As we noted in our recent 2017 Procurement: Big Trends and Predictions webinar, the current U.S. trade policies and the regulatory environment should be tracked more closely because change is coming. On February 8, a leaked White House draft memorandum to the U.S. Securities and Exchange Commission (SEC) concerning the 2010 Wall Street Reform and Consumer Protection Act (also known as the Dodd-Frank Act) appears to signal President Trump’s intention to scrap or at least temporarily halt enforcement of Section 1502 of the Act governing conflict minerals reporting. Multiple media outlets have been unable to verify the authenticity of the leaked memo, and the White House has neither confirmed nor denied its existence. Nonetheless, the Trump Administration has communicated that it plans to curtail the Dodd-Frank Act so, the status of the Conflict Minerals Provision is an area for Chief Procurement Officers in many industries to start tracking.
As a refresher, this provision of the Act, passed in 2010, requires all publicly-traded companies in the U.S. – large and small – to investigate their supply chains and determine whether or not they source tantalum, tin, tungsten, or gold (the so-called 3TG minerals) from the Democratic Republic of Congo (DRC) and nine surrounding countries (i.e., covered countries). From there, such companies must report their findings to the SEC. This year’s deadline is May 31. Affected enterprises do not have to change buying or sourcing behaviors – they simply have to review and disclose them. The goal of this provision is to not only increase transparency into 3TG sourcing and procurement practices, but also to disincentivize unethical practices and change corporate behaviors.
The draft executive Memo that was leaked a couple of weeks ago lays out a couple of steps that President Trump and his administration are reportedly planning to undertake, including:
- Directing the SEC to suspend enforcement of Section 1502 of the Act governing conflict minerals due diligence reporting for up to two years, as authorized by the Act if the President determines that it is in the country’s national security interest;
- Directing the Secretary of State and the Secretary of Treasury, within 180 days of the Memo, to devise more targeted means to tackle the issue of financing armed groups, conflict, and human rights atrocities in the DRC, including targeting specific offenders.
If the draft Presidential Memo becomes finalized and signed, it would be the latest action taken by the Trump Administration to roll back provisions of the Dodd-Frank Act. Earlier this month, Michael S. Piwowar, the acting SEC chairman, reportedly instructed his staff to determine whether it is “still appropriate” to require manufacturers and other enterprises to conduct 3TG due diligence – in effect, whether or not the SEC should enforce the Act (click here to read our coverage). And on February 1, Congress passed legislation to repeal Section 1504, the Cardin-Lugar Amendment, which required oil, gas, and other “extractive industries” to disclose their contributions to foreign governments. On February 14, President Trump signed the legislation into law.
What Does This Mean for Chief Procurement Officers?
Although nothing is official, Chief Procurement Officers (CPOs) can safely presume that more regulatory changes are coming, and possibly soon. President Trump has long regarded regulations as roadblocks to economic growth and job creation. Accordingly, one of his first acts as president was to put an immediate freeze on all Obama-era regulations that had not yet become law, pending further review. And on January 30, he signed an Executive Order declaring that for every new regulation proposed, two existing regulations should be identified for elimination.
Moving forward, CPOs would be wise to keep one eye on the headlines and the other on business continuity for the foreseeable future. After all, if the ax does fall on 1502, there is no guarantee that the language contained in the draft Memo that was leaked on February 7 will remain in any official Presidential Memo or Executive Order. The timelines, scope, and requirements of the Memo/Order could be very different from the leaked version. Altering business processes or due diligence efforts now in anticipation of forthcoming changes would be premature.
Also, other regulations exist and may be forthcoming that require affected organizations to maintain due diligence programs concerning conflict minerals. For instance, on November 22, 2016, the EU passed legislation requiring many companies in the EU to conduct due diligence for 3TG minerals in their supply chains and prevent them from sourcing from conflict zones in all countries – not just the DRC and surrounding countries (click here to read our coverage). And earlier this year, Governor Charlie Baker of the Commonwealth of Massachusetts signed legislation directing the Commonwealth to explore options to curtail its procurement of conflict minerals from the DRC (click here to read our coverage).
And it may be wise from a corporate social responsibility (CSR) perspective to maintain due diligence efforts pending further changes to Dodd-Frank. Consumers have become more aware of what’s in their everyday products, from mobile phones to laptops to common household appliances so there are considerations that are larger than simply the letter of the law.
It has been a very active month for the new presidential administration, with the White House issuing several Executive Orders and Memos that are departures from the previous administration. Until the White House issues an official Memo or Order, CPOs need to operate as if nothing has changed. But the writing on the wall is pretty clear: more regulatory changes are on the horizon.