Dodd Frank Act – Conflict Minerals
Section 1502 Conflict Minerals – Dodd-Frank Act
Section 1502 of the Dodd Frank Act was enacted to address he exploitation and trade of tin, tungsten and tantalum (“the 3T’s”) and gold by armed groups, which is helping to finance conflict in the Democratic Republic of Congo (DRC) and contributing to an emergency humanitarian crisis.
Section 1502 is a 2010 amendment to the US Exchange Act. It requires companies to which it applies to determine whether any of the four minerals used in their products are financing or benefiting illegal armed groups in the DRC or an adjoining country. Companies that are listed with the Securities and Exchange Commission (SEC) and use tin, tungsten, tantalum or gold in the products they manufacture or contract to manufacture are directly affected and must make specific public disclosures on their due diligence.
Companies whose product is ultimately sold to the US market are likely to be indirectly affected by the legislation, whether or not they sell directly to a US‐listed company.
Download an RJC Fact Sheet on Section 1502 Conflict Minerals (September 2012) En Français
The SEC Rules
On August 22 20012 the US Securities and Exchange Commission (SEC) released the final rule for Section 1502 on Conflict Minerals in the Dodd-Frank Act. Key points for the gold supply chain include:
- OECD Gold Supplement: The final rule endorses the OECD Due Diligence Guidance on Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (May 2011) as a “nationally or internationally recognized due diligence framework” for fulfilling Dodd-Frank requirements of conflict mineral due diligence. The Supplement on Gold is highlighted the only currently available framework for gold due diligence.
- Recycled gold: Under the rule, recycled gold is deemed to be “DRC conflict free” and is now equivalent to other sources of gold for SEC reporting purposes. If a reasonable inquiry confirms that it is from recyclable material, its use does not trigger an obligation to file a Conflict Minerals Report.
- Grandfathered gold: Existing stocks of refined gold are exempt from application of the rule if they are “outside the supply chain” prior to January 31, 2013. Gold is “outside the supply chain” if it “has been fully refined”, or is located outside of the DRC and adjoining countries (even if not yet fully refined), by the date specified. Thus the very large stocks of existing refined gold held in banks and vaults as well as manufacturers’ inventories are grandfathered as conflict free.
- Mining: Mining is no longer considered to be manufacturing, thus removing gold mining companies themselves from the new SEC reporting obligations. Gold mining is, of course, part of the gold supply chain, so reasonable inquiries as to origin and any necessary conflict-sensitive due diligence will continue to apply.
The Due Diligence required under the RJC CoC Standard for both mined and recycled Gold follows the OECD Due Diligence Guidance for Responsible Supply Chains for Minerals from Conflict-Affected and High-Risk Areas. The advantage of RJC CoC Certification is that an independently verified Chain-of-Custody for Gold is established from the relevant starting points in the supply chain, and information to support ‘reasonable country of origin inquiries’ is provided to customers via CoC Transfer Documents.
Under the SEC rule, a “reasonable” country of origin inquiry can accept the representations of a supplier of gold if those representations are reliable and are believed to be true. A company would have reason to believe a processing facility’s (e.g. a gold refiner) representations if the facility received a “conflict-free” designation from a recognized industry group that requires an independent private sector audit.
How do RJC audits fit?
RJC CoC Certification fits the SEC description of a recognised industry group and can thus provide certified assurance to support a facility’s representations. Mining companies, gold refiners, gold traders, jewellery manufacturers and retailers and associated service industries are eligible to achieve RJC CoC Certification via independent third party audit.
The RJC CoC Standard requires CoC Transfer Documents for mined Material to include a Conflict-Free warranty and identify the country of origin of the mined Material. If any Gold originated in or was transported through the DRC and Adjoining Countries, any subsequent CoC Transfer Document for that Gold must identify the country/ies of origin, along with the Refiner/s. Similarly the inclusion of any Recycled and/or Grandfathered Gold is identified in the CoC Transfer Documents. Distinguishing the type of source may be very relevant for SEC disclosures.
The CoC Standard adopts the same cut-off date (1 January 2012) for Grandfathered Gold as the OECD Guidance. This date is before the January 31 2013 date expressed in the SEC Rule. However for companies sourcing gold between January 1 2012 and January 31 2013, the date of receipt of CoC Gold will be documented in CoC Transfer Documents. This period before application of the SEC rule formally commences can thus be used by companies to establish relevant sourcing and records systems.
Links to SEC resources
The SEC final rule can be found at: http://www.sec.gov/news/press/2012/2012-163.htm
In June 2013, the SEC published an FAQ document: http://www.sec.gov/divisions/corpfin/guidance/conflictminerals-faq.htm
For more information about how RJC Standards can support implementation of Section 1502 of Dodd Frank, please contact firstname.lastname@example.org