Conflict Minerals

Background

Conflict minerals, including 3T1G (tungsten, tin, tantalum, gold), as well as later additions cobalt and mica, refer to minerals extracted under conditions of armed conflict and human rights abuses, particularly in the eastern provinces of the Democratic Republic of the Congo (DRC), controlled by various armed rebel groups such as the Democratic Forces for the Liberation of Rwanda (FDLR) and the National Congress for the Defense of the People (CNDP), alongside the Congolese government army. The exploitation of natural resources in the Congo isn't limited to domestic actors; neighboring countries like Uganda, Rwanda, and Burundi also profit from Congo's resources during conflicts.

Even today, governmental entities from these countries continue to smuggle Congolese resources to support the Second Congo War, with control over lucrative mining sites being a focal point of the conflict. Commonly mined minerals include cassiterite, coltan, wolframite, and gold, originating from the eastern regions of the DRC. After being extracted, these minerals pass through multiple intermediaries before reaching electronics companies, where they are incorporated into devices like smartphones and laptops, essential components of daily life.

Once extracted from the eastern Congo, minerals undergo several transactions before leaving the country, often passing through neighboring Uganda or Burundi before reaching processing facilities in East Asia. Consequently, the Conflict Minerals Rule in the United States prohibits the use of minerals sourced from the DRC and nine surrounding countries, namely Angola, Burundi, the Central African Republic, the Republic of Congo, Uganda, Sudan, Tanzania, Rwanda, and Zambia, aiming to curb support for conflicts and human rights violations.

(Source: wikipedia)

Due to the frequent exploitation of 3T1G minerals (tungsten, tin, tantalum, and gold) and other extracted minerals by armed forces in the Democratic Republic of the Congo (DRC) and neighboring countries as a source of economic funding, significant regional bloodshed conflicts have occurred. As conflict minerals can lead to human rights abuses and environmental destruction, the U.S. Securities and Exchange Commission (SEC) passed the Dodd-Frank Conflict Minerals Act (DFCM) on August 22, 2012. This act requires publicly traded U.S. companies to investigate their supply chains for the use of the aforementioned minerals, disclose relevant information, and file an SD form (Form SD) annually. Since 2013, companies must report whether conflict minerals were used in the manufacturing process, aiming to cut off funding sources for armed groups.

As conflict minerals pose transnational and regional issues, the European Union (EU) also published Regulation (EU) 2017/821 in the Official Journal on May 19, 2017, as the EU version of the Conflict Minerals regulation. According to the requirements of this regulation, as of January 1, 2021, importers, smelters, and refiners of 3T1G within the EU must conduct mandatory due diligence when their annual import volumes exceed set thresholds to ensure that 3T1G minerals are sourced from non-conflict regions.

Applicable Region

United States, EU

Regulations regarding Conflict Minerals

International regulations related to confict minerals restrictions:

United States: U.S. Conflict Minerals Law

• History

  • In April 2009, Senator Sam Brownback introduced the 2009 Congo Conflict Minerals Act, which required electronic companies to verify and disclose the sources of their tin, tantalum, and tungsten. This bill was passed by Congress on July 21, 2010, and signed into law by President Obama. The Conflict Minerals Act was published in the Federal Register on December 23, 2010.
  • The U.S. Securities and Exchange Commission (SEC) drafted regulations to implement the law, requiring U.S. and certain foreign companies to report and publicly disclose their use of so-called "conflict minerals" from the Democratic Republic of Congo or neighboring countries in their products. The final rule became effective on November 13, 2012.
  • On July 15, 2011, the U.S. Department of State issued a statement regarding this matter. Section 1502(c) of the law stipulates that the State Department shall collaborate with the U.S. Securities and Exchange Commission (SEC) on certain aspects of policy development and support related to conflict minerals.
  • On October 23, 2012, officials from the U.S. Department of State asserted that it would ultimately be the State Department's decision to determine when the rule would no longer apply.
  • The U.S. Securities and Exchange Commission (SEC) drafted regulations to implement the law, requiring certain U.S. and foreign companies to report and publicly disclose their use of so-called "conflict minerals" originating from the Democratic Republic of Congo or neighboring countries in their products. The final rule became effective on November 13, 2012.

• General Applicability Statement:

  • According to the law, companies must submit annual conflict minerals reports to the U.S. Securities and Exchange Commission if the following circumstances arise:
  • (a) Under the Securities Exchange Act of 1934, they are required to submit reports to the U.S. Securities and Exchange Commission.
  • (b) Conflict minerals are necessary for the functionality or production of products they manufacture or contract to manufacture. This statement encompasses two distinct but crucial concepts: the use of conflict minerals in products/processes and the company's control over manufacturing processes/specifications.

E.U.：Regulation (EU) 2017/821 (2021 begin implementation)

The European Union passed a new regulation in May 2017 to prevent:

• The export of conflict minerals and metals to the European Union.
• The use of conflict minerals in smelters and refineries globally and within the European Union.
• Ensuring that miners are not subjected to abuse.

The regulation also supports the development of local communities. It requires European Union companies to ensure they import these minerals and metals only from responsible sources, with these requirements taking effect from January 1, 2021.

