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Conflict Minerals Law

The Source for Legal Insights & Analysis on Conflict Minerals Compliance

Supply Chain Policy and Disclosure Leads to Human Trafficking/Slave Labor Litigation

Posted in Uncategorized

There has been a lot of discussion about the case against Costco relating to its California Transparency in Supply Chains Act disclosure.  Here is the link to the post about the Costco case that I co-wrote for our Global Supply Chain Law Blog .  This case is an example of how supply chain policy and disclosure can lead to litigation.   This has a connection to conflict minerals disclosure.  We’ll discuss that in more detail in our next post.

Conflict Minerals Decision – Now What?

Posted in Legal Challenges

Since December 2014, the U.S. Court of Appeals for the District of Columbia Circuit has been considering (again) the decision it reached previously about the constitutionality of the Conflict Minerals Rule. In an August 18, 2015 order, the Court of Appeals confirmed its earlier ruling that the Conflict Minerals Rule violates the First Amendment to the extent that it requires entities to state that any of their products have “not been found to be ‘DRC conflict free.’”

The Court spent a fair amount of time discussing the First Amendment analysis and the line of cases that govern here. But, the bottom line for commercial entities is that the original finding of the Court of Appeals has been confirmed.

Now that the case has been decided, the next step is to watch for the SEC’s reaction to the ruling and whether it will appeal the decision. The April 2014 SEC Statement (as implemented by the Partial Stay) reflects the SEC’s current expectation relating to filings. But, it is likely that the SEC will issue some guidance (and perhaps some FAQ’s) relating to conflict minerals rule to explain the obligations of entities in light of this decision.

SPIE: Conflict Minerals Reporting Challenges U.S. Companies and Their Suppliers

Posted in Conflict Mineral Compliance

SPIE, the international society for optics and photonics, featured our very own Dynda Thomas, founder and leader of Squire Patton Boggs (US) LLP’s conflict minerals team, in a video presentation titled Conflict Minerals Reporting Challenges U.S. Companies and Their Suppliers.

Dynda provides background on the conflict minerals rule, discusses the application of the rule, and describes the approach to compliance with the rule.

Also featured in the presentation is Douglas Hileman, CRMA, CPEA, P.E., President of Douglas Hileman Consulting, LLC. Doug discusses the independent private sector audit.

To view the nine (9) minute presentation, please click here: Conflict Minerals Reporting Challenges U.S. Companies and Their Suppliers.

Impact of the Development of the EU Conflict Minerals Regulation

Posted in News and Analysis

Editorial Note: This article was published on African Law & Business’s website on July 14, 2015. The article can be found at: http://www.africanlawbusiness.com/news/5682-conflict-minerals-light-at-the-end-of-the-tunnel.  

On 20 May 2015, the European Parliament voted to reject the proposal of the European Commission and the Parliament’s Committee on International Trade (INTA) for a voluntary system of self-certification for importers of tin, tantalum, tungsten and gold (“conflict minerals”) into the European Union. The amended draft regulation marks a significant departure from the proposed draft regulation by calling for mandatory compliance by all importers of conflict minerals from conflict-affected and high-risk areas around the world. Instead of the voluntary system originally proposed, members of the European Parliament called for a mandatory system of due diligence for smelters and refiners.  Supporters argue that due diligence provides a method for companies to ensure that their purchasing practices do not fund armed conflict and human rights violations in areas that are prone to violence and that lack adequate protections from their governments.

In addition, the amended regulation includes downstream companies in the system – companies that purchase from the smelter or refiner all the way down the supply chain to the brand, retailer, or ultimate customer (including component manufacturers, product manufacturers, and original equipment manufacturers). According to the European Parliament, amending the regulation to apply to these downstream companies would expand the scope of the regulation from just 400 European importers, as originally proposed, to approximately 880,000 European companies. (See Article 16 of the draft INTA report on the Parliament website).

Objectives of the Regulation

There are many erroneous reports circulating in the media that the EU draft regulation would prohibit or limit the importation or use of conflict minerals altogether. That is simply not true. The regulation, as originally proposed and as amended, would require companies to disclose what steps they take to address risks in their supply chains for conflict minerals and ensure that their purchases of conflict minerals (or products or components that contain conflict minerals) are legitimate. It is important to note the impact that this kind of disclosure may have on consumers, investors and other interested parties. Customers and consumers may take account of this information in making their purchasing decisions. Investors may consider this information as they make their investment choices. And, non-governmental organizations and activists may use this information to inform their actions and campaigns to criticize (or support) a company and its responsible sourcing and human rights practices.

