CONFLICT MINERALS

Conflict minerals are minerals that are extracted in situations involving armed conflict and human rights abuses.

To trace the origin of conflict minerals in products, an increasing number of countries and regions are implementing conflict mineral legislation.

Responsible sourcing of minerals is becoming more important, which necessitates companies to conduct due diligence with their suppliers in the mineral supply chain.

 

SITUATION IN DRC

CM background:

• The portion of the Democratic Republic of the Congo (DRC) in eastern Africa has been affected by a civil war since 1998.
• The conflict has resulted in one of the world's worst humanitarian crises, with an estimated 5.6 million deaths and 2 million people fleeing their homes.
• Illegal mining and trading of natural resources, including minerals, have been exploited to fund armed conflict in the region.
• Serious human rights abuses, such as forced labor, child labor, and violence against women, have been linked to the conflict and to the mining of certain ores that are known as conflict minerals.
• Various human rights violations, such as physical harm and exploitation
• Conflict over mine ownership and taxes on mineral resources, leading to theft and extortion.
• Use of forced and child labor in mining operations.
• Limited opportunities for economic growth and development outside of mining
• Negative effects on the environment, including deforestation and other conservation issues.

The scope is broadening from Conflict Minerals (CM) to Responsible Minerals (RM) and is no longer limited to the Democratic Republic of Congo (DRC) and its neighboring countries, but also includes Central Africa and the Great Lakes region.

 

Conflict-Affected or High-Risk Countries or Areas (CAHRAs)

• Natural resources in these countries are highly demanded regionally, locally, or globally, including minerals.
• These countries face challenges such as armed conflicts (e.g., civil war) or weak/non-existent governance.
• These countries also face systematic violations of international law, including human rights abuses.
• 3TG minerals and metals may be sourced from supply chain activities such as extraction, refining, and transportation that may provide funding to armed groups or criminal organizations.

EU CONFLICT MINERALS REGULATION

What is the number of companies impacted by EU Regulations?

• Approximately 600 to 1,000 EU importers are directly subject to the regulation.
• Around 500 smelters and refiners of 3TG, regardless of whether or not they are located within the EU.

Are the regulations exclusively applicable to companies located in the EU?

• Yes, the regulations will only have a direct impact on importers of 3TG who are based in the EU, regardless of whether they are dealing with mineral ores, concentrates or processed metal.
• Encourages responsible sourcing of 3TG smelters and refiners, regardless of their location within or outside the EU.

Who ensures that companies adhere to EU regulations?

• The competent authorities in each EU member state will review documents and audit reports to ensure compliance.

What are the consequences if a company fails to comply with the regulations?

• The competent authority will require the company to rectify the issue within a specified timeframe and subsequently monitor compliance to ensure that it has been achieved.

 

EU Regulation 2017/821

1. The regulation became effective on July 9, 2017.
2. Companies are subject to its provisions from January 1, 2021 onwards.
3. Companies can still achieve compliance by implementing due diligence measures.
4. Competent authorities are responsible for enforcement.
5. Ex-post checks will be conducted by the authorities.
6. The authorities will cooperate and exchange information with other relevant bodies, such as customs, member states, and the Commission.

The OECD Guidance:

• Comprehensive guidelines aimed at assisting companies in upholding human rights and preventing their involvement in conflicts.
• Intended for use by any company that may be sourcing minerals or metals from regions that are high-risk or conflict-affected.
• The regulation has a global reach and applies to all supply chains involving minerals.

 List of minerals and metals within the scope of Regulation (EU) 2017/821 classified under the Combined Nomenclature

 

Part 1: Minerals

Part 2: Metals

Exemptions:

Recycled metals

Obligation to Disclose Sourcing Information

1. The obligation to disclose requires confirmation that metals have been exclusively sourced from recycled or scrap sources.
2. Supply chain due diligence measures must be employed to reach this conclusion.
3. Evidence of these measures must be provided to support the conclusion that metals were responsibly sourced.

