By now, most people working in the supply chain industry know all too well about the Dodd-Frank Wall Street Reform and Consumer Protection Act and the U.S. Security and Exchange Commission’s provision requiring tracking and tracing conflict minerals.
But, even the most knowledgeable people working day-in and day-out with the regulation and its related compliance issues are still confused and frustrated by the whole thing, especially those in the high-tech and automotive sectors who have been most directly affected.
This was apparent at the recent IPC Conflict Minerals Conference held in Santa Clara, California. Industry executives, well-versed lawyers, and compliance-solution providers openly voiced their concerns, doubts, and worries about the scope of the law, its inherent complexity, ongoing compliance issues, and program maintenance.
Supply Chain Risks That Come With Compliance
Despite the collective shoulder-shrugging that has many people wondering what lies ahead as the Dodd-Frank requirements transition into routine supply chain form-filling documentation, there are a number of challenges companies and industry experts have identified that may help guide supply chain professionals through this year’s reporting round.
These are a few things worth keeping an eye on in the coming quarters:
- Legalese is still being debated. The U.S. courts, government offices, and industry associations are still wrangling over the wording and definitions included in the original and revised legislation. Phrases such as compound metals, de minimis exemptions, and derivatives are being re-examined, and many people are waiting for written clarification from the SEC or for pending litigation cases to be finalized. The outcomes of these cases, clarifications, and conversations could change the interpretation of certain facets of the law or how companies respond. Some of this has already played out via the revised specialized disclosure and conflict minerals report templates (SD/CMR) companies had to fill out and file; the various iterations meant companies had to resurvey suppliers and dedicate resources to collecting and re-reporting updated information.
- There’s an international wave coming. The current law does not only affect U.S. companies. Global companies that publicly-trade on U.S. stock exchanges must comply, and worldwide suppliers, regardless of whether they are private or public, are being asked over and over again to respond to SD/CMR requests and surveys. Also, like with many regulations, other regions will likely follow the U.S. lead and establish similar conflict minerals reporting criteria. Europe, for instance, is likely to take a stand on this issue soon as the European Commission recently proposed an integrated EU approach and is looking into a “responsible trading strategy for minerals from conflict zones.” Depending on how this shakes out, the next waves of annual reporting may have to factor in international compliance mandates.
- If you want supplier buy-in, you’ll need to educate them. We’ve seen it with our clients and heard stories from others about how tough it’s been to get multiple-tiers of suppliers onboard with conflict minerals reporting. The issue is complicated by the fact that companies have to go far down the supply chain, well beyond the first couple tiers of suppliers, to track down country-of-origin mining and smelting operations. These surveys and checks have generated a range of supplier answer from “I have no idea what you’re talking about” to “What is 3TG” to “This is the only information I have” to “I don’t know how to help you.” The trickle-down effect means many red flags will be raised on the sub-tier supplier level and a more concerted effort will be needed to continue doing due diligence across the entire supply chain.
All of these things, plus many others we’ll discuss in future blog posts, add more risk to the supply chain and will continue to do so for the foreseeable future. Being aware of how the conflict minerals landscape is still shifting is a key first step. Figuring out how to manage these changes will be equally important.
Check back soon and read our post about best practices that are being developed in this area.