The New EU Conflict Minerals Regulation — Is It Something To Be Thankful For?

Since the US Presidential Election 2 weeks ago, some have been looking forward to a possible repeal of the US conflict minerals rule by a newly-elected Trump Administration. But, the completion of the negotiations on the new EU conflict minerals regulation makes it clear that companies should not slow their due diligence efforts on the source and chain of custody of the tin, tantalum, tungsten and gold in their products.

The negotiations of the EU conflict minerals regulation concluded yesterday (November 22, 2016) through the so-called “trilogue negotiations.” This is another major step toward the final adoption of the legislation and the establishment of an EU legislative framework for conflict minerals.

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UK Modern Slavery Act — Let The Posting Begin

Many organizations started voluntarily posting their modern slavery and human trafficking statements months ago. But now, the Modern Slavery Act’s transition period is over, and there are real deadlines to meet.  Covered companies with financial years ending 31 March 2016 must post statements as soon as reasonably practicable but within six months of their financial year end.  For those companies, their deadline for posting a statement was 30 September 2016.   Non-governmental organizations have already started reviewing, scoring and rating posted modern slavery statements.  So, in addition to focusing on the content of the statement, it is important to attend to the Modern Slavery Act’s technical requirements so that the statement is viewed as being compliant.

Here are a few technical requirements to keep in mind:

  • The statement should describe the steps taken by the company during the financial year covered by the statement.
  • The statement must be approved by the Board of Directors.  If the board of directors meets only quarterly, the statement needs to be prepared early enough to meet the Board’s meeting schedule.
  • The statement must be signed by a director. The person signing is intended to be a senior person in the business to assure accountability. So, it is best for the person signing to be a statutory director. Website content is not typically “signed,” so this is an unusual requirement and is sometimes missed.
  • Companies must include a link to the modern slavery statement in a prominent place on their website’s homepage. According to the Home Office Guidance, this means a link that is directly visible on the homepage or part of an obvious drop-down menu on that page. The Guidance recommends a link that uses words such as “Modern Slavery Act Transparency Statement” so that the contents of the link are clear. Website content is important for organizations, and it can be a challenge to meet these posting requirements.  At the very least, it takes time and coordination to implement a homepage link, so that additional time must be built into the compliance schedule.
  • Finally, a UK quoted company should consider how its Modern Slavery Act statement fits in with the Strategic Report and Directors’ Report required by the Companies Act 2006, which requires a report on human rights issues where necessary to understand the company’s business.

Budgeting for Conflict Minerals Compliance: Apps and Platforms — Is That All I Need?

As we approach the end of conflict minerals compliance year 4 (with 3 years of reports behind us), companies are budgeting for how they will address conflict minerals in 2017.  Since the SEC rule took effect, supply chain professionals and in-house lawyers have found that compliance is complicated, time-consuming, and still changing because of the increasing expectations of non-governmental organizations and other stakeholders.  Companies are eager to find a compliance solution that will take less time and fewer resources. The “bad news” is that, although IT and software solutions can be an invaluable tool and provide great value, companies cannot expect to comply with the SEC rule’s requirements solely by entering into a relationship with a strong software provider.

To be sure, software and IT solutions can provide invaluable assistance to companies as they implement and improve their conflict minerals programs.  But, there are many important elements of conflict minerals compliance and reporting that are simply not addressed even by the best IT or software systems.   You will want to make sure that your board and senior management understand that signing the contract with a software provider is the start (and not the end) of your compliance work.  They may need to understand that your budget contemplates additional resources to complete your annual reasonable country of origin inquiry, due diligence, and reporting.  And, it would be wise to continue to include room in your budget for auditors and legal advisors.  (We won’t discuss the independent private sector audit (IPSA) here, but there has been no change since last year and no additional guidance on IPSAs from the SEC.)

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SEC Conflict Minerals Rule Legal Challenge is Over – But Not For Good

What Just Happened?

April 7, 2016 was the deadline for filing a petition for writ of certiorari to the US Supreme Court seeking a review of the court of appeals’ decision on the conflict minerals rule.   The SEC did not file the petition, and Amnesty International (the intervenor in the case) did not make the filing either.

In her March 4, 2016 letter to House Speaker Paul Ryan explaining the government’s decision not to file the petition for a writ of certiorari, Attorney General Loretta Lynch walked through key elements of the court of appeals’ decision and offered a glimpse into the next procedural steps for the rule.   First, she recited the court’s decision that the conflict minerals rule’s disclosure requirements:

violate the First Amendment to the extent [they] require regulated entities to report…that any of their products have “not been found to be ‘DRC conflict free.’”

