On September 16, 2011, the California Legislature passed SB 861, a law that requires public companies contracting with the State of California to ensure that their supply chains are free of “conflict minerals” sourced from the Democratic Republic of the Congo (“DRC”). These companies may face a regulatory compliance burden in the future if they wish to maintain their business relationships with the state.
BACKGROUND TO SB 861
SB 861 requires public companies, or issuers, that contract with California state agencies to comply with forthcoming Securities and Exchange Commission (“SEC”) regulations on conflict minerals. The SEC regulations arise, in turn, from the “conflict minerals rule,” part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The conflict minerals rule aims to curtail funding sources for armed groups in the DRC by requiring the SEC to impose public disclosure and reporting requirements on issuers that use “conflict minerals”?gold, tantalum, tin, and tungsten?in their manufacturing processes. These minerals are vital components of cell phones, computers, and other consumer electronics products. Proponents of the conflict minerals rule have asserted that open disclosure and reporting of sourcing practices will encourage issuers to seek these minerals only from sources that are “conflict free.”
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