Conflict minerals requirements lurching forward

Conflict minerals reporting is stumbling through a stage of uncertainty in its debut in the United States as other jurisdictions throughout the world contemplate implementing their own requirements.

Under the US regulations, public companies must trace the gold, tantalum, tin and tungsten in their supply chains and report on whether they were sourced from mines run by warlords in the Democratic Republic of the Congo (DRC) and neighbouring countries.

But confusion surrounding legal challenges to the regulations has filled the process with uncertainty. Some US public companies were slow to start compliance work in 2013 as business groups mounted court challenges to the US Securities and Exchange Commission (SEC) requirements.

But the regulations survived early legal challenges, and a court ruling this month struck down only the part of the rules that required companies to disclose whether their products are “DRC conflict free.”

“The opinion says essentially that requiring companies to publicly state whether their products are ‘conflict free’ violates their free speech rights,” said Obi Madubuko, a lawyer and co-chair of the Foreign Corrupt Practices Act & International Anti-Corruption Group at the law firm McDermott Will & Emery. “But it upheld the SEC’s requirement that public companies still have to undergo the analysis to find out if so-called conflict minerals are present in their product lines, even if in just small amounts.”

The SEC is reviewing the court decision, so experts say companies need to continue to trace conflict minerals through their supply chains. Because of the court case, it’s unclear exactly what it will be necessary to disclose to the SEC as of the current May 31 filing date, but companies’ compliance efforts are ongoing.

“They’re continuing to work and continuing to prepare,” said Chris McClure, CPA/CFF, a director in accounting firm Crowe Horwath’s forensic services group. “So they are continuing their due-diligence efforts and continuing to prep their filings until they get more clarity around the path the courts are going to take and around the SEC’s response to the ruling.”

Efforts to regulate conflict minerals sourcing also are in progress in Australia, Canada and the EU.

And companies such as Apple, HP and Intel have announced that they plan to engage in conflict-free sourcing in the future. Suppliers of those companies and others that seek conflict-free sourcing will be affected by those plans.

With that in mind, experts say many companies are moving forward with their compliance work, which experts said can provide other benefits as well. In a recent PwC survey of 700 companies, 13% of respondents said they are using the process as an opportunity to leverage supply-chain opportunities.

“There are opportunities for streamlining the supply chain,” said Bobby Kipp, CPA, PwC’s conflict minerals leader, “and opportunities for streamlining the supply chain and opportunities for cutting costs by rationalising numbers of suppliers.”

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.