{"id":141,"date":"2016-04-26T14:33:25","date_gmt":"2016-04-26T14:33:25","guid":{"rendered":"http:\/\/cheerful-sun.flywheelsites.com\/?p=141"},"modified":"2016-04-26T14:33:25","modified_gmt":"2016-04-26T14:33:25","slug":"drc-conflict-free-what-the-bleep-does-that-mean","status":"publish","type":"post","link":"https:\/\/responsibletradellc.com\/index.php\/2016\/04\/26\/drc-conflict-free-what-the-bleep-does-that-mean\/","title":{"rendered":"\u201cDRC Conflict-Free,\u201d What the BLEEP Does That Mean?"},"content":{"rendered":"

\"20160209_113324\"<\/a><\/p>\n

Earlier this month, the Securities and Exchange Commission (SEC) decided not to file further action in the ongoing lawsuit with U.S. manufacturers, effectively ending three years of legal action to define whether a company needed to disclose that their products were either \u201cDRC conflict-free\u201d or not found to be \u201cDRC conflict-free\u201d according to the implementing regulation for Dodd-Frank Section 1502 (DF). A possible result is that the SEC may look at the implementing regulation again in an effort to reconcile the intent of the law with the regulation. But where does this leave companies that are required to file reports with the SEC and how to characterize their product status?<\/p>\n

In an April 11 blogpost<\/a>, Global Witness, the international human rights group commented on Apple\u2019s recently filed 2015 Conflict Minerals Report<\/a>. The watchdog group said, “You might expect that an organization like Global Witness, which campaigns on the issue of conflict minerals in a bid to stop a country\u2019s natural resources fueling conflict and human rights abuses, would want companies to declare themselves ‘conflict free.’ But, this term has been applied at different times to mean different things, and can be misleading, especially when it is not accompanied by a detailed description of how the company has reached this conclusion.\u201d According to Global Witness, \u201cThe reality is that supply chains, particularly in conflict-affected and fragile states, are fluid and ever-changing. This means that even the most well-managed supply chains are not immune to the possibility of contributing to human rights abuses or corruption. It\u2019s for this very reason that we don\u2019t believe that supply chains or the final products should be definitively described as ‘conflict-free.<\/strong>‘”<\/p>\n

Global Witness’s response supports Apple’s view: \u201c100 percent of the identified smelters and refiners in Apple\u2019s supply chain for current products were participating in an independent third party conflict minerals audit program. While this is an important milestone, and may be viewed by some companies as grounds to declare themselves ‘conflict free,’ Apple does not believe that Third Party Audit program participation alone is sufficient to label products, ‘conflict-free.’<\/strong>” While the SEC does not require 100 percent certainty in making a claim, it can be understood why the world\u2019s largest market cap company would be extra cautious given the complexity of its\u2019 product and dynamic aspect of its\u2019 supply chain before making a \u201cDRC conflict-free\u201d declaration.<\/p>\n

What got me thinking was that as a professional helping companies to implement robust Due Diligence (DD) programs that allow them to make a \u201cDRC conflict-free\u201d determination, I needed to ask the question: Does this mean that companies should never declare their product(s) \u201cDRC conflict-free\u201d<\/strong>?<\/p>\n

My short answer is no. Here\u2019s why:<\/p>\n

The term \u201cDRC conflict-free\u201d is defined in the SEC Final Conflict Minerals Rule.\u00a0 The term \u201cDRC conflict-free\u201d means that a product does not contain conflict minerals necessary to the functionality or production of that product that directly or indirectly finance or benefit armed groups\u2026, , in the Democratic Republic of the Congo or an adjoining country. Conflict minerals that a registrant obtains from recycled or scrap sources\u2026, are considered \u201cDRC conflict-free\u201d.\u201d This definition makes for a black or white determination, based on information gathered while performing DD on the supply chain. The rule also requires that companies use a recognized framework to exercise DD. Currently, only one framework exists \u2013 the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD DD). Unfortunately, the OECD DD does not provide a definition for \u201cconflict-free.\u201d<\/p>\n

However, companies should be looking at the July 29, 2011 OECD- letter<\/a> to the SEC that explains \u201cDRC Conflict Free.\u201d\u00a0 In it, the OECD states: \u201c\u2026 issuers should not describe a product as not ‘DRC conflict free’<\/strong> when the issuer and the mineral processor have (i) taken reasonable steps and made good faith efforts in accordance with the OECD DD recommendations to conduct DD on the minerals in that product; and (ii) know and can show that they have identified, assessed and responded to risks in accordance with the risk management strategies recommended by the OECD DD recommendations\u2026\u00a0 <\/strong>Progress on breaking the link between conflict and mineral trade could be undermined if different interpretations of the law regarding the description of products as not ‘DRC conflict free’ or the labelling of products as ‘DRC conflict free’ were adopted.\u201d<\/p>\n

In short, if a company implements reasonable DD including identifying, assessing and responding to risks with the risk management strategies in the OECD DD, it can declare its products \u201cDRC Conflict-Free.”<\/p>\n

This interpretation passes the common sense test and supports a number of positive aspects. The letter was widely supported and signed by non-governmental organizations including Global Witness and the Enough Project along with many stakeholders in the DRC and is outlined in the Five Practical Steps to Support SEC Conflict Minerals Disclosure<\/a> guidance document developed by the Conflict Free Sourcing Initiative. The positive aspects are:<\/p>\n