Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank 1502) requires the SEC to hold public companies ("issuers") accountable for an explanation of where certain minerals and their derivatives originated. The first reports are due to the SEC in May 2014, and many companies are still trying to sort out the best approach for compliance with the new regulatory requirement.
The minerals named in Dodd-Frank 1502 include cassiterite, columbite-tantalite (also known as coltan) and wolframite. Why these minerals? Because they are the ones from which tin, tantalum, tungsten, and gold are derived, and significant amounts of these minerals are mined in areas controlled by armed groups operating in the Democratic Republic of the Congo (DRC) and the nine countries that surround it. (See Figure 1.) In Dodd-Frank parlance, these are known as the "Covered Countries," and Dodd-Frank 1502 directs the SEC to require companies that manufacture products containing tin, tantalum, tungsten, and gold—collectively referred to as "3TG" or "conflict minerals"—to document whether any 3TG in their products have been purchased from the armed groups suspected of committing human rights violations in the Covered Countries.
Beginning on February 1, 2013, any SEC issuer that manufactures—or contracts to manufacture—products in which materials derived from conflict minerals are "necessary to the functionality or production of the product" is obligated to report on the origin of those minerals. Common examples of products likely to contain 3TG include cell phones and many computer and electronic components, but they can also include products as diverse as paint and buttons on clothing. The SEC's final rule on Dodd-Frank 1502 indicates that the agency will view an issuer as having satisfied "the reasonable country of origin inquiry standard if it seeks and obtains reasonably reliable representations indicating the facility at which its conflict minerals were processed and demonstrating that those conflict minerals did not originate in the Covered Countries."
There are certain noteworthy exceptions within the rule. Product packaging is explicitly excluded, so a company whose products are packed in tin cans is not obliged to document the source of that tin. Moreover, a company that can document that the 3TG used in its products were derived from recycled or scrap sources is not obliged to pursue discovery of the metals' origins. Each such issuer must file a form documenting that the minerals came from recycled or scrap sources, but it need not pursue discovery beyond that.
That said, it is still expected that more than 6,000 companies doing business in the United States will file with the SEC, and that 75 percent of them will be obliged to file a "country of origin" report on the tin, tantalum, tungsten, and gold that goes into their products. Generally, they will be obliged to look back through the supply chain, as far down as the smelter that refined the original conflict minerals into the tin, tantalum, tungsten, and gold. As long as the smelter can reliably document that those minerals did not come from the Covered Countries, the issuer need not inquire any further. If, however, the smelter indicates that the minerals did come from the Covered Countries, then the issuer is charged with ascertaining whether or not the minerals that the smelter procured came from an operation controlled by armed groups.
Source: Coultor, C. and Burton, N. 2014. Conflict minerals and corporate supply chains: The challenge of complying with Dodd-Frank. CSCMP Supply Chain Management Quarterly, Quarter 1.