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UK Modern Slavery Act 2015 – 2 Weeks Notice

If your organization has a financial year-end of March 31, 2016 and is covered by the UK Modern Slavery Act 2015 (MSA), yours is in the first wave of MSA statements (MSA Statements) that must be published. The MSA Statement will set out what steps your organization has taken during the financial year to ensure that slavery and human trafficking is not taking place in your supply chains or in your own operations. The first MSA Statements that are due will cover efforts undertaken between April 1, 2015 and March 31, 2016 (Year 1).

So, for the most part, steps taken after March 31 (less than 2 weeks from now) will not be relevant to your first MSA Statement. (Remember, for an organization with a financial year-end of April 30, 2016, your first MSA Statement will cover efforts undertaken between May 1, 2015 and April 30, 2016 and so on.) If your organization is in the first wave of MSA Statements that must be published, you do have a bit of time before you need to start drafting your MSA Statement. But, you should consider now whether there are any additional steps you can take before March 31, 2016, so that those steps can be included in your MSA Statement for Year 1.   You are free to include a description of what you plan to do going forward. But, a description of plans is optional and what the MSA requires is information about efforts that were actually undertaken during Year 1.

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Conflict Minerals Legal Challenge — Another Extension

The next and last step of the legal challenge of the SEC’s 2012 conflict minerals rule would be for the SEC to file a petition for writ of certiorari to the U. S. Supreme Court.  The deadline for making that filing has been extended again, this time from March 9th to April 7th, 2016.

EU Conflict Minerals Regulation — What’s Going On?

Many of you are asking what is happening with the EU conflict minerals regulation, what is the likely timing for adopting the regulation, and what should you do now to prepare.

Process — The development of the EU conflict minerals regulation has now entered the final negotiation phase. This phase, known as the “trialogue negotiations,” involves informal meetings between the Council of the EU, European Parliament and European Commission. This phase follows the adoption of the official position by the Council of the EU at the end of December 2015. The position of the Council of the EU is unfortunately not publically available.

The Council’s position was reached during the Luxembourg presidency which ended on 31 December 2015. The presidency of the Council rotates every 6 months between member states and moved from Luxembourg to the Netherlands on January 1, 2016. The issue of conflict minerals has been identified by the Netherlands as one of its priorities with the aim of concluding the negotiations by the end of its term on June 30, 2016. However, the presidency has acknowledged that given the complexity of the issue, a final resolution may not be accomplished until the next presidency, which will be Slovakia.

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EU Conflict Minerals Regulation — Source Intelligence Webinar

Dynda Thomas will be participating in a Source Intelligence-hosted webinar titled “EU Conflict Minerals:  When, What and How to Comply.” She will discuss the key provisions and the status of the proposed EU regulation and how to build your compliance program so that you are ready when the regulation is adopted (likely later this year).  Other speakers include:  Leah Butler (Electronic Industry Citizenship Coalition-EICC) and Lina Ramos (Source Intelligence).

The webinar is set for Tuesday, February 2, 2016 at 11:00 Central European Time (CET).

Click here to register:  Webinar Registration

Cobalt and Conflict Minerals — 3TG and C?

Companies and industry groups have been working for over 3 years on investigation and due diligence processes to determine the source and chain of custody of the tin, tantalum, tungsten and gold (3TG) in their products.   But, there could now be pressure to add to the list of conflict minerals.  Compliance Week raised this question last week in its article “Is Cobalt the Next Conflict Mineral?”

In addition to the long-time focus on 3TG, NGOs and human rights advocates have also been concerned with cobalt mining in the Democratic Republic of Congo (DRC).  Amnesty International’s recent report “This is What We Die For” includes a lengthy and detailed analysis of cobalt mining in the DRC and human rights conditions in those mining operations (including the health risks and dangers associated with artisanal cobalt mining and the prevalence of the worst forms of child labor in those operations).  Amnesty International’s report concludes that governments should include cobalt in their required due diligence and reporting on mineral supply chains.

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Resource Extraction Payment Disclosure Rule — You Have More Time To Comment

In a January 21, 2016 release titled Extension of Comment Period for Disclosure of Payments by Resource Extraction Issuers, the Securities and Exchange Commission extended the comment periods for the revised proposed Rule 13q-1 (and the related amendment to Form SD).  That proposed rule relates to the disclosure of payments by resource extraction issuers in connection with the commercial development of oil, natural gas, or minerals around the globe.  As we discussed in our post of December 11, 2015, the SEC originally provided an initial comment period ending on January 25, 2016 and a reply comment period ending on February 16, 2016.  The Commission has now extended the initial comment period to February 16, 2016 and the reply comment period to March 8, 2016.

Remember, all comments will be posted on the SEC’s web site.  And, the SEC may add its own additional materials as well. 

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