As of January 1st 2021, a new law – the Conflict Minerals regulation, will be applicable across the European Union (EU). Amongst the various initiatives taken by the EU, this one is extremely critical as it addresses the persistent issue of reducing mineral sourcing from politically unstable countries. To understand it better, let’s dive deeper into its basis.

What are Conflict Minerals?

The European Union (EU) Conflict Minerals Regulation aims at preventing or reducing the usage of minerals from countries where the money could potentially be used to fund terror activities. The conflict minerals regulation covers tin, tantalum, tungsten, and gold (3TGs) sourced from the Democratic Republic of the Congo (DRC) and adjoining countries, though it also addresses minerals sourced from other high-risk areas.

Now, as you have a better understanding of the question “what are conflict minerals?”, let’s understand the differences between the US version and the EU version of the conflict mineral policy. This can help you better grasp how to operate on EU grounds while following the new set of regulations.

Difference between US & EU conflict minerals policy

The EU will join the US in requiring companies to investigate and disclose whether certain minerals used in their products originated in conflict-affected or high-risk areas.

Conflict Minerals in the US

In 2012, the U.S. Securities and Exchange Commission (SEC) issued a rule regulating certain conflict minerals (“U.S. rule”) under the Dodd-Frank Act. The U.S. rule requires any domestic or foreign company required to make filings with the SEC under the Securities Exchange Act of 1934 (i.e., an “issuer” listed on U.S. stock exchanges). The purpose of this act is to conduct due diligence reviews and make disclosures to the SEC, if any element from the 3TG spectrum (Tin, Tungsten, Tantalum, or Gold), from the Democratic Republic of Congo (DRC) or nine neighboring countries, is essential to the functionality or production of the company’s products. In the three annual reporting periods since the SEC issued the rule, more than 1,000 companies have filed disclosure forms each year.

Conflict Minerals in the EU region

On 17 May 2017, the EU Parliament and EU Council adopted new import regulations on ‘Conflict Minerals’ under Regulation 2017/821. Through the raw materials covered under the EU ‘Conflict Minerals’ Regulation, (tin, tantalum and tungsten, their ores, and gold), companies importing the minerals used in producing mobile phones, technology, automotive products, as well as jewelry or medical devices, will be primarily impacted.

The EU Conflict Minerals regulation means that selected EU importers of the respective minerals (also referred to as ‘3TG’) need to comply with, and report on, supply chain due diligence obligations if the minerals originate (even potentially) from conflict-affected and high-risk areas.

EU and US Conflict Minerals Key Differences

Factor (en) EU Conflict Minerals US Conflict Minerals
Mandatory Due Diligence The conflict minerals EU regulation does not allow covered companies to forgo a full due diligence review based on a preliminary assessment. Companies in the US can forgo due diligence. The U.S. rule requires companies to perform an initial Reasonable Country of Inquiry (RCOI) to determine if the company has knowledge or reason to believe that a conflict mineral necessary to the functionality or production of the products they manufacture comes from a Covered Country.
Limited applicability to companies The proposed conflict minerals EU regulation will only apply to direct importers of 3TG into the EU, as well as smelters and refiners that process 3TG from “conflict-affected” and “high-risk” areas. Unlike the U.S. rule, the EU regulation does not require downstream manufacturers and sellers to engage in mandatory due diligence. Instead, these companies will be encouraged to report the use of 3TG in their products voluntarily. The U.S. rule is broader in scope because it applies to any domestic or foreign issuer that files with the SEC under the Exchange Act and uses any 3TGs necessary to the functionality or production of a product that the company manufactures or contracts to manufacturers.
Increased Geographic Scope The EU regulation may be more expansive geographically because it will apply to a yet undefined set of “conflict-affected” and “high-risk” regions. According to the regulation, the EU Commission will select experts to provide an “indicative, non-exhaustive, regularly updated list of conflict-affected and high-risk areas.” The U.S. rule applies to a defined set of “Covered Countries,” which includes the DRC, Angola, Burundi, Central African Republic, Rwanda, Republic of the Congo, South Sudan, Tanzania, Uganda, and Zambia. The Covered Countries correspond to those on a list published by the U.S. Department of State and will only change if that list changes.
In-Effect from Will be applicable from January 1st, 2021 Currently in effect

By understanding these differences, companies can keep up with the rapidly evolving legal standards.

To stay ahead of the curve in this context, companies that are currently subject to the U.S. rules should conduct a careful analysis to determine whether the EU regulations may cover them as well (i.e., whether they would qualify as a direct importer, smelter, or refiner). If yes, companies should consider ways to leverage existing compliance program components to comply with both regimes.

Best Practices to Identify Conflict Minerals in a supply chain in the EU

● Identify to the ‘best of their efforts’ – SORs (Source of Refinery) in their supply chain

● Engage with SORs to obtain mine of origin and transit routes

● Assess whether SORs have carried out all elements of due diligence for responsible supply chains of minerals from conflict-affected and high-risk areas

● Wherever necessary, carry out joint spot checks at the SORs’ own facilities, including thorough participation in industry-driven programs

How APA Engineering can help your business

With 20+ years of experience, APA engineering has helped thousands of businesses with managed solutions for regulatory compliance reporting. APA engineering provides a turnkey solution, comprising Conflict Minerals Compliance  Software Suite, a.k.a. AutoGen-CM, and services for increased coverage, higher data accuracy, faster reporting, and reduced compliance cost. To learn more about the AutoGen-CM software to help carry out the Conflict Minerals procedures conveniently, contact us today.

5 ways companies can quickly adapt to the upcoming regulatory challenges in 2021.

If this regulation is applicable to you and you are interested in knowing more about this topic and available solutions, then schedule a free consult with our experts.