EU Conflict Minerals Regulation: Mining Metals, Ores, Alloys and Chemicals

The EU Regulation 2017/821 as published on 17 May 2017 (link) aims at breaking the link between mineral sourcing with inadvertently contributing to conflict and serious human rights abuses. The Regulation becomes legally binding for all member states and the main provisions apply from 9 July 2019. The Regulation applies to importers of tungsten, tantalum and their ores, gold from conflict-affected and high-risk areas. The Regulation applies to thresholds as in Table 1 (end of page).

Conflict-Affected and High-Risk Areas
Within the Regulation, there is not a prescribed list of conflict-affected and high-risk areas (CAHRAs). CAHRAs have been defined in the Regulation as areas in a state of armed conflict or fragile post-conflict as well as areas witnessing weak or non-existent governance and security, such as failed states and widespread violations of international law, including human rights abuses. It is the responsibility of the importer to define conflict-affected and high-risk areas.

The guidance to risk asses supply chains is included in the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. The EU Regulation requests that companies apply the OECD guidance to mitigate the risk that mineral and metal supply from supply chains may contribute directly or indirectly to human rights abuses, forced labour, child labour, torture, illegal control of mines by armed groups, corruption, bribery, money laundering and tax evasion. The risks are stated in Annex II of the OECD Guidance.

Audit and Compliance Obligation
The Regulation advocates auditing of a supplier’s due diligence practices. ‘Third-party auditing of an economic operator’s supply chain due diligence practices ensures credibility for the benefit of downstream economic operators and contributes to the improvement of upstream due diligence practices’. In addition, importers of minerals and metals must carry out third-party audits of their due diligence practices to determine if these comply with the Regulation.

Audit reports must be sent to the appointed competent authority in each member state. The reports will be used by the competent authorities in their decision-making process as to when or whether the importer requires further onsite checks of compliance with the Regulation.

An exemption from a third-party audit will apply to importers that can demonstrate they source from approved smelters. However, the mechanism for listing smelters is not resolved and might not be by the time the Regulation applies.

Consequently, importers may wish to engage with an audit firm well in advance of the compliance period for a pre-audit that can identify recommendations to support compliance enabling sufficient time for implementation.

Annual Reporting
Additionally, an annual public report must be completed by the importer including information gathered on its mineral, metal, chemicals and ore supply chain and the importer’s due diligence measures implemented in addition to the importer’s conformance with the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.