As companies spent the recent year-end holidays closing their fiscal books and creating program budgets for new products and services into 2013, a small and seemingly obscure clause in one of the widest reaching financial reform acts in modern history has added concern and challenge to product manufacturers across industry segments.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 contains a small but very important section addressing so-called “conflict minerals” – referred to as 3TGs (tin, tantalum, tungsten, and gold) – harvested from the Democratic Republic of Congo and surrounding countries. The people in these areas are experiencing war atrocities, human slavery, and other human rights violations cited by the United Nations.

As such, Section 1502 of the Dodd-Frank Act suggested that this issue requires an aggressive supply chain reporting mandate. The U.S. Securities and Exchange Commission (SEC) made final rulings on this provision in late August 2012 ascribing any publicly traded company and their suppliers to “include a description of the measures it took to exercise due diligence on the conflict minerals’ source and chain of custody” and file a new SEC form SD beginning in 2014 for the 2013 calendar year. The initial reporting period for tracking compliance efforts begins in January, 2013.

Far-reaching Impacts

According to leading industry experts in the field, the effects of the conflict minerals provisions are extensive. “It’s not just whether you are a public company, in which case you for sure must report and show due diligence through your supply chain. Also, private companies and companies that are part of the US company’s supply chains will be affected, as the requirements are cascaded down the value chain. It has been suggested by the SEC that the number of companies that may contain trace elements of conflict minerals could be in excess of 280,000,” notes Thomas Bley, senior project manager for software maker iPoint-systems and participant in a number of industry work groups.

One of the challenges that make conflict mineral compliance to Dodd-Frank so encompassing is the level of trace elements of 3TGs found in most electronics components, used in everything from computers to automobiles to household appliances. It is difficult for one company on its own to trace the flow of materials in raw form back to the component suppliers, however Dodd-Frank requires even deeper due diligence to determine the actual location of the mineral smelter. Some organizations have stated publicly that obtaining declarations of conflict minerals to a level of only 40-60% is sufficient.

“That’s a risky proposition,” suggests Bley. “While there are no penalties for using conflict minerals in company products, the regulations require that a ‘reasonable country of origin inquiry’ is performed. Those companies that lag in this area risk ‘named and shamed’ by the consumer public and nongovernmental organizations (NGOs),” creating a possible impact on brand reputation and sales.

You may read the full article on the Ethisphere website.  Kind thanks to Thomas Bley, Katie Boehm, Andreas Schiffleitner  and Stefan Lenssen for their support on this project.  You may follow iPoint-Systems (@iPointWorld) and Ethisphere (@Ethisphere) on Twitter.