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Consistent with Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Department of State (“the Department”) announced that it is undertaking a number of actions to address the problem of conflict minerals –or the exploitation and trade of gold, columbite-tantalite (coltan), cassiterite (tin), wolframite (tungsten), or their derivatives –sourced from the eastern Democratic Republic of the Congo, or DRC, that have helped to fuel conflict in the eastern DRC.

Section 1502 of the Dodd-Frank Act instructs the SEC, in consultation with the Department of State, to promulgate regulations requiring, in part, companies required to file reports with the SEC, to submit annually a description of the measures taken to exercise due diligence on the source and chain of custody of the four “conflict minerals.”  In parallel, the Department is “to provide guidance to commercial entities seeking to exercise due diligence on and formalize the origin and chain of custody of conflict minerals used in their products and on their suppliers to ensure that conflict minerals used in the products of such suppliers do not directly or indirectly finance armed conflict or result in labor or human rights violations.” The Department will consider whether to revise this guidance after the final regulations are issued by the SEC, which has indicated the regulations will be issued between August and December 2011.

The Department believes that it is critical that companies begin now to perform meaningful due diligence with respect to conflict minerals. To this end, companies should begin immediately to structure their supply chain relationships in a responsible and productive manner to encourage legitimate, conflict-free trade, including conflict-free minerals sourced from the DRC and the Great Lakes region. Doing so will facilitate useful disclosures under Section 1502 of the Dodd-Frank Act, as well as effective responses to any discovery of benefit to armed groups.

The Department specifically endorses the guidance issued by the Organization for Economic Cooperation and Development, or OECD,) and encourages companies to draw upon this guidance as they establish their due diligence practices.  We encourage companies, whether or not they are subject to the Section 1502 disclosure requirement, that are within the supply chain of these minerals to exercise due diligence based on the OECD guidance and framework as a means of responding to requests from subject suppliers and customers.

The five-step framework at the core of this system has been developed in a broadly consultative, multi-stakeholder process and has been recommended by the United Nations Security Council DRC Sanctions Committee’s Group of Experts (UNGOE), “taken forward” by the Security Council itself, and endorsed by the International Conference on the Great Lakes Region. Under this five-step framework, companies should:

  • Establish strong company management systems;
  • Identify and assess risk in the supply chain;
  • Design and implement a strategy to respond to identified risks;
  • Carry out independent third-party audit of supply chain due diligence at identified points in the supply chain; and
  • Report on supply chain due diligence.

Check frequently for updates on the Dodd-Frank Act and other important securities law matters.

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