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Online Source: http://www.oecd.org/investment/mne/46740847.pdf

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This topic was addressed in At Risk, Volume 6, No. 1 by Anna Maria Cicirello

5 

This topic was addressed by Stuart Horn in At Risk, Summer 2011 edition.

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Online reference: http://ca.reuters.com/article/topNews/idCABRE91P0T120130226

Who is affected?

Despite what might seem for many to 
be a requirement with limited reach, the 
SEC estimates the new rules will apply 
to approximately 6,000 public companies. 
Estimates of initial compliance costs 
range between $3 billion and $4 billion, 
not including the cost to non-SEC 
registered companies which supply other 
companies with impacted products. 
Clearly, compliance will be a challenge.

The following are companies affected by 
conflict mineral requirements:

 

•Any company that files reports with 

the SEC, under the Exchange Act;

 

•Any company where conflict minerals 

are necessary to the functionality 
or production of its manufactured 
products; and

 

•Any company that serves, directly 

or indirectly, as a supplier to SEC 
registered manufacturers. These 
companies will have to conduct due 
diligence on their supply chain to be 
able to provide relevant information 
to the SEC registered manufacturer.

What is required?

Organizations that are required to 
comply must conduct a reasonable 
“country of origin” inquiry in good 
faith to determine whether any of the 
materials used in their goods or services 
originate in Covered Countries or are 
from scrap or recycled sources.

If the company concludes that minerals 
originating from Covered Countries are 
not scrap or recycled, the company 
must undertake “due diligence” for 
the source and chain of custody of 
its conflict minerals. There is then a 
requirement to file a Conflict Minerals 
Report and be potentially subject to an 
independent private sector audit.

The due diligence measures undertaken 
must conform to a nationally or 
internationally recognized due diligence 
framework. For example, the due 
diligence guidance approved by the 
Organization for Economic Co-operation 
and Development (“OECD”) is an 
appropriate framework.

Where to start?

Successful implementation of necessary 
procedures will require a collaborative 
effort between internal and external 
auditors, finance, legal, engineering and 
procurement staff. OECD has developed 
a risk-based model called “Due 
Diligence Guidance for Responsible 
Supply Chains of Minerals from 
Conflict-Affected and High-Risk Area.”

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The OECD model provides voluntary 
guidance on due diligence in the form of 
a five-step program advising companies 
to start with the following:

1) Establish strong company 

management systems
Companies should adopt a policy 
dealing with conflict minerals and 
this policy should be distributed 
to suppliers. Many SEC-reporting 
companies are updating their supplier 
terms and conditions to indicate 
the requirements of suppliers to 
use conflict-free minerals and be 
prepared for an audit to prove that 
they are conflict-free. Additionally, 
companies should have a robust 
whistleblower policy

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 to allow anyone 

inside or outside the company to 
voice concerns or grievances about 
the use of conflict minerals in the 
manufacturing process.

2) Identify and assess risks  

in the supply chain
Essential for the internal compliance 
framework is the mapping of the 
supply chain. Not surprisingly in 

commodity markets, information 
about supply lines are often a source 
of competitive advantage. What 
little information may be shared 
is usually for entities that may 
have commercial and contractual 
relationships with “tier-one” 
suppliers. However, there may be 
a dozen or more tiers of suppliers, 
each tier made up of a web of usually 
confidential commercial agreements. 
Knowing who you are doing business 
with is essential.

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 Each point in the 

supply chain must be evaluated 
and traced to determine where the 
minerals in the company’s products 
originate, and where and how they 
enter the supply chain.

3) Design and implement a strategy to 

respond to identified risks
As soon as risks are identified, there 
should be sufficient channels and 
protocols in place for communication 
to senior management of the 
company. A risk management 
strategy should be in place to either: 
continue trade while risk mitigation 
continues; temporarily suspend 
trade during risk mitigation; or cease 
working with a supplier after failed 
mitigation efforts.

4) Conduct an independent, third-party 

audit of supply chain due diligence at 
identified points in the supply chain
This step requires the use of an 
outside party to independently verify 
and attest to whether or not your 
supply chain is free of conflict minerals.

5) Report on supply chain due diligence

Companies can publicly report the 
due diligence policies and practices in 
effect for their supply chain. Several 
SEC-registrants have already taken 
these steps. Philips Electronics, 
Motorola Solutions and Blackberry, 
for example, have each pledged to 
purchase conflict-free minerals.

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© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms 
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Volume 7, No. 1