Conflict Minerals: European Parliament Endorses New Compliance Requirements

iStock_000013609814XSmall-e1374781449214It has been nearly a month since the deadline for companies in the United States to file their second annual conflict minerals reports with the Securities and Exchange Commission. As companies and their stakeholders assess the strength of their compliance efforts and public disclosures, many are also watching developments in Europe with regard to due diligence on conflict minerals.

In late May, the European Parliament endorsed a regulation that would require companies to perform due diligence with regard to the tin, tantalum, tungsten, and gold that they import into Europe. The rule is applicable to both importers, smelters, and refiners and to companies that utilize conflict minerals in the products they manufacture. Downstream companies utilizing conflict minerals in their products would be required to disclose the efforts that they have made to address the risks that their procurement of conflict minerals is supporting conflict in conflict-affected and high-risk areas.

The proposed regulation also includes a mandatory certification program involving independent third-party audits for smelters and refiners. Earlier proposals, including a proposed regulation put forward by the European Commission, had only called for a voluntary certification scheme.

Most notably, the regulation has a much broader geographic scope than the conflict minerals rule in the United States. The regulation proposed by the European Parliament would apply to conflict minerals sourced not just from the Democratic Republic of Congo and adjoining states, but to areas:

in a state of armed conflict, with presence of widespread violence, collapse of civil infrastructure, fragile post-conflict areas as well as areas of weak or non-existent governance and security, such as failed states, characterised by widespread and systematic violations of human rights, as established under international law.

At this stage, Parliamentarians will begin negotiations with European member states on the text of the proposed regulation. There is no set timeline for an agreement on final language. Many members of the private sector will be watching the negotiations carefully, as initial estimates indicate that approximately 880,000 downstream companies could be impacted by the legislation.

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