minerals?
In January 2021, a new law in the EU came into effect—the Conflict Minerals Regulation. But this isn’t the first time such a law has appeared, as the US passed a similar law in 2010 under the Dodd-Frank Act.
Both pieces of legislature deal primarily with the governance of 3TG: tin, tungsten, tantalum, and gold. These four, critical minerals have been identified as the most susceptible, but not the only, minerals being mined in exploitive ways: through armed conflict or forced labor.
Background on Conflict Minerals
The minerals trade may be used to pay armed organizations, fuel forced labor and other human rights violations, and promote corruption and money laundering in politically unstable areas.
Minerals such as tin, tungsten, tantalum, and gold, often known as 3TG, may be found in common items such as mobile phones and cars, as well as jewelry. This makes it nearly impossible for customers to determine whether a product they have purchased is sponsoring violence, human rights violations, or other crimes in foreign countries.
Due to the difficulty for customers to abstain from conflict mineral products, governments place regulations on minerals to help prevent potential products from containing conflict minerals.
Where Are Conflict Minerals Located?
Take note of this acronym, CAHRA, which means “conflict-affected and high-risk areas.”
CAHRAs are regions in the world with natural resources that contain minerals in great demand, whether locally, regionally, or globally.
Typically these regions also experience armed conflict, such as civil war, or have just finished a war and are in a post-conflict state that leaves them vulnerable to corruption. Additionally, these regions may see poor or non-existent governance that allows human rights violations and other violations of international law.
An extensive, non-exhaustive list of CAHRAs can be found here.
Why Are Tin, Tantalum, Tungsten, and Gold the Primary Conflict Minerals?
The EU and US focus on 3TG because the four minerals are the most commonly linked to human rights violations and armed conflicts.
By focusing on these four conflict minerals, the regulations in place help to take a big step in reducing the illicit practices involved in mining the minerals. These minerals are sold globally, so it is difficult to completely curb any conflict involved. The EU and US both work to promote international guidelines on conflict minerals and also work to help regions that are primary suppliers to combat conflict mineral practices.
More on the EU and US regulations will be expanded upon below.
Who Is Affected by the EU Conflict Minerals Regulations?
The EU conflict minerals regulations directly affect countries that import any of the 3TG minerals into the EU. Whether it’s Afghanistan or the Democratic Republic of the Congo, as long as they are importing minerals into the EU, they are affected by the regulations.
Up to 1,000 EU importers are potentially affected by the EU’s conflict minerals regulations and up to 500 smelters and refiners of 3TG are indirectly affected by the regulations as well.
EU importers are required to identify the smelters and refiners within their supply chains and must check that said smelters and refiners comply with the EU’s conflict mineral policies. If an EU importer finds a smelter or refiner does not comply with the regulations in place, then the importer will manage and report the issue.
A ‘white list’ is being created by the EU that features a compiled list of smelters and refiners that source their minerals responsibly.
To conduct proper due diligence in ensuring conflict minerals stay out of their supply chains, EU importers must responsibly do the following, according to the EU website:
- establish strong company management systems;
- identify and assess risk in the supply chain;
- design and implement a strategy to respond to identified risks;
- carry out an independent third-party audit of supply chain due diligence; and
- report annually on supply chain due diligence.
Not all companies currently conduct due diligence on conflict minerals, but the EU’s new regulation will help more companies remove conflict minerals from their supply chains in the years to come.
More About the US Dodd-Frank Act
The US Congress passed the Dodd-Frank Act in 2010 in an effort to reduce the use of conflict minerals. The act requires certain companies to disclose their use of conflict minerals. If a company does use them, then the company must prove that the minerals are “necessary to the functionality or production of the product.”
The US conflict minerals regulation also focuses on 3TG (tin, tantalum, tungsten, and gold) due to concerns that the minerals were being traded by armed groups in order to finance conflict in the Democratic Republic of the Congo (DRC).
The regulations apply to companies that use 3TG and file reports with the SEC under the Exchange Act and if the minerals are necessary for production.
When a company does use designated minerals, they are required by the Dodd-Frank Act to conduct an inquiry into the “country of origin.” If the inquiry finds no evidence of minerals being sourced from a country of conflict, then a brief description along with the report must be submitted.
If a covered country of conflict is determined in the report, then the company must undertake “due diligence” to ensure the minerals were safely and responsibly sourced from said country.
Find Out More About Conflict Minerals in Your Supply Chain
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