Are companies required to report the identities of the mines of origin in the Conflict Minerals Report (CMR)?
No. Per the SEC final rule, a company that is required to provide a conflict minerals report only is required to report on “the efforts to determine the mine or location of origin with the greatest possible specificity” for only those products/product categories that have not been described as “DRC conflict free.” Furthermore, this effort only is required as part of a company’s due diligence process and is not required as part of the RCOI process. Therefore, it is reasonable to only expect companies to make and subsequently describe such an effort “to determine the mine or location of origin” whose products/product categories are not described as “DRC conflict free.”
Two practical approaches that many companies currently are taking to determine the mines or country of origin are:
- Use of the CFSI Conflict Minerals Reporting Template(CMRT) as a method to query and transmit sourcing information along the supply chain.
- Reliance on and support for the CFSP or similar independent third party audit solution through which mineral sources are identified and independently evaluated.
The CMRT supports the identification of the smelters and refiners within a company’s supply chain and their sources of 3TG. The utility of the CMRT is dependent upon each tier in the supply chain collecting information from their direct suppliers and passing it on to customers. The amount of detail collected by this process continues to improve; however, considering the number of tiers within a complicated supply chain, it may take numerous reporting cycles to close data gaps. This methodology also, by itself relies on self-disclosures and is limited with regard to addressing confidentiality concerns. Due to the dynamic nature of some downstream companies’ supply chains, a company may never obtain a reliable representation of the mine or location of origin for their conflict minerals by relying on the CMRT alone.
With due consideration for the value of the intellectual property of mineral sources for most smelters, an independent third party audit solution such as the CFSP offers an efficient methodology to address both the confidentiality and reliability of this information. Moreover, the OECD DD Guidelines provide that reporting of information may be limited by concerns of business confidentiality. Accordingly, the “greatest possible specificity” that most filers should expect to achieve in “determin[ing] the mines or location of origin,” and therefore the most reasonable effort to do so, is to incorporate reliance on the CFSP as one element of its due diligence process. Through the CFSP smelter validation process, independent auditors review information on the mines of origin for the smelters and refiners. Those smelters and refiners found to be compliant with the CFSP are those that have disclosed the identities of the mines or location of origin to the auditors, and for whom the auditors independently have validated that sufficient evidence exists to support the smelter’s sourcing claims and that those sources meet the requirements of the protocol. Therefore, a company’s reliance on third-party auditors through the CFSP is a reasonable method to exercise efforts to determine the mines or location of origin and meet due diligence expectations.
Members of CFSI also may wish to include in their description of their efforts, their contribution of resources to further support the CFSP. In addition, the CFSI offers a tremendous opportunity for a member to exercise one’s efforts by directly participating in the CFSP activities to engage smelters into the program and support for advancement of the CFSP.