The supply chain

Some manufacturers have found it necessary to implement “flow-down” 
clauses in their supplier agreements related to conflict minerals which may 
stipulate that because of Section 1502 compliance, vendors will have to 
disclose where they obtained their mineral supplies from. 

Three directions for compliance have emerged:

a) Conflict-free Smelter (“CFS”) Programs

Industry analysts believe that since base minerals are refined at 
the smelter, once they leave the smelter, it is impossible to add 
additional ore into the supply chain and virtually impossible that 
any illicit income from the ore can go to armed groups. Therefore, 
the key is to certify the smelters as being conflict free.

Two groups, the Electronic Industry Citizenship Coalition 
(“EICC”) and the Global e-Sustainability Initiative (“GeSI”), 
have initiated the multi-stakeholder development of the 
Conflict-Free Smelter Program which determines if smelters 
and refiners sourced conflict-free minerals by reviewing 
their procurement activities.

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b) Closed-pipe supply line

An alternative way of securing conflict-free mineral 
shipments is to verify that the source is conflict free 
and then set up a secure closed-pipe supply line to 
deliver the ore to users. A pilot program produced 
as a partnership between two electronic companies 
established a “closed-pipe” whereby tantalite ore 
was mined from a single source within the DRC 
and traced along a secure closed supply chain to 
the equipment purchased by the end customer.

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c) Risk-based supply chain

This direction is a staged approach of looking 
at each business product or manufacturing 
unit separately and considering the material 
flow and invoices of components for each 
product manufactured within that unit. 
This method is usually the most time 
consuming and requires considerable 
corroboration between engineering 
and procurement. Once the suppliers 
have been determined, they can 
be risk-rated: public companies in 

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Online reference: http://www.conflictfreesmelter.org/
documents/EICC-GeSI_overview_training_10Dec2012 
FINAL.pdf.   
A list of compliant smelters and refiners, by metal can  
be found here : http://www.conflictfreesmelter.org

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Online source: http://www.avx.com/ 
wsnw_PressReleaseDetail.asp?id=519&s=0

© 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.

At Risk  |  Volume 7, No. 1  |  5