Weekly Compliance Digest – Draft EU Conflict Minerals Regulation
What is it?
On November 22, 2016, the EU Council, European Commission and European Parliament reached a final agreement on a conflict minerals regulation. This new development is a follow-up to the agreement on a proposed framework that was announced in June 2016.
The announced regulation will require EU smelters, refiners and direct importers of tin, tantalum, tungsten and gold (3TG) into the EU to conduct due diligence using the OECD Guidance framework if they are sourcing from conflict-affected and high-risk areas anywhere in the world.
Who is affected?
The regulation will affect smelters, refiners and direct importers of tin, tantalum, tungsten and gold (3TG). Small volume importers of 3TG will be exempt (e.g. dentists and jewellers), but the threshold was not specified in the announcements made by the EU. The regulation aims to cover more than 95% of all EU imports of raw 3TG. Given the high value of gold in small quantities, the EU Commission has indicated that it intends to monitor the effectiveness of the regulation as it relates to gold imports.
Regarding downstream companies, the regulation will not require due diligence by manufacturers, importers and sellers of finished products and components. But these companies will be encouraged to make voluntary disclosures. The EU Commission will develop voluntary guidance for downstream companies, and will create a voluntary transparency registry where companies can report on their due diligence practices.
Finally, recycled metals are also exempt from the regulation’s due diligence requirements.
What are the requirements?
EU smelters, refiners and direct importers of 3TG will be required to conduct due diligence based on the OECD Guidelines to make sure that the minerals are not sourced from conflict-affected and high-risk areas. The requirement applies to companies with more than 500 employees but small volume importers will be exempt. The EU regulation will cover 3TG from anywhere in the world. It goes further in scope than section 1502 of the U.S. Dodd-Frank legislation that is limited to the Democratic Republic of Congo and neighboring countries.
The regulation allows a company to become a “responsible importer” by declaring in writing to the competent authority in an EU member state that it follows the due diligence obligations set in the regulation. A list of these importers will be published by the Commission.
Competent authorities in EU member states will be responsible for carrying out checks to ensure that EU importers comply with their due diligence obligations. Furthermore, the EU Commission will draft a handbook that includes non-binding guidelines to help companies identify conflict-affected and high risk areas.
What is next?
The final agreement on the draft regulation must be confirmed by individual EU member states. The agreed text is expected to be presented to ambassadors of member states on December 7, 2016. Early next year, the regulation is expected to be adopted by the EU Council. It will then move to the Parliament, which is expected to vote on the regulation during the first half of 2017.
The draft regulation will take effect on January 1st, 2021. The transition period aims to allow sufficient time to establish procedures and control mechanisms, and prepare guidance. However, the law firm Ropes & Gray expects that many larger downstream companies and the NGO community will push for earlier voluntary compliance.
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