Tuesday, July 26, 2011

State Department Issues Guidance Statement Regarding Implementation of Dodd-Frank to Address Problems with Conflict Minerals

Do you import jewelry, or serve as a broker for a jewelry importer? If so, then Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) will be of particular interest to you. Section 1502 of Dodd-Frank addresses the problem of the exploitation and trade of “conflict minerals” sourced from the eastern Democratic Republic of the Congo (DRC). Conflict minerals include gold, columbite-tantalite (coltan), cassiterite (tin), wolframite (tungsten) or their derivatives.

Section 1502 instructs the Securities and Exchange Commission (SEC), in consultation with the Department of State (State Department) to promulgate regulations requiring certain companies to report annually on their due diligence activities on the source and chain of custody of conflict minerals. Specifically, the State Department is instructed “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 the products and on their suppliers to ensure that conflict minerals mused in the products of such suppliers do not directly or indirectly finance armed conflict or result in labor or human rights violations.”

The SEC intends to issue regulations pursuant to Section 1502 of Dodd-Frank by the end of 2011. In the meantime, the State Department has urged that companies begin to perform their due diligence on the source and chain of custody of conflict minerals they are using in production of products and importing into the U.S. The agency instructs that such due diligence will provide useful information that will assist the State Department and the SEC in meeting Dodd-Frank’s goal of preventing further conflict in the eastern DRC. In its Guidance Statement, http://www.state.gov/e/eeb/diamonds/docs/168632.htm, the State Department has suggested that “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.”

The State Department encouraged companies to follow Organization for Economic Cooperation and Development (OECD) guidance and framework when developing and implementing their own due diligence plans:

• Establish strong company management systems;
• Identify and assess risk in the supply chain;
• Design and implement a strategy to respond to identified risks;
• Conduct supply chain due diligence at specific points in the chain (preferably by independent third party); and
• Report on findings from supply chain due diligence.

The State Department will consider whether to revise its Guidance Statement after the SEC issues its regulations.

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