In less than six months (ie as of 1 January 2021), EU-based importers of certain minerals and metals will have to comply with new supply chain due diligence obligations that will become mandatory under EU Regulation 2017/821 of 17 May 2017 (the Conflict Minerals Regulation (CMR)).
The CMR aims to prevent the exploitation of these minerals and metals by armed groups in resource-rich but also conflict-affected and high-risk areas. Its goals and methods are similar to the conflict minerals provisions imposed under the US Dodd Frank Act, and it covers the same minerals. However, the regulation is wider in its personal scope (covering more entities) and geographic reach.
Who will be affected?
The CMR applies to EU importers of tin, tungsten, tantalum and gold, both as minerals and as metals containing these elements, provided certain annual volume thresholds are exceeded. Some of these thresholds have not yet been defined, with the European Commission expected to provide further clarification by no later than July 2020.
The Commission estimates that approximately 1,000 EU importers will fall directly within the scope of the CMR. Another 500 smelters and refiners (worldwide) will indirectly be affected by the regulation, as they may be subject to due diligence requirements imposed by their customers.
What is the geographic reach?
The CMR covers minerals from 'conflict-affected' or 'high-risk' countries or areas. No specific countries or regions are identified (unlike the US Dodd Frank Act); rather, the regulation applies to areas 'whose natural resources include minerals which are in high demand, either locally, regionally of globally' and 'are either suffering from armed-conflict, such as civil war, a state of fragile post-conflict, or witnessing weak or non-existing governance and systematic violations of international law, including human rights abuses'.
No definitive list of 'conflict-affected' or 'high-risk' countries has been published yet and EU importers are encouraged to make this assessment themselves based on non-binding guidelines issued by the Commission. These guidelines in turn reference a number of open non-governmental information sources. Later this year, the Commission is expected to publish a non-exhaustive list of relevant countries to facilitate application of the CMR.
What will be required?
The regulation does not impose import restrictions or approval requirements for affected minerals. However, EU importers will have to establish and comply with supply chain due-diligence obligations.
Broadly speaking, there are four key elements to compliance:
- Management system: EU importers are required to establish standards to conduct their supply-chain due diligence, engage with suppliers to integrate these standards in their supply contracts and develop a traceability system for imported minerals.
- Risk management: risks have to be identified and strategies implemented to prevent or mitigate any adverse impact.
- Third-party audits: EU importers are required to commission independent third-party audits for their supply chain’s due diligence and risk management systems.
- Reporting and disclosure: EU importers need to report regularly on their policies and practices, both to member state authorities and also publicly, and they are obliged to make related information available to their customers.
These obligations are closely modelled on established OECD guidance on the same topic.
How will the CMR be enforced?
Enforcement of the CMR will be up to the EU member states, which are expected to carry out appropriate ex-post checks of how EU importers comply with the regulation. This includes audits of records as well as on-the-spot inspections.
What steps need to be taken before 1 January 2021?
EU importers of tin, tungsten, tantalum and gold should consider taking the following steps:
- Determine whether imported volumes exceed the thresholds for the CMR.
- Assess and improve (where necessary) the robustness of any existing due diligence system. If none exists, start to put one in place.
- Review your existing supply chains, contracts and suppliers to determine any potential issues and changes that may have to be made.
- Stay informed of developments over the next number of months. The Commission is due to publish further guidance and EU member states may enact further legislation to facilitate enforcement of the CMR.