Due Diligence and Disclosure Obligations

According to the amended draft regulation, all importers established in the EU that bring conflict minerals into the EU would be required to conduct due diligence on the origin of those conflict minerals to determine whether they are from legitimate sources. These due diligence measures must be consistent with the Organisation for Economic Co-operation and Development Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas or an equivalent system. Proponents argue that these measures and this system of disclosure allow companies to share information and develop best practices to put pressure on suppliers throughout the supply chain to source responsibly.

In addition, after they undertake and describe their due diligence measures, the EU smelters and refiners would have to undergo an independent third-party audit of their due diligence practices, to confirm whether the parties are sourcing conflict minerals responsibly. The draft regulation provides that certified responsible importers of smelted and refined metals would not have to undertake audits if they are able to submit substantive evidence that all smelters and refiners in their supply chain comply with the requirements of the regulation. This relief from the audit will put additional pressure on the smelters and refiners to be ‘certified’ because their customers and customers down the supply chain will demand this more and more over time.

According to the amended proposed regulation, the downstream companies would also be required to take all reasonable steps to identify and address any risks that their conflict minerals finance conflict or human rights abuses and would be obliged to disclose information about the due diligence measures they perform to promote responsible sourcing of conflict minerals in their products.

Potential Impact

The US conflict minerals rule focuses on sourcing from the Democratic Republic of Congo and adjoining countries – a specific, identified list of countries. The draft EU regulation expands the focus to sourcing from any conflict-affected or high-risk area (not just countries) anywhere in the world. This broad geographic scope will lead to uncertainty for companies, and they may struggle to ensure that high risk areas are appropriately identified and that the EU member states, activists, and non-governmental organizations will be satisfied with the defined areas. Further, because what is considered to be a “conflict-affected or high-risk area” can change abruptly and often, it will not be possible for companies to focus their attention and responsible sourcing efforts on a specific list of countries.

The goal of the supporters of the amended regulation is that companies would engage in responsible sourcing throughout their entire supply chain and not just with respect to certain countries. But, what is certain is that applying the expanded geographic scope of the regulation to all the downstream companies whose products use or contain conflict minerals (the vast majority of them small and medium sized companies) would place a substantial increased out-of-pocket cost and administrative burden on these companies.

Next Steps

The INTA committee will meet on 13-14 July to vote on whether to enter into trialogue negotiations with the Council and the European Commission on the draft regulation. It is possible that these trialogue negotiations will result in some relief or financial assistance to help small and medium sized companies comply with the regulation. But it is unlikely that there will be changes to the mandatory nature and expanded geographic scope of the regulation as amended by European Parliament.

European Conflict Minerals Regulation Getting Closer

Posted in News and Analysis

On June 16, the European Parliament Committee on International Trade (INTA) met to vote on whether to enter into trialogue negotiations with the Council and the European Commission on the draft conflict minerals regulation, following the partial vote in Plenary session on May 20 (discussed in our June 12th blog post). The Members of the European Parliament (MEP) debated whether it was necessary for the Committee to vote on this question because the entire Parliament had already voted to begin the negotiations. Several MEPs expressed their view that it was not appropriate to hold a vote where the rules of procedure did not provide for trialogue negotiations, and they advocated for a legal opinion on the issue to clarify the legal basis for the vote. Other MEPs called for the vote to proceed and stated that requests for a postponement of the vote would only serve to delay and frustrate the legislative process. The INTA chair ultimately held that the vote should be postponed until the extraordinary meeting of the Committee on June 29.

European Parliament Votes In Favor of Mandatory Certification System for Importers of Conflict Minerals and Disclosure by Downstream Companies

Posted in News and Analysis

On May 20, the European Parliament voted to reject the proposal of the European Commission and the Parliament’s Committee on International Trade (INTA) for a voluntary system of self-certification for importers of conflict minerals into the EU. The amended draft regulation marks a significant departure from the proposed draft regulation, calling for mandatory compliance by all importers of tin, tantalum, tungsten and gold from conflict affected areas. Members of the European Parliament (MEPs) called for a mandatory approach to due diligence for smelters and refiners, to ensure that their practices do not fund conflicts and human rights violations in conflict affected areas. Furthermore, MEPs argued that downstream companies using these materials in the manufacturing of goods must comply with the rules and assess their supply chains for risks, providing information on their due diligence procedures.

