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Conflict minerals: Due diligence, disclosure lessons for compliance (Part 1)

The four conflict minerals — tantalum, tin, tungsten and goldThis post is the first in a series of three on the topic of conflict minerals. The first examines the origins of the reporting requirement, and the following two will explore what constitutes sufficient due diligence when conducting an investigation of a company and its supply chain.

Section 1502 of the Dodd-Frank Act of 2010 requires companies using conflict minerals in their products to disclose the source of such minerals, hoping to dissuade companies from continuing to engage in trade that supports these human rights abuses.

The rule followed a wave of increasing international focus on “conflict minerals” emanating from mining operations in the Democratic Republic of the Congo (DRC) and adjoining countries.

Armed groups engaged in mining operations in this region are believed to subject workers and indigenous people to serious human rights abuses and are using proceeds from the sale of conflict minerals to finance regional conflicts.

Section 1502 is applicable to all SEC “issuers” (including foreign issuers) that manufacture or contract to manufacture products where “conflict minerals are necessary to the functionality or production” of the product.

Securities and Exchange Commission (SEC) reporting companies that might be using conflict minerals in their products, according to the SEC, must perform due diligence that conforms to a nationally or internationally recognized due-diligence framework, such as the one approved by the Organisation for Economic Co-operation and Development (OECD).

In 2011, the OECD released a publication called ‘Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.’

The guidance sets out a five-step ‘Framework for Risk-Based Due Diligence in the Mineral Supply Chain’ that advises companies to: (1) establish strong company management systems; (2) identify and assess risk in their supply chain; (3) design and implement a strategy to identify risks; (4) to carry out an independent, third-party audit of their supply chain due-diligence at identified points in the chain; and (5) and to report on their supply-chain due diligence.

It also mentions some basic red flags about the locations of these minerals at their place of origin and place of transport, reminding companies that the minerals could have been shipped from a conflict-affected area before the company located them.

I spoke with two attorneys who counsel clients in the area on conflict-mineral due diligence and reporting to find out more about the processes companies should implement to comply with the law. Part Two of this series will feature their insights.


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

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