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Freshfields Sustainability

| 3 minutes read

European institutions agree on EU Conflict Minerals Regulation

On 22 November 2016, the European Parliament, Commission and Council reached an informal agreement on the final shape of an EU Regulation on conflict minerals. The Regulation aims to prevent the financing of armed groups in developing countries through the trade of tin, tantalum, tungsten and gold by imposing mandatory due diligence requirements on EU importers and those processing these minerals. The Regulation will also encourage voluntary due diligence reporting by large manufacturers and sellers.

Existing legislation and guidance around the world

Mandatory reporting requirements regarding conflict minerals already exist in the US. Under section 1502 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 1502), all publicly traded US companies are required to determine whether the aforementioned minerals are necessary for the functionality or production of any products that they or their consolidated subsidiaries manufacture, or contract others to manufacture. These commodities are used in the production of many high-tech devices in the automotive, medical device, electronics, aerospace, packaging, construction, lighting, industrial machinery and tooling industries, as well as in jewellery.

If so, the company must make a “reasonable country of origin inquiry” into whether the minerals originated in the Democratic Republic of Congo or one of its nine neighbours, and publish the results on its website. If the company concludes that the minerals may have originated from the region, it must conduct heightened due diligence on its supply chain and chain of custody and file a Conflict Minerals Report with the US Securities and Exchange Commission (SEC). The requirements in the US are discussed further in our 27 April 2016 post.

In addition, since May 2011, the Organisation for Economic Cooperation and Development (OECD) has provided non-binding due diligence guidance with the aim of helping relevant companies to identify and better manage risks in their mineral supply chains. The guidance provides a five-step framework for supply chain due diligence, including promoting strong company management systems, identifying and assessing risks in the supply chain, managing any risks identified, auditing due diligence practices of smelters and refiners, and publicly reporting on due diligence findings. The OECD reports that the guidance has already been widely implemented by industry, and this guidance will form the basis of the mandatory due diligence requirements imposed by the EU Regulation. 

The EU legislative process so far

The issue of conflict minerals has been debated at the EU level since early 2014 when the European Commission submitted a legislative proposal to the European Parliament and Council setting out an integrated approach to the responsible sourcing of minerals. On 15 June 2016, after several amendments by the European Parliament, these EU institutions announced an informal agreement regarding the content of the conflict minerals Regulation (reported in our 29 June 2016 post). This agreement went further than the original legislative proposal, for example by instituting mandatory rather than voluntary due diligence checks by importers and processing companies. 

Content of the Regulation

  • Scope of “conflict minerals”: The Regulation will apply to tantalum, tin, gold and tungsten. However, the mandatory reporting obligation will only apply to importers of raw materials and not to importers of finished or semi-finished products containing those minerals. Recycled metals, existing EU stocks and by-products will also be exempt. 
  • To whom will requirements apply?  The Regulation will require EU-based “upstream” operators processing the in-scope commodities (e.g., smelters and refiners) as well as direct importers into the EU (including trades and component manufacturers) to conduct mandatory due diligence checks in accordance with the OECD due diligence guidance (see above). Small-volume importers (e.g., dentistries) will be exempt from compliance with the Regulation, although the Regulation aims to cover at least 95% of the importers of the in-scope commodities. Large “downstream” companies (i.e., EU manufacturers and sellers with 500 or more employees that are subject to the EU Non-Financial Reporting Directive (see our 11 October post) whose products contain the in-scope commodities in their supply chain will be encouraged to provide voluntary reports on their sourcing and due diligence practices, and share them through a transparency database to be established by the European Commission. 
  • Geographical scope: Unlike Dodd-Frank 1502, the scope of the Regulation will not be limited to a certain geographical region but will apply to all conflict-affected and high-risk areas, including fragile states, areas witnessing weak or non-existent governance and security (such as failed states) or areas experiencing widespread and systematic violations of international law, including human rights abuses. Experts will be engaged by the European Commission to compile a “Handbook for operators” including an indicative list of the areas considered to be conflict-affected or high-risk, and to give guidance on other due diligence issues. However, as this list is non-exhaustive, companies will continue to be responsible for due diligence checks when they source from un-listed areas.

Next steps

The International Trade Committee and the European Parliament are expected to vote on the final agreement in early 2017. As currently drafted, the Regulation will be immediately applicable in all EU countries from its effective date of 1 January 2021, from which time EU member states’ competent authorities will be responsible for ensuring compliance and imposing penalties for non-compliance, monitored by the European Commission. 

The Regulation will include a review clause, which will enable the European Commission to assess the efficacy of the Regulation on a periodic basis. Following these reviews, the European Commission is empowered to impose further measures if deemed necessary, including the possibility of mandatory obligations on downstream suppliers or bringing further minerals into the scope of the Regulation.  


human rights, human rights reporting, due diligence, corporate accountability, csr, supply chain, globalization