The term 'recycled metals' refers to end-user or post-consumer products that have been reclaimed, as well as scrap processed metals resulting from product manufacturing. This includes excess, obsolete, defective, and scrap metal materials containing refined or processed metals that are suitable for recycling in the production of tin, tantalum, tungsten, or gold. Minerals are not included within the scope of this definition.

Treatment of Pre-Existing Stocks

1. Pre-existing stocks created prior to February 1, 2013, are exempt from the requirements of the regulation.
2. To be eligible for this exemption, the 3TG in the stocks must be in their current form.
3. The verifiable date of these stocks is determined by documentary evidence, such as purchase invoices or customs declarations, and they must have been legally acquired.

Compliance of Union Importers to Supply Chain Due Diligence Obligations

Obligations:

• Article 4: Management system
• Article 5: Risk Management
• Article 6: Third-party Audits
• Article 7: Disclosure Obligations

The Five-Step Framework - OECD Guidance

• Develop robust company management systems. (Article 4)
• Recognize and evaluate supply chain risks. (Article 5)
• Devise and execute a plan to address identified risks. (Article 5)
• Conduct an external audit of supply chain due diligence by an independent third-party. (Article 6)
• Provide yearly reports on supply chain due diligence. (Article 7)

Obligations for Management Systems

1. Adopt and communicate a supply chain policy to suppliers and the public.
2. Develop a due diligence policy that aligns with the model outlined in the OECD Guidance (Annex II).
3. Integrate the supply chain policy into agreements with suppliers.
4. Assign responsibility for the management system to senior management.
5. Oversee the entire process to ensure compliance with the established policy and guidelines.
6. Maintain records of the management system for at least five years.
7. Establish a grievance mechanism to serve as an early warning system for risk awareness.

Supply chain traceability system backed by documentation.

Minerals:

1. Description of the product.
2. Name and address of the supplier.
3. Country of origin for the product.
4. Quantities of the product.
5. Dates of extraction for the product.

Metals:

1. A product description.
2. Name and address of the supplier, smelters, and refiners involved in the supply chain.
3. Records of third-party audit reports or other evidence of conformity.
4. In cases where records are not available, the country of origin for the mineral.

Additional Information Required for Minerals from Conflict-Affected and High-Risk Areas

1. The specific mine or location of origin for the minerals.
2. Details on where the minerals were consolidated, traded, and processed.
3. Evidence of taxes, fees, and royalties paid during the extraction and trade of minerals.

Obligations for Risk Management)

Recognize and evaluate potential risks.

Strategy for Risk Management

1. Report potential risks to senior management.
2. Implement risk management measures in accordance with the OECD guidelines.
3. Exert pressure on suppliers when necessary, such as continuing or suspending trade while pursuing measurable risk mitigation efforts.
4. Disengage with a supplier after failed attempts at risk mitigation.
5. Monitor and track the performance of risk mitigation efforts.

Requirements for Third-Party Audits

It is compulsory for Union importers of minerals or metals to conduct audits by independent third-party.

Exemptions for Activities, Processes, and Systems

1. Activities, processes, and systems may be exempted from due diligence obligations if all associated smelters and refiners are compliant (supported by evidence).
2. Evidence includes sourcing from smelters and suppliers listed in Annex II.

Disclosure Obligation

1. Requirements for Making Information Available to Competent Authorities (Third-party audit reports or evidence of conformity with a recognized supply chain due diligence scheme must be made available to competent authorities.)
2. Notify subsequent buyers.
3. Publicly disclose annually, including on the internet, the supply chain due diligence policies and practices.
4. Implementation Obligations for Risk Management and Audit Reports

Management measures

1. Adopt risk management measures.
2. Prepare a summary of third-party audit reports.
3. Continuous, proactive, and responsive procedure.
4. Based on risk assessment.
5. Organized according to the actions that companies should undertake in order to:
1. Recognize the specific conditions present within the mineral supply chain
2. Recognize and evaluate existing or potential risks
3. Take measures to prevent or minimize the identified risks by implementing a risk management strategy.

This encompasses all stages and aspects involved in the movement of minerals, from extraction to the final product for end consumers, which includes activities such as extraction, transportation, handling, trading, processing, smelting, refining, alloying, manufacturing, and sales. It encompasses the entire system of activities, organizations, individuals, technology, information, resources, and services required to facilitate this process.

upplier or user, that deals with minerals originating from conflict-affected or high-risk areas.

