EU Conflict Minerals Regulation


The EU passed a Regulation on Conflict Minerals ("the Regulation") back in 2017 and its requirements will finally begin to apply to importers of covered minerals as of 1 January 2021. Conflict minerals – usually "the 3Ts" (tantalum, tin, and tungsten) and gold ("3TG") are crucial in the components of many consumer electronic products and have applications in aerospace, automotive, medical and other sectors. The mining of these elements has been linked to the advancement of armed conflict and human rights abuses, particularly in the Democratic Republic of Congo and the Great Lakes region of Africa. The Regulation requires EU importers to conduct robust due diligence in their supply chains in order to cut off the flow of finance to the mines controlled by rebel groups committing these abuses.



The EU began its controversial legislative process on conflict minerals back in 2013, following on from the introduction of US rules requiring listed companies to disclose the use of conflict minerals under the Dodd-Frank Act (the "US Rules"). With such a long lead-in to the mandatory requirements, some businesses will have already considered whether they fall within the rules, and made appropriate adjustments to their compliance programmes. Others will understandably have addressed more pressing business needs and now need to consider what action, if any, they need to take ahead of the 1 January 2021 compliance deadline.

What are conflict minerals?

As noted above, the "minerals" in "conflict minerals" refers to 3TG, plus their ores and concentrates and certain alloys. Annex I of the Regulation sets out the custom designation (CN) numbers of the impacted minerals and metals, as well as the threshold quantities for import below which the requirements do not apply. The thresholds are designed to ensure that around 95% of all imported quantities of 3TG are covered by the requirements of the Regulation. Manufacturers should cross-reference product bills of materials against this Annex for a preliminary assessment of whether they are using minerals which are potentially in scope.

"Conflict" in "conflict minerals" refers to the area in which the minerals are mined. Unlike the US Rules, which are focused on specific geographical areas, under the Regulation any "conflict-affected and high risk areas" ("CAHRAs") are potentially within the scope of the regulation. This includes areas in a state of armed conflict or fragile post-conflict, those witnessing weak or non-existent governance and security, or widespread violations of international law including human rights abuses.

The European Commission has published non-binding guidelines on the identification of CAHRAs which, while helpfully detailed, puts the onus on manufacturers and importers to carry out this analysis for themselves. While the US Rules focus on the Democratic Republic of Congo and adjoining countries, it is clear from the definition of CAHRAs that the EU Regulation's reach goes beyond Africa – for example Colombia, Bolivia and Indonesia have all been considered in scope. The Commission's guidelines indicate that external experts will draw up an indicative, non-exhaustive, regularly updated list of CAHRAs, though to date no such list has been published.

It is important to bear in mind that the EU deliberately rejected any approach which may result in a de facto embargo on certain markets and regions, as such unintended consequences could exacerbate the very issues the Regulation seeks to address by increasing poverty in the area. Therefore, the mere presence of a Congo mine in a supply chain should not automatically trigger a change of supplier; rather, due diligence should be carried out to ensure that the sourcing is "responsible". There could, on the other hand, be circumstances where continuing to source from a particular mine poses risks which cannot be adequately controlled, and the only option is to change supplier. The Regulation envisages that the Commission will draw up a "white list" of global smelters and refiners which source minerals responsibly, rather than a black list of those who do not.

What does the Regulation require?

The Regulation is focused on robust, audited due diligence processes which reduce the risk of minerals having been sourced from conflict areas. The Regulation sets out a due diligence process based on the five steps in the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas:

  1. Establishing a management system
  2. Identifying and assessing supply chain risk
  3. Designing and implementing a strategy for responding to the identified risks
  4. Third party independent auditing of supply chain due diligence
  5. Reporting on due diligence

One key requirement is that minerals must go through a chain of custody or a supply chain traceability system, supported by documentation, meaning that the minerals' origin can be ascertained regardless of how many commercial operators process, handle or transport it upstream prior to import into the EU. The OECD Guidelines contain specific recommendations for each actor in the supply chain for how to operate such a system (and indeed for each of the steps mentioned above).

The Regulation is clear however that the OECD Guidance is not the only way to comply. Other voluntary supply chain due diligence schemes may be approved by the Commission if they provide equivalently robust processes. The Commission has published a methodology and criteria for the recognition of such schemes; details of approved schemes will be made available in due course.

Who needs to comply?

