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Conflict minerals: Due diligence, disclosure lessons for compliance (Part 3)

This post is the third and last in a series exploring the topic of conflict minerals.
In Part oneexamined the origins of the reporting requirement. In Part two, we explored what constitutes sufficient due diligence in an investigation of a company and its supply chain.

Part three gives a nonexhaustive checklist of compliance best practices that companies can consult to begin their examination and reporting activities.

What should companies be doing now to prepare?

Michael Littenberg, a widely published author on conflict minerals compliance and partner at Schulte Roth & Zabel in New York, recommends the following non-exhaustive list of action items (some for companies new to the process, others for companies focused on reporting):

1. Figure out if the rule applies to your business and, if so, how. Given the gray areas under the rule and the facts and circumstances nature of the inquiry, this often can be difficult.

2. Reach out to your vendors for minerals content and supply chain information to assess your exposure and responsibilities under the rule. Conflict minerals compliance is not just a supply chain function; you also will need to involve legal and compliance and possibly internal audit and independent third-party auditors.

3. Analyze the data you get back from your vendors.

4. If you have a disclosure obligation, start preparing your disclosure now. The first filing is due on June 2. The disclosure requirements are principles-based, rather than a blank form to be filled in, and internal stakeholders will have different opinions on what the disclosure should look like.

5. Figure out who will sign the report — an “executive officer” must do so. This has been a significant topic of conversation at some companies, since, as might be expected, there is not be a lot of enthusiasm over being the signatory.

6. Decide where you will place disclosure on your website, as this is required in addition to making the filing with the SEC. The Investor Relations or Corporate Responsibility pages are the likely choices.

7. If you engage in other corporate social responsibility communications, determine how to integrate conflict minerals compliance into those communications.

8. Don’t lose sight of the requirement to implement a due diligence framework that conforms to the OECD framework.

If this generalized list already looks daunting, it is. Littenberg points out that the exercise has proven beneficial to his clients in several ways, though.

“This data gathering process has helped companies locate areas of inefficiency in their supply chains, such as pricing discrepancies and opportunities for vendor consolidation among business units,” he said.

Some companies also have used the exercise as a way to create better processes for communicating compliance information to vendors, saving time and money and reducing risk.

According to Littenberg, “if done right, conflict minerals compliance is one of the few compliance obligations that can actually save a company money and pay for itself many times over.”

Companies not only have a June 2 deadline looming and are seeing responsible sourcing pressure from NGOs, socially responsible investors, consumer groups and others, the European Union is expected to propose their own rules on conflict minerals as soon as this week or next.

The time to be diligent about conflict minerals disclosure is now.


Julie DiMauro is the executive editor of FCPA Blog and can be reached here.

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