As originally proposed by the Commission, the draft regulation would have covered only importers of conflict minerals into the EU. Amending the regulation so that it is also applicable to downstream companies will expand the application of the regulation from 400 European importers, smelters and refiners. Instead, hundreds of thousands of European companies will be required to gather data, make inquiries, review and analyze responses of suppliers.

An expansion of the scope of the regulation to include a much larger group of European companies would place a substantial administrative burden on these companies.  The resulting time and expense of complying could have a negative impact on business and operations of European companies, especially smaller companies. Furthermore, more companies may avoid sourcing from third world and developing countries altogether, which would not achieve the desired results of the draft regulation. None of these concerns will likely be addressed in the negotiations to develop consensus around the draft regulation.

The Parliament will now enter into informal talks with the Member States of the EU to reach consensus on what the final language and provisions of the regulation will be. At this stage in the process, a re-adoption of the voluntary scheme that had originally been proposed by the Commission seems unlikely. Furthermore, it seems unlikely that the larger geographic scope of the regulation (covering all conflict affected areas and not only central Africa) will change. However, negotiations may result in some reprieve from compliance obligations for smaller European companies that would be covered by the EU regulation.

According to its draft agenda, the INTA committee will consider the draft regulation again at its meeting on June 16, 2015.

Conflict Minerals Rule Weekly Recap #101 – May 4, 2015

Posted in Weekly Recaps
April 24, 2015 – May 1, 2015
The summaries provided in this Weekly Recap do not necessarily represent the views of Squire Patton Boggs (US) LLP and should not be deemed to be endorsements of them. The Recap is intended to be a compilation of articles and events to encourage discussion within the conflict minerals community and to keep our readers updated on the most recent developments.

As Conflict Minerals Reporting Deadline Draws Near, Conflict Minerals Filings Begin Rolling In

As of the publication date of this blog post, we will be less than a month away from the deadline to file your 2014 Form SD and Conflict Minerals Report, if applicable, for reporting year 2014. For those counting, this year’s deadline is Monday, June 1, 2015, since May 31st falls on a Sunday.

Recently, companies have already begun filing their Form SD’s and Conflict Minerals Reports. Just last week, Chico’s FAS, Inc., Viasystems Group, Inc. and Micronet Enertec Technologies, Inc. filed their Form SD’s and Conflict Minerals Reports with the SEC.

We make no comment on these filings and our acknowledgement does not necessarily serve as an endorsement of the filings, but we bring these to your attention as you are presumably in the midst of putting the final touches on your respective conflict minerals filings and may be interested in seeing examples of other filings.

NGOs’ Report Alleges Widespread Failure to Comply with Conflict Minerals Rule, Others Refute Report

In a report titled Digging for Transparency, Global Witness and Amnesty International analyzed 100 conflict minerals reports and claim that almost 80% of companies “failed to meet the minimum requirements of the U.S. conflict minerals law.” Further, the NGO’s stated that “only 16 percent go beyond their direct suppliers to contact, or attempt to contact, the smelters or refiners that process the minerals.”

Elm Sustainability Partners LLC, a provider of conflict minerals advisory services, had this to say about the report, “It is our view that the report and its conclusions take liberties with facts and interpretations of the legal mandate.  While Global Witness and Amnesty International may have certain desires for the content of the SEC filings, that does not make for noncompliance with the legal mandates.”

To read more on Elm Sustainability’s analysis of the report, please see its blog post here.

We agree that much of what the NGO’s criticize companies for not doing is not actually required by the Rule, the Instructions to Form SD, or the existing SEC guidance. But, the report is being widely quoted, and companies’ compliance efforts are being mischaracterized. On the other hand, the report gives companies a clear view of what Global Witness, Amnesty International and other NGO’s hope to see in the calendar year 2014 conflict minerals disclosures.

NGOs Update Expectations for Upcoming Conflict Minerals Filings

In September of 2013, Dynda and I highlighted Responsible Sourcing Network’s and the Enough Project’s paper, which detailed certain stakeholders’ expectations about the form and content of a company’s Form SD and Conflict Minerals Report.

