Conflict Minerals: How SEC and OFAC Influence Corporate Compliance
Conflict Minerals: A Need for Global Vigilance?
The regulatory context of conflict minerals rests on international laws and sectoral initiatives aimed at limiting their role in financing conflicts and human rights abuses. The issue took on particular importance when it was observed that the extraction and trade of 3TG (tin, tantalum, tungsten and gold) in Democratic Republic of Congo (DRC) and the Great Lakes region directly supplied armed groups. It is thus established that the objective of the legislation is threefold:
- Impacting the profits of armed groups
- Ensuring respect for human rights
- Preserving a clean local economy
The demand for metals is exponential. It has been estimated that the demand for critical metals such as lithium, cobalt, and nickel—minerals now integrated into the prism of responsible due diligence—could increase significantly by 2040 to meet the needs of transport electrification, as stated in the IRIS in its Report 15 – Strategic Stockpiles of Critical Metals (October 2023). Therefore, the pressure to guarantee responsible sourcing of conflict minerals is only intensifying.
What are the initial regulations on conflict minerals?
Two major regulatory frameworks define corporate compliance in this area, both relying on the OECD Due Diligence Guidance as a methodological reference:
- In the United States: The Dodd-Frank Act (2010), specifically Section 1502, requires listed companies to identify the origin of the minerals they use and to file an annual report. This is historically the first legal obligation for traceability of conflict minerals (3TG).
- Within the European Union: The Regulation (EU) 2017/821, applicable since January 1, 2021, imposes a duty of care on importers in the Union.
However, the influence of the two American organizations, the SEC and OFAC, on the global supply chain creates a distinct pressure which, by its scope and consequences, must be managed effectively by all companies, whether American or not, with regard to conflict minerals.
Why is the SEC a powerful lever for corporate compliance regarding conflict minerals?
How does the SEC require due diligence on conflict minerals?
The Securities and Exchange Commission (SEC) is the regulatory authority for the American stock markets. The Dodd-Frank Act requires companies listed on Wall Street to conduct a due diligence process on their conflict minerals (3TG) and to publish an extra-financial report.
Simply being a supplier to a publicly traded US company indirectly subjects a non-US entity to the requirements of the SEC. As part of its duty of care, the American company must question its entire supply chain to trace the issue back to the smelters/refiners. Consequently, even French or European industries are directly concerned when they work with American clients. Hence the need for standardized reporting templates, such as the CMRT (Conflict Minerals Reporting Template), for conflict minerals was born.
What is the impact of the SEC on brand image and the supply chain of conflict minerals?
The SEC’s influence is primarily exerted on the company’s reputation and brand image. The obligation to publish the non-financial report introduces a risk of public disclosure—the “Name and Shame”—which can expose behaviors deemed unethical. This is why ensuring companies’ compliance with these matters is vital to protect against this reputational risk.
Significantly, the SEC’s obligation ensures that pressure is maintained throughout the chain: the duty of due diligence allows for the assessment of the risk level of all smelters (SoR). A 2024 due diligence report showed that more than 10% of suppliers surveyed for the 3TG still presented a high risk, highlighting the importance of rigorous due diligence for brand image (Hager Group, Conflict Minerals Due Diligence Report 2024).
How does OFAC represent a direct financial risk for conflict minerals?
Do the OFAC lists create an absolute criterion of non-compliance for conflict minerals?
The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury is the agency responsible for enforcing U.S. economic sanctions based on foreign policy. It is crucial to understand that, in the eyes of U.S. companies and those subject to U.S. jurisdiction, the statutes and requirements issued by OFAC take precedence over any other industry certification regarding conflict minerals.
For example, OFAC issued a specific determination in February 2023 authorizing the imposition of sanctions in the metals and mining sector of the Russian Federation (OFAC FAQ 1116, 2023). Consequently, even if a smelter/refiner were to obtain a compliant status from the RMI’s RMAP audit, if it is on an OFAC sanctions list, its status will immediately be deemed non-compliant by US customers. OFAC economic sanctions thus create an absolute criterion of non-compliance for conflict minerals.
What are the risks of working with non-OFAC compliant foundries?
The primary risk is the systematic refusal by American customers to work with foundries or suppliers whose OFAC status is deemed non-compliant. The threat of sanctions can directly affect companies, individuals, or countries considered likely to threaten U.S. national security.