The key due diligence obligations in the Regulation fall on the EU importer of the mineral or metal, being the natural or legal person declaring the minerals or metal for release for free circulation on the EU market. The point of import is often seen as the riskiest part of the supply chain.

The Regulation follows the OECD Guidance in addressing both "upstream" and for "downstream" companies. "Upstream" includes the mine and any other step in the supply chain to the smelters/refiners, including local traders or exporters from the minerals' country of origin. The chain of custody must be capable of tracing back to each of these upstream companies. "Downstream" includes all other organisations from the smelter/refiner through to the end product retailer.

Downstream companies who are operating beyond the metal stage, for example by importing finished products containing 3TG, are not subject to the same due diligence requirements but will nonetheless be expected to use reporting and other due diligence tools to enhance supply chain transparency, including, for many large companies, reporting under the EU's Non-Financial Reporting Directive. As ESG, corporate governance, transparency and disclosure rules take centre stage, we expect to find that procurement policies and commercial contracts will increasingly require supply chain due diligence covering human rights issues. It is worth noting that the European Parliament has recently launched a procedure under which it will invite the European Commission to prepare a directive on corporate due diligence and accountability; the accompanying draft proposes to impose a broad obligation on undertakings to carry out due diligence and ongoing monitoring of human rights, environmental and governance risks in their operations and business relationships.  

An organisation which is part of a group in which the parent or other group company is already subject to the US requirements may feel well equipped to respond to the EU Regulation on a voluntary basis, for example by publishing a conflict minerals policy on their website. Any existing policies should be reviewed to ensure that they reflect the wider scope of the EU Regulation and its specific due diligence requirements. See section 8 below for a comparison of the core US and EU requirements.

Do I have to report anything?

Article 7 of the Regulation requires EU importers to make available to their downstream purchasers all information gained and maintained through their supply chain due diligence. Importers must also "publicly report as widely as possible" including via their website on their supply chain due diligence policies and practices. This must include steps taken to implement the management system, details for their risk management approach, and a summary report of the third party audits undertaken each year. The public report should be updated annually.

Are there any national requirements?

The Regulation applies throughout the 27 EU Member States without the need for each country to enact it into its own national law. However, as is common with Regulations, complementary national legislation covering administrative matters and enforcement is beginning to emerge.

Denmark has recently published a draft regulation which would require EU importers to submit, on an annual basis, a third-party audit report on the importer's compliance with the Conflict Minerals Regulation. The Danish draft appears to go beyond what is technically required by the EU Regulation – Article 6(1) requires importers to carry out independent third party audits (unless exempt) but does not specify the frequency of such audits, and Article 7 requires such reports to be "made available" to Member State competent authorities but does not translate this into a positive reporting obligation.

It will be interesting to see whether there is any uniformity between Member States in relation to reporting, and whether the Commission might consider a one-stop-shop mechanism rather than allowing a patchwork of reporting requirements to develop.

Will the Regulation apply to UK companies after Brexit?

As it was enacted some time ago, the Conflict Minerals Regulation will be "on the UK statute book" as of the end of the Brexit transition period. However, as with other areas of law, the application of the Conflict Minerals Regulation in the UK longer-term may depend on the terms of any final exit deal between the UK and the EU. At the time of writing, no secondary legislation has been passed to adjust the EU-specific references within the Conflict Minerals Regulation to ensure its smooth operation after Brexit. The UK has designated the Office for Product Safety and Standards as the competent authority with powers to enforce the Regulation. It would be surprising if the UK does not on-shore the Regulation's requirements, considering that the UK has been active in the development of conflict mineral rules and has contributed to the OECD Guidance on which the Regulation is based.

How is the Regulation enforced?

A long-standing criticism of the EU's chosen approach to conflict minerals is that it lacks any real teeth – there are no penalties for continuing to source from conflict-affected areas and even failure to comply with the Regulation's due diligence requirements will only result in a remedial notice from the national authority. Article 17(3) of the Regulation provides that a planned review of the legislation, by January 2023, will take into account its effectiveness and assess whether Member States should be given the power to impose penalties in the event of "persistent failure to comply with the obligations set out in this Regulation". However, viewed within the broader ESG landscape, it is conceivable that investors, consumers and NGOs will be the first to hold companies to account in respect of their conflict minerals policies and practices.

How do the EU requirements compare with the US Dodd-Frank requirements?

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