The implementation of this Guidance is optional and does not have legal binding.

Which entities are responsible for conducting due diligence?

Implementation of due diligence measures:

Company tailored:

Overcoming Practical Challenges in Due Diligence Implementation

1. Engaging in initiatives focused on responsible supply chain management
2. Facilitating coordination among industry stakeholders sharing common suppliers
3. Promoting cooperation between upstream and downstream companies
4. Incorporating recommendations from the Guidance into existing policies and management systems

 

OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas

OECD Guidance Structure

• Annex I. Five-Stage Model for Risk-Based Due Diligence in the Mineral Supply Chain.
• Annex II. Sample Supply Chain Policy for an Ethical Global Supply Chain of Minerals from Conflict-Affected and High-Risk Areas.
• Annex III. Recommended Actions for Mitigating Risks and Indicators for Assessing Progress.

ANNEX I. The framework comprising five steps:

• Establish robust corporate management systems.
• Recognize and evaluate risks within the supply chain.
• Develop and execute a plan to address identified risks.
• Conduct an independent third-party audit of due diligence in the supply chain.
• Provide annual reports on due diligence in the supply chain.

1. Strong Company management systems

• Enforce a policy for responsible mineral supply chains based on the OECD Guidance Model Policy in Annex II.
• Communicate and incorporate due diligence expectations into contracts with suppliers.
• Develop transparent systems to collect data on supply chain operations and smelter/refiner details.

2. Identify & Assess Risks in the supply chain

• Determine which products contain tin, tantalum, tungsten, and gold (3TG).
• Make diligent efforts to identify smelters/refiners associated with 3TG products, prioritizing based on your specific supply chain. For complex products, focus on engaging with smelters directly and sourcing from responsible smelters (refer to step 3 for guidance).

3.Manage Risks

• Report identified risks to senior management and address internal system improvements.
• Discontinue relationships with suppliers connected to smelters/refiners contributing to severe impacts (e.g., involvement with non-state armed groups or serious abuses).
• Encourage more smelters/refiners to undergo audits through individual or collaborative initiatives.
• Establish capacity-building programs for suppliers and promote direct sourcing from responsible smelters/refiners.
• Execute a risk management plan, monitor progress, and track outcomes.

4.Audit of smelter/refiner due diligence practices

• Smelters/refiners should engage in industry programs that assess their due diligence practices against an audit standard aligned with the OECD Guidance.
• Prepare all necessary documentation for the audit, including chain of custody or traceability records, as well as risk assessment and management documentation for red-flagged sources.
• Grant auditors access to company documentation and records.
• Facilitate auditors' access to a sample of suppliers as relevant and appropriate.
• Publish a summary audit report containing the audit findings and conclusions.

5.Publicly report on due diligence

• Provide an annual report detailing all due diligence efforts undertaken (steps 1-4), including risk assessment and mitigation. Ensure that business confidentiality and other competitive or security concerns are respected (e.g., do not disclose supplier relationships, price information, or the identities of whistle-blowers or sources).
• Make the report accessible to the public, either in physical offices and/or on the company website.

Support smelter /refiner audit

• Conduct periodic assessments to evaluate the efficacy of these programs.
• Engage in effective communication and leverage influence to strengthen the programs.

ANNEX II.

• Implement strong corporate management systems.
• Formulate and implement a strategy to mitigate identified risks.
• Conduct independent third-party audits of due diligence in the supply chain.
• Issue annual reports on due diligence activities in the supply chain.

Infrigement:

Member states:

1. Designate a competent authority.
2. Establish the rules that apply to infringements.
3. Notify the Commission of the established rules.
4. Notify the Commission of any subsequent amendments.
5. Annually report to the Commission.

Member State competent authorities:

1. Responsible for conducting ex-post checks.
2. Issue a notice of remedial action in the event of an infringement.

 

Ahmed Sakr

Product Compliance Consultant 

ComplyMarket UG (haftungsbeschraenkt)