Blood diamonds: How Hollywood impacts your compliance risk

[EN] In 2006, the American movie “Blood Diamond” with Leonardo DiCaprio and Djimon Hounsou rose deep emotion and reactions among the international audience. The title refers to diamonds which are mined in African war zones and sold to finance conflicts, and thereby profit warlords and diamond companies across the world. In 2012, after multiple attempts and adjustments, the Securities and Exchange Commission (SEC) adopted a rule mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act to require companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo (DRC) or an adjoining country.

Is your company affected?
The SEC registered issuers are required to comply with the new rules.  The first reports on conflict minerals (Conflict Minerals Report) have been filed on 31 May 2014 and need to be filed on an annual basis thereafter. More than 6,000 companies are supposed to be affected by this obligation. This new rule impacts:

  • companies filing SEC reports under the Securities Exchange Act;
  • companies whose functionality or production of a product manufactured require conflict minerals;
  • companies that are directly or indirect supplier of SEC registered manufacturers. In this case, they must be able to deliver transparent supply chain information to the SEC registered manufacturers. Therefore, even if your company is not a private and/or does not file reports with the SEC, as long as you are a direct or indirect supplier to a company that files certain reports with the SEC, you may be asked to provide information regarding the uses and sources of conflict minerals in your products.

Important: the Rule is not intended to discourage the purchase conflict minerals from the DRC or adjoining countries. It is meant to provide transparency to stakeholders regarding whether the products they purchase are conflict free.

What about European regulations?
On 14 March 2014, the European Commission proposed a similar package of measure: EU responsible trading strategy for minerals from conflict zones (read the note here). High Representative of the EU for Foreign Affairs and Security Policy Catherine Ashton and EU Trade Commissioner Karel De Gucht proposed an integrated EU approach to stop profits from trading minerals being used to fund armed conflicts. The focus of this approach is to make it easier for companies to source tin, tantalum, tungsten and gold responsibly and to encourage legitimate trading channels. The Commission proposes a Regulation to set up a supply chain due diligence self-certification system of importers and a series of accompanying measures based on the following three objectives: (1) break the link between minerals extraction or trading and the financing of armed conflicts, (2) create a market in the EU for responsibly traded minerals that originate in conflict regions and (3) improve the ability of EU operators wherever they are in the supply chain to comply with existing due diligence frameworks. In practice, this means:

  • The focus will be put on the importers – a valuable point in the EU supply chain: the draft Regulation proposes to set up an EU system of self-certification for importers of tin, tantalum, tungsten and gold who choose to import responsibly into the European Union. It requires EU importers of these metals and their ores to exercise  a specific due diligence
  • Transparency: the EU aims to publish in cooperation with the OECD an annual list of EU and global responsible smelters and refiners.

The obligations are consistent with the international consensus achieved by the multi-stakeholder group that developed the OECD Due Diligence Guidance. Although the Regulation is voluntary, EU importers opting for self-certification as responsible importers should set up a management system to track the origin of the minerals purchased, apply supply chain risk management procedures to address and mitigate adverse impact in relation to the financing of armed groups, carry out third-part audits and disclose relevant supply chain related information to downstream purchasers and the public.

Even if this document is still in draft mode and has not yet been codified it is recommended that you prepare yourself by structuring your corresponding supply chain risk management processes. Companies opting for this self-certification, may take benefits of their transparency. In fact, the EU will promote the uptake of supply chain due diligence by EU companies through:

  • Public procurement contracts: the European Commission’s public procurement will need to respect OECD Due Diligence Guidance or equivalent due diligence schemes in order to satisfy contractual obligations.
  • Funding to promote the uptake of the voluntary certification scheme among EU importer

You can find more information regarding the OECD Due Diligence Guidance here.


DMO, 14 July 2014

About TALA Consult
TALA Consult is a management consultancy company specializing in financial risk management and cost optimization. In particular, we focus on risks inherent to the supply chain. Instead of mere cost killing, our approach combines cost saving and risk optimization levers to deliver true savings as well as to provide a clear and sustainable return on investment to our customers.

Our consulting advice varies from quick recommendations for your on-the-spot needs to sustainable and holistic optimization of your processes and organisation. When needed, we provide efficient and cost effective outsourcing solutions.

WP-Backgrounds Lite by InoPlugs Web Design and Juwelier Schönmann 1010 Wien