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MJSA Guide to the Dodd-Frank Rule

By Peggy Jo Donahue

Introduction | Who Must Comply | Basic Requirements | Compliance Steps
Results of Due Diligence: Three Scenarios | Additional Resources

Introduction

When the Dodd-Frank Wall Street Reform and Consumer Protection Act was voted into law in the summer of 2010, very few people in the jewelry industry expected the new law to have anything to do with the raw materials they source.

But near the end of the Act, in Section 1502 of the massive bill, was a provision regulating the trade in four minerals, implicated in fueling a horrific war in the Democratic Republic of Congo (DRC) that has killed more than five million people and has involved a brutal campaign of rape against women and girls. The metals included tantalum (extracted from columbite-tantalite ore), tin (produced from cassiterite ore), tungsten (produced from wolframite ore), and gold.

The new law required publicly traded companies that use the four minerals to track down their origins through the supply chain and disclose whether they are fueling conflict in the DRC and other adjoining countries covered by the law (Angola, Burundi, Central African Republic, the Republic of Congo, Rwanda, South Sudan, Tanzania, Uganda, and Zambia). The amendment’s compliance rule was to be created by the Securities and Exchange Commission (SEC), which would collect reports from the publicly traded companies the agency monitors.

After two years in development, with input from many in the private sector (including MJSA and other industry groups), the SEC released its Conflict Minerals Rule in August 2012.

Who Must Comply

• If your company IS publicly traded, it must comply with the SEC rule implementing the conflict minerals provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Section 1502.

• If your company is NOT publicly traded, it is not required to comply with the SEC rule, although you may still voluntarily choose to follow some of its guidelines.

• If your company is NOT publicly traded, but it does contract work for a publicly traded company that “has actual influence” over the manufacture of the product (see below), the product may be subject to the SEC rule. Though it is your publicly traded customer’s ultimate responsibility to comply with the law, your company could be asked to supply assurances that the metals you use do not fuel conflict, for example.

• If your company is NOT publicly traded, but supplies products up the supply chain to other companies that work with a publicly traded company, you may still be asked questions about the origins of your metals. As well, the customers to whom you sell, whether wholesale or retail, may also ask you about where you source your metals.

Thus, familiarizing yourself with the steps now required of publicly traded companies is a good business decision, as is learning about organizations that assure a company’s metals are from non-conflict sources, or certify a company’s recycled metals come from post-consumer sources (and thus, are also non-conflict).

The Basics

• The SEC rule requires publicly held companies to disclose whether their products contain conflict minerals from the Democratic Republic of Congo (DRC) or other adjoining countries covered by the law (Angola, Burundi, Central African Republic, the Republic of Congo, Rwanda, South Sudan, Tanzania, Uganda, and Zambia), if those minerals are “necessary to the functionality or production of a product” manufactured by those companies. Under the Act, conflict minerals include tantalum, tin, gold, and tungsten, and the latter three are metals found in jewelry (and are therefore “necessary”).

• The rule applies to all products made by a publicly traded company, including those which they contract to have manufactured by outside vendors. Consequently, the rules could also affect publicly traded distributors or retailers, if they have some actual influence over the manufacture of a product (e.g., they influence the choice of the materials, parts, ingredients, or components to be included). A company is deemed not to have influence over the manufacturing if it:

(a) merely affixes its brand, marks, logo, or label to a generic product manufactured by a third party;

(b) services, maintains, or repairs a product manufactured by a third party; or

(c) is connected to a product in ways that do not directly relate to its manufacture, such as training or technical support, price, insurance, indemnity, intellectual property rights, and dispute resolution.

• Publicly traded companies are required to provide their conflict minerals disclosure on a new form to be filed with the SEC, called Form SD.

Steps for Complying with the Dodd-Frank Act

NOTE: These steps are required for publicly traded companies and can impact certain of their outside vendors. Private companies, for example, may be asked by a public company—or its vendors—to assist them in conforming to some of these steps, as a condition for doing business.

1. Publicly traded companies must determine whether, in the manufacture of their products, they use any of the minerals named in the act: gold, tantalum, tin, tungsten. Please note:

• Though gold is the dominant metal of concern for most of the industry, it’s important to note that tin is used in the creation of bronze jewelry, and tungsten is also used in some jewelry products, mostly rings.

• The law does not apply to minerals that were outside the supply chain prior to Jan. 31, 2013—i.e., minerals that were smelted or fully refined, or were outside of the DRC or other adjoining countries covered by the law.