The six conflict minerals

• Tantalite (Ta) is a mineral ore used for extracting tantalum. Tantalum is a key ingredient in tantalum capacitors, which are used in devices requiring high efficiency, compact size, and high reliability, such as hearing aids, pacemakers, automotive airbags, GPS systems, ignition systems, and anti-lock braking systems. It is also used in consumer electronics like laptops, smartphones, gaming consoles, digital cameras, and more. In its carbide form, tantalum exhibits high hardness and wear resistance, making it suitable for use in engines, turbine blades, drill bits, abrasives, and other tools.
• Cassiterite (Sn) is the primary raw material for refining tin. Tin is used to make solder for cans and electronic products. It can also be used to produce antimicrobial and antifungal agents or to manufacture tetrabutyl tin for use as a raw material in polyvinyl chloride and advanced coatings.
• Wolframite (W) is the primary source of tungsten. Tungsten is a high-density metal, and due to this characteristic, it is used in various applications such as fishing weights, dart tips, and golf club heads.
• Gold (Au) is used in jewelry, electronic products, and dental products.
• Cobalt (Co) is primarily used in the manufacture of magnetic, wear-resistant, and high-strength alloys. Cobalt-chromium alloys can be used in dental filling materials. Cobalt compounds, such as lithium cobalt oxide, are widely used in lithium-ion batteries. Cobalt is also extensively used in electroplating due to its attractive appearance, hardness, and oxidation resistance. Additionally, it is used as an underglaze for ceramic glazes.
• Mica is highly insulating, chemically stable, and resistant to strong acids and alkalis, making it an important raw material for manufacturing electrical equipment. Therefore, it can also be used as insulation material inside hairdryers. Mica also exhibits birefringence, making it a material used in the manufacture of polarizing lenses for optical instruments.

(Source: wikipedia)

Industry Practices

The Conflict Minerals legislation doesn't only affect publicly traded companies monitored by the U.S. Securities and Exchange Commission (SEC); it impacts every vendor selling metal-containing products to these U.S. companies, as well as other vendors supplying to these first-tier supply chain enterprises. As long as your clients fall within the scope of SEC regulation, they are affected by the legislation because U.S. corporations place significant emphasis on Corporate Social Responsibility (CSR), which is a crucial aspect influencing investment and trading indicators. However, companies won't be penalized for using conflict minerals, but it could lead to a significant drop in stock prices.

Considering this, more and more U.S. companies are making "conflict-free" a prerequisite. The industries that might use conflict minerals are primarily electronic equipment manufacturers.

According to the content of the legislation, any product containing metal components falls under the purview of the regulation and needs to be investigated by the vendors. These impacted vendors must demonstrate or trace back whether their products contain conflict minerals. They must fulfill their responsibility to disclose the material sources in their products and declare the conclusion of being "DFCM Free" (free from conflict minerals). Both metallic and non-metallic materials may contain metal components, and vendors must conduct due diligence.

• The Responsible Business Alliance (RBA), formerly known as the Electronic Industry Citizenship Coalition (EICC), and the Responsible Minerals Initiative (RMI), formerly known as the Global e-Sustainability Initiative (GeSI), have developed the Conflict-Free Smelter Program and created the Conflict Minerals Reporting Template (CMRT) and Extended Minerals Reporting Template (EMRT). These initiatives target commonly used metals in electronic products such as gold (Au), tantalum (Ta), tungsten (W), tin (Sn), cobalt (Co), and mica, requiring their members and suppliers to investigate and disclose the sources of minerals in their supply chains to avoid materials originating from conflict areas.
• Investigation Period: U.S. publicly traded companies are required to submit Form SD reports by May 31 of the following year, disclosing whether conflict minerals were used in products manufactured between January 1 and December 31 of the previous year.
• Report Content: The diligence investigation results should include details such as the country of origin, mines, and methods of acquisition. It should confirm whether the metallic materials in the products come from smelters listed on the RBA's certified smelter list, which currently consists of approximately five to six hundred facilities. In cases where conflict minerals from the Democratic Republic of Congo and neighboring countries are involved, companies must prepare Conflict Minerals Reporting Templates (CMRT) and Extended Minerals Reporting Templates (EMRT). These reports must undergo third-party scrutiny before submission and should be published on the company's website. The reports should outline information about products using conflict minerals, processing facilities, and other relevant details. If conflict minerals are sourced from recycled materials, no investigation is required. The content of the investigation forms needs to be updated twice annually.

Subject	United States	E.U.
The regulatory requirements	All publicly traded companies in the United States.	The regulation applies solely to "upstream" enterprises such as mining companies, raw material traders, and smelters, while "downstream" enterprises, including component manufacturers, contract manufacturers, assembly plants, and individual users, are not within the scope of the requirements.
The sources of conflict minerals	The Democratic Republic of Congo and its neighboring countries.	Any potential conflict area where there is: 1. A high demand for conflict minerals. 2. The occurrence of internal conflicts or a weakening of effective governance by authorities (e.g., in West Africa, Central Africa, and certain regions such as South America and East Asia).
The threshold for conducting investigations typically involves	No	If the annual import volume exceeds the threshold set in Annex I.
Third-party review	Required	Required
Exemption	Completely free from the use of conflict minerals.	The raw materials come from smelters and refineries listed in Annex II.
Investigation principles	Generally Accepted Government Auditing Standards (GAGAS)	OECD Due Diligence Guidance
Regulatory authority	The U.S. Securities and Exchange Commission (SEC).	See the supervisory authorities of the member countries listed in Annex III.

Related Topics

International Regulations > EU RoHS International Regulations > REACH

Reference：

Responsible Minerals Initiative (RMI) Official Website