What is Dodd Frank Act Section 1502?
The Dodd Frank Act Section 1502, part of the U.S. government’s Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July 2010, requires publicly traded companies to ensure that the raw materials they use to make their products are not tied to the conflict in Congo, by tracing and auditing their mineral supply chains.
The Dodd–Frank Act Section 1502 is intended to make transparent the financial interests that support armed groups in the DRC area. By requiring companies using conflict minerals in their products to disclose the source of such minerals, the law is aimed at dissuading companies from continuing to engage in trade that supports regional conflicts.
In August 2012, the Securities and Exchange Commission (SEC) issued its Conflict Minerals Rule along with guidance for how companies should report on the source of the conflict minerals in question: tin, tungsten, tantalum, and gold.
Who is affected?
The Dodd Frank Act Section 1502 is applicable to all Securities and Exchange Commission “issuers” (including foreign issuers) that manufacture or contract to manufacture products where conflict minerals are necessary to the “functionality or production” of the product. The industries most likely to be affected include electronics and communications, aerospace, automotive, jewelry and industrial products. An issuer that only services, maintains or repairs a product containing conflict minerals is not affected.
Points to consider when determining if conflict minerals are necessary to functionality or production include the following:
- If it is intentionally added to the product or any component of the product
- If it is necessary to the product’s generally expected function,use or purpose
- If it is incorporated for purposes of ornamentation, decoration or embellishment
Impact of the Dodd Frank Act Section 1502
The Dodd Frank Act affects a range of industries including electronics, aerospace, medical devices, jewelry, apparel and more. The SEC estimates that about 6000 issuers will be directly affected and many others will be indirectly affected, including issuer and non-issuer suppliers with an estimate of initial compliance costs between $3 billion and $4 billion and an estimate of subsequent annual costs in the range of $200 million and $600 million.
How to comply?
The compliance process can be broken down into the following steps:
- An issuer needs to determine whether its manufactured products contain conflict minerals that subject it to the requirements of Dodd Frank Act Section 1502
- An issuer needs to determine whether its necessary conflict minerals originated in the Covered Countries
- An issuer with necessary conflict minerals from Covered Countries that are not from recycled or scrap sources needs to conduct due diligence, and potentially provide a Conflict Minerals Report.