• The law also does not apply to minerals derived from recycled or scrap sources. Several refiners and manufacturers in the U.S. offer recycled metals that have been independently certified by SCS Global Services, which specializes in third-party certification, auditing, testing, and standards development. SCS offers a Recycled Content assessment that certifies all of a company’s recycled metals come from post-consumer sources. (To learn more, click here.) To date, the following MJSA member companies have obtained this certification:

Fremada Gold Inc., New York City

General Refining Corp., Hempstead, New York

Hoover & Strong, Richmond, Virginia

LeachGarner, Attleboro, Massachusetts

Mikimoto (America) Co. Ltd., New York City

Novell Enterprises, Rahway, New Jersey

SO Accurate Group Inc., Long Island City, New York

Stuller Inc., Lafayette, Louisiana

Umicore Precious Metals USA Inc., Attleboro, Massachusetts

United Precious Metal Refining Inc., (UPMR), Alden, New York

2. If a publicly traded company finds that it DOES use the minerals identified as potentially “conflict,” it must conduct a “reasonable country of origin inquiry.” This will likely involve contacting each of its relevant suppliers to inquire about their minerals’ country of origin. This inquiry must be performed in good faith and be reasonably designed to determine whether any minerals either originated in the covered countries after Jan. 31, 2013, or are from scrap/recycled sources.

According to an analysis of the SEC rules by the Washington, DC–based law firm Arnold & Porter LLP, “The SEC stated that a [company] could reasonably rely on representations from processing facilities [such as smelters or refiners] that have been designated ‘conflict-free’ by an independent auditor or recognized industry group.” See Step 4 for a list of four organizations that are issuing “conflict-free” certifications/assurances to industry suppliers.

3. If a publicly traded company finds after its inquiry that it has “no reason to believe” its minerals’ originated from the DRC or its adjoining countries, or it only uses minerals from scrap or recycled sources, it must use the SEC’s Form SD to disclose this. It must provide a brief description of the inquiry it conducted. It must also make the description publicly available on its website and provide the internet address of that site in the Form SD.

4. If a publicly traded company believes its minerals may have originated from the DRC region or may not be from recycled sources, then it must undertake “due diligence” to identify the source and chain of custody of the minerals and file a Conflict Minerals Report, as an exhibit to its Form SD.

The SEC requires due-diligence measures to conform to a nationally or internationally recognized standard, such as the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, approved by the Organisation for Economic Co-operation and Development (OECD). Click here to view or download a PDF of the OECD standard .

There are four organizations with connections to the gold and jewelry industries that have standards, including independent third-party audit requirements, which are in conformance with the OECD Guidance:

Conflict Free Sourcing Initiativewhich has a Conflict-Free Smelter Program.

London Bullion Market Association (LBMA).

Responsible Jewellery Council (RJC), which has a Chain-of-Custody Standard.

World Gold Council, which has a Conflict-Free Gold Standard.

The SEC has indicated a public company can meet “due diligence” requirements by relying on companies that have met the standards of such programs.

Due Diligence Results 1: Products Are Conflict Free...

…that is, they did not finance or benefit arms groups even if the minerals used may have originated in the DRC region, then the company must state this in a Conflict Minerals Report, which must be filed as an exhibit to Form SD. The company must also:

• obtain an independent private sector audit of its Conflict Minerals Report;

• certify that it obtained such an audit;

• include the audit report as part of its Conflict Minerals Report; and

• identify the auditor.

Due Diligence Results 2: Products Are Not Conflict Free...

…then the company, in addition to meeting the audit and certification requirements, must describe the following in its Conflict Minerals Report:

• The products manufactured or contracted to be manufactured that have not been found to be conflict free.

• The facilities used to process the conflict minerals in those products.

• The country of origin of the conflict minerals in those products.

• The efforts made to determine the mine or location of origin with the greatest possible specificity.

Due Diligence Results 3: Results Are Inconclusive...

…then, for a temporary two- or four-year period (the latter for smaller companies with annual business revenue of less than $50 million), those products can be considered “DRC conflict undeterminable.”  If the company makes this designation, it must describe in its Conflict Minerals Report:

• Its products that are “DRC conflict undeterminable.”

• The facilities used to process the conflict minerals in those products, if known.

• The efforts to determine the mine or location of origin with the greatest possible specificity.

• The steps it has taken (or will take, if any) since the end of the period covered in its most recent Conflict Minerals Report, to mitigate the risk that its potentially conflict minerals benefit armed groups, including any steps to improve due diligence.

NOTE: Publicly traded companies are not required to obtain an independent private sector audit of the Conflict Minerals Report regarding the conflict minerals in those products, for the period during which they use this designation.

SUBHEAD: Additional Resources

• To see an SEC fact sheet on the Dodd-Frank rule, click here.

• To download the second edition of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, which contains the approved supplement on gold, and draft supplements on tin, tantalum and tungsten, click here.

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