The SEC’s conflict minerals reporting rules became effective January 1, 2013, and those rules impose burdens on companies throughout the automotive supply chain, given how prevalent the so-called “conflict minerals” are in automotive applications. We covered the SEC’s conflict minerals rules in detail in a Legal News Alert we prepared in August 2012, when the SEC’s final rules were adopted. [link]. Now that those rules have become effective, and companies are confronting the challenges posed by the unprecedented level of supply chain transparency those rules require, we thought it would be valuable to highlight a few key “conflict minerals” compliance points.

As a quick refresher, the four “conflict minerals” currently subject to the SEC’s rules are tungsten, tin, tantalum, and gold – sometimes collectively referred to as the “3TG” minerals. These four minerals are used in a wide array of automotive applications. Tin is often used in electronics, wiring, plastics, glass, sealants, bearings, radiators, batteries, brake pads, and seat cushions. Tungsten is often used in electronics (metallic films and integrated circuits) and in gear teeth/bearing applications. Gold is used in on-board electronics and fuel cells. And tantalum is used in a multitude of electronics, comfort and convenience, safety and security, and driver applications, including air bags, anti-lock brakes, traction control, keyless entry systems, headlamps, fuel pumps, emission controls, climate control, and audio and video systems. The Automotive Industry Action Group (“AIAG”) has prepared a useful graphic depicting the prevalence of the conflict minerals in automotive applications, which is available here. [link: http://www.aiag.org/staticcontent/committees/download_files/download.cfm?fname=ConflictMineralsCars.pdf]

The purpose of the SEC’s reporting rules are to identify whether any of the conflict minerals contained in a product were obtained from armed groups committing human rights violations in the Democratic Republic of Congo (“DRC”). Thus, particular care must be taken to determine the source of conflict minerals that originated in the DRC or any of its neighboring countries.

As companies begin to develop and implement their procedures to comply with the conflict minerals disclosure rules, there are three key steps they should already be taking.

Step One: Adopt a “responsible sourcing” policy for conflict minerals and communicate this policy to your suppliers. Make clear your expectation that your suppliers will obtain materials only from “conflict-free” sources, and that you will not tolerate the sourcing of materials from armed groups committing human rights violations. Adopting a “responsible sourcing” policy is the first step in a conflict minerals “due diligence” process, and even if your products do not currently contain “conflict minerals,” having such a policy in place and communicating it to your suppliers will prove beneficial if the mineral composition of your components changes in the future to include conflict minerals, or if the SEC expands the list of “conflict minerals” to include additional minerals besides tin, tantalum, tungsten and gold.

Step Two: Determine which of your products contain conflict minerals. Many companies make this determination by surveying their suppliers and asking them to identify whether the products they are supplying contain conflict minerals. Alternatively, a company could perform its own internal analysis of its product line to determine which of its products contain conflict minerals. Whichever option a company chooses, it needs to identify which of its components/products contain conflict minerals in order to focus its efforts on identifying whether those conflict minerals come from the DRC region or can be considered “conflict-free.”

Step Three: Engage with your supply base to determine, as best as you are able, the origin of conflict minerals used in your products – particularly, whether the conflict minerals originate in the DRC region. Ideally, your suppliers would be able to report to you that the conflict minerals in their products were obtained from sources outside the DRC region, or are traceable to smelters/refiners certified as “conflict-free” by international organizations. Obtaining information from your suppliers about the sourcing of conflict minerals will likely require modification of purchase order terms and conditions or development of new, conflict mineral-specific reports for your suppliers to complete. There are also a number of industry resources available to assist you with gathering and reporting information on conflict minerals sourcing, including a template prepared by the Electronic Industry Citizenship Coalition (EICC) and the Global e-Sustainability Initiative (GeSI).

Complying with the conflict minerals reporting requirements will unquestionably pose a daunting challenge for automotive suppliers, but taking these three steps now will better position companies to complete the reports required by the SEC in 2014, as described in our Legal News Alert.