Since then, the Responsible Sourcing Network has released additional guidance, including its latest Indicators Shortlist which was published in time for the second round of conflict minerals disclosures. Per Responsible Sourcing Network’s statement accompanying the release of guidance, the NGO stated “this indicator set provides a measurement tool to track and compare activities with a clear and easily replicable methodology that can be used by investors.”

As we did in September 2013, we remind companies in certain industries with active stakeholders that they should look to this paper to anticipate certain stakeholders’ expectations and demands when preparing this round of conflict minerals filings.

European Parliament Committee Votes for a Mandatory System for Conflict Minerals Importers

Posted in News and Analysis

On April 14, the International Trade Committee of the European Parliament (INTA) voted on the amendments to the EU’s conflict minerals regulation that were proposed by its members. The INTA committee adopted an amended report strengthening the system of due diligence for conflict minerals importers that was initially proposed.

The MEPs voted in favor of a mandatory system of certification for EU smelters and refiners. They rejected amendments seeking to extend this mandatory scheme to those who purchase minerals for the production of goods such as mobile phones and other electronics.

The draft regulation covers tin, tantalum and tungsten, their ores, and gold originating in conflict-affected and high-risk areas. Amendments proposing the extension of the scope of the legislation to other minerals and metals were rejected by the INTA committee.

Furthermore, MEPs approved the establishment of a “European responsible importer” label for importers that comply with the regulation and “European certification of responsibility” for “downstream operators.”

The draft regulation adopted by the INTA committee still needs to be approved by the European Parliament as a whole. This vote will take place in the European Parliament’s plenary session in May.

European Parliament Debates the Proposed Conflict Minerals Regulation

Posted in News and Analysis

On March 19, the International Trade Committee of the European Parliament (INTA) met to debate the amendments to the conflict minerals regulation that were proposed by its members. The amendments reflect the views of the political parties that have been expressed in the ongoing discussions in the committee. The debate focused on the question of mandatory versus voluntary self-certification procedures for importers of minerals from conflict affected areas. The other key issue that MEPs raised in the discussion was a list naming responsible importers. An amendment to accomplish this was proposed by the committee’s rapporteur, Luliu Winkler (EPP, Christian Democrat). The representative from the European Commission responded to the points raised in the debate and restated the Commission’s view that the mandatory system would disrupt supply chains and would not lead to a balanced and reasonable solution.

In March, two other European Parliament committees considered the draft regulation. On March 9, the Development Committee (DEVE) adopted its opinion on the proposed conflict minerals regulation. The DEVE opinion would change the proposed system of due diligence from voluntary to mandatory. The DEVE opinion is now annexed to the INTA report, and will be considered by the INTA Committee in its final vote on the issue. On the same day as the DEVE vote, the Committee on Foreign Affairs (AFET) voted on its own draft opinion. However, AFET failed to reach consensus, and the draft opinion did not receive the required votes to be adopted.

The next step in the legislative process is the INTA meeting on April 14, at which the INTA amendments to the draft report, including the annexed DEVE opinion, will be voted on in its entirety. The final report that emerges from this vote will then be voted on in the plenary session of the European Parliament in May.

Conflict Minerals Rule Weekly Recap #100 – March 30, 2015

Posted in Weekly Recaps
March 20, 2015 – March 27, 2015
The summaries provided in this Weekly Recap do not necessarily represent the views of Squire Patton Boggs (US) LLP and should not be deemed to be endorsements of them. The Recap is intended to be a compilation of articles and events to encourage discussion within the conflict minerals community and to keep our readers updated on the most recent developments.

Reuters: SEC Spent $2.75 Million on Conflict Minerals Rule

Sarah Lynch of Reuters reports that the SEC revealed earlier this month that it spent “about $2.75 million to write, implement and defend itself against legal challenges to its ‘conflict mineral rules.'”

SEC Chair White revealed this in response to a request from the U.S. House Financial Services committee.

According to Reuters, the amount represents:

  • 17,000 hours since July 2010 writing the rule at a cost of  about $2.1 million
  • 4,000 hours defending the rule at a cost of $520,000
  • $128,000 spent on updating its system to accept conflict minerals disclosure reports