Is the integration of OFAC regulatory monitoring imperative for conflict minerals?
Yes, absolutely. For American companies or suppliers of American companies, regulatory monitoring of OFAC lists (in addition to those of the RMI) must be a mandatory component of the responsible procurement program. Risk assessment related to conflict minerals can no longer be limited to traditional conflict zones (CAHRA) and RMAP audits; it must imperatively include monitoring of US sanctions to ensure corporate compliance.
How do OFAC requirements influence due diligence in Europe?
Even though the European Regulation 2017/821 focuses on import controls and the OECD framework, the interdependence of supply chains means that OFAC’s influence is felt as far away as Europe.
To be competitive and guarantee commercial security, it becomes relevant to integrate OFAC status as a specific validation criterion during the collection and validation of CMRT/EMRT from suppliers. The European Due Diligence process is thus enriched by American requirements for conflict minerals to become more robust and universally acceptable to the markets.
How do you ensure corporate compliance with SEC and OFAC conflict mineral regulations?
Why is RMI/RMAP status the cornerstone of conflict minerals compliance?
The Responsible Minerals Initiative (RMI) is the body that provides the harmonization solution. The audit process RMAP (Responsible Minerals Assurance Process) is an independent, risk-based assessment, the standards of which are developed to meet the requirements simultaneously with the requirements:
- From the OECD Guide on Due Diligence.
- The Dodd-Frank Act (United States).
- Regulation (EU) 2017/821.
Furthermore, the RMI produces the standardized models essential to the traceability of exchanges: the CMRT for 3TG Ores, the EMRT for Cobalt, Mica, Copper, Graphite (natural), Lithium and Nickel, and the AMRT for other minerals.
It should be noted that the scope of these documents is evolving. The RMI, in particular, has updated the EMRT to version 2.0 to fully integrate strategic minerals to better address the issue of electric batteries in full growth (RMI News, 2024). These documents form the basis of corporate compliance and must be collected with strict validation criteria for conflict minerals.
How does the technological and methodological alliance guarantee Conflict Minerals Compliance?
The management of corporate compliance facing conflict minerals requires an integrated approach to manage cross-risks (SEC, OFAC, EU). That is why a specialized software solution and expert services are needed to transform this regulatory obligation into a strategic advantage.
This alliance between human expertise (regulatory monitoring of OFAC and RMI, risk analysis by specialists) and technology makes it possible to achieve three crucial goals for the industry:
- Security and immediate validation: The tool allows for the dematerialization and integration of a Database of smelters/refiners with up-to-date statutes. The expertise defines the specific validation criteria (including OFAC status), while the technology executes the compliance calculations for conflict minerals.
- Auditable traceability and justification: The solution offers traceability of exchanges to document each supplier follow-up and maintain a supplier database. This feature is essential to justify due diligence work to the authorities, even after several years.
- Professionalization and return on investment: By automating the collection and validation of CMRT/EMRT, the technological approach frees experts from time-consuming tasks. Expert services then focus on the risk analysis and the development of a targeted action plan for resolving non-conformities.
The ultimate goal is to ensure the integrity of responsible sourcing of conflict minerals and to facilitate declaration generation (CMRT/EMRT) for the SEC report and customer needs.
In conclusion, the influence of American demands, particularly the pressure from OFAC on risk management and the obligation of transparency from the SEC, remains a key driver of corporate compliance in the field of conflict minerals. While legislation sets the framework, it is the adoption of auditing standards such as the RMAP and data management tools that allow navigating the complexity of requirements and ensuring a truly auditable responsible sourcing. Proactive management of risks related to OFAC sanctions lists is now an essential criterion for securing access to international markets.
Advantages of EHS Software
To ensure the completeness of the due diligence process faced with the requirements of the SEC, OFAC, and the European Union, the adoption of technological tools is essential. This management, established throughout the supply chain, relies on a team of experts to ensure integrated and reliable regulatory monitoring. With a view to professionalizing traceability of conflict minerals and ensuring overall business compliance, the complete software platform TEEXMA for EHS constitutes a suitable solution to address these strategic challenges.
TEEXMA for EHS is designed to centralize and automate the necessary data, ensuring the reliability of your risk ratings and facilitating long-term regulatory compliance across various global jurisdictions. It provides the technological leverage needed to move beyond mere compliance toward operational efficiency and sustainable performance.