The European Conflict Minerals Regulation (the Regulation) was approved by the European Council on 3 April 2017. Publication in the Official Journal of the European Union will be the next step in the process and this could take 3-6 weeks. The Regulation will be directly applicable in all EU member states when it takes effect in January 2021.

This has been many years in the making – the European Commission (the Commission) issued the first draft regulation in 2014. The EU Council and European Parliament each considered this and produced their own versions. Tripartite negotiations were then undertaken to achieve a regulation text that would be workable for all three institutions. On 22 November 2016, these negotiations were successfully concluded.

The Regulation sets out certain rules for all importers into the EU of minerals or metals containing or consisting of tin, tantalum, tungsten or gold (3TG). It includes an annex that provides a more detailed description of the specific metals and minerals that are covered, including tin ores and concentrates, tungsten oxides and hydroxides, carbides of tantalum and unwrought or semi-manufactured from gold. The Regulation will apply to minerals and metals listed in Annex 1 of the Regulation that are obtained as by-products. Significantly, recycled metals are exempt from the application of the Regulation. By way of summary, “recycled” means reclaimed end-user or post-consumer products. Minerals that are partially processed, unprocessed or a by-product of another ore are not considered to be “recycled”. Existing stocks of minerals, held before 1 February 2013 will not fall within the scope of this Regulation. The Commission will be required to review the Regulation (in terms of its functioning and effectiveness) every three years, taking into account its impact on the ground and on the main EU economic actors.

The Regulation will require EU smelters and refiners (SORs) that process 3TG to conduct due diligence if they are sourcing 3TG from “conflict affected and high risk areas”. This definition is intended to cover “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 and systematic violations of international law, including human rights abuses.” The Commission has suggested that it will provide an indicative and non-exhaustive list of such areas and other non-binding guidelines in a handbook for business.

The Regulation requires the Commission to keep a list of “global responsible” SORs that are recognised as fulfilling the requirements of the Regulation and this will be set out in secondary legislation made under the Regulation. Notably, small volume importers will be exempt from due diligence requirements. Mandatory due diligence obligations are also not imposed on transporters, other intermediaries, manufacturers, importers and sellers of finished products and components.

SORs are required to do the following under the Regulation:

  • Adopt and communicate to the suppliers and the public, information on their supply chain policy, which must be consistent with the OECD Due Diligence Guidance for Responsible Supply Chain of Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance);
  • Incorporate supply chain policies into contracts with suppliers;
  • Ensure that senior management oversee supply chain due diligence and maintain appropriate records;
  • Outline a grievance mechanism dealing with concerns relating to the due diligence process;
  • Collect information relating to the source and nature of “in scope” 3TG with additional disclosure requirements applicable to such minerals from high risk areas;
  • Assess risks in their supply chain based on available third party audit reports or procuring such audits when not available; and
  • Making annual public disclosures about supply chain due diligence.

The enforcement of the Regulation will be delegated to EU member states’ competent authorities. Whilst the Regulation is directly applicable, member states are required to enact domestic legislation which sets out the potential sanctions for non-compliance in their jurisdiction. Interestingly, the proposed regulation includes the majority of the same basic provisions as the US rules under the Dodd-Frank Act but critically, several reporting obligations and the coverage of the regulation are wider than the US rules. Businesses caught within its scope will now have to start putting in place the necessary mechanisms to comply with its requirements.

This post was prepared with the assistance of Ei Nge Htut in the London office of Latham & Watkins.