In tracing 3TG in my supply chain, is it appropriate to require suppliers to guarantee that their products are conflict-free and to impose liability for compensation if they are not? If not, how can my company ensure a product is conflict-free?
No, it is not appropriate to impose liability for compensation if a supplier’s products are not conflict‐free. The SEC final rule requires disclosure of information regarding the presence of conflict-supporting materials in products but does not prohibit the use of materials that have been found not to be DRC conflict-free. Given the current lack of transparency in the supply chain, it currently is not recommended to impose strict contractual requirements with regard to guarantees and damages.
Suppliers of fabricated goods are not in a position to make a conflict‐free guarantee at the present time for two reasons:
- First, in the early stages of implementation of supply chain transparency programs, few suppliers will have received sufficient information from their own supply chains to identify all of the SORs of 3TG contained in their products. In order to ensure that a product delivered by a supplier is conflict-free, all smelters or refiners of all of the four covered minerals used in the product must be identified with the cooperation of all suppliers starting with the smelters or refiners themselves.
- Second, even if a supplier were able to identify all SORs in its supply chain, not all of the SORs have yet been validated under an independent third party audit program. Thus, even socially-responsible suppliers of fabricated products with well-designed conflict minerals programs are unlikely to be in a position to give a conflict-free guarantee.
If under present circumstances suppliers are required to provide guarantees and assume liability for damages, suppliers may avoid sourcing 3TG from the DRC and adjoining countries, and some may refuse to conduct inquiries altogether. This is not the intent of supply chain due diligence and is against the mission of the CFSI which is to support responsible sourcing of raw materials from conflict-affected and high-risk areas. To facilitate implementation of conflict minerals inquiries, contractual obligations for suppliers of fabricated products should be limited to cooperating with inquiries and reporting.
The situation is somewhat different with respect to SORs from which a company purchases directly. It is reasonable to require SORs with which a company has a direct commercial relationship to have been subject to an audit conducted in accordance with the CFSP audit or other mutually recognized audit program, or to have made a firm commitment to undergo such an audit as soon as it can be scheduled. It also is reasonable to require SORs with which a company has a direct commercial relationship to pass such an audit, or, having failed the audit, to establish and put into place an aggressive plan to mitigate risks and correct process deficiencies within a reasonable period of time.