The SEC has adopted a rule requiring SEC reporting companies to provide disclosures about conflict minerals that are "necessary to the functionality or production of a product manufactured by the company." Conflict minerals include cassiterite, columbite-tantalite, gold and wolframite and their derivatives originating from the Democratic Republic of the Congo or any adjoining country, called the "covered countries." Adoption of the rule was mandated by a section of the Dodd-Frank Act aimed at reducing the funding for armed groups that are committing human rights abuses in the Democratic Republic of the Congo. It is anticipated that the rule will directly impact thousands of SEC reporting companies and indirectly impact many more of their suppliers.
If a threshold determination is made that the company uses any of these types of minerals and such minerals are necessary to the functionality or production of its products, the company must undertake a reasonable "country of origin" inquiry. If this inquiry determines either (i) the company knows that the minerals did not originate in the covered countries or are from scrap or recycled resources; or (ii) the company has no reason to believe that the conflict minerals may have originated in the covered countries or may not be from scrap or recycled resources, then the company must disclose its determination, provide a brief description of the inquiry it undertook, and disclose the results of the inquiry in a new SEC form, Form SD.
Conversely, if the inquiry determines that the company knows or has reason to believe that the conflict minerals may have originated in the covered countries and the company knows or has reason to believe that such conflict minerals may not be from scrap or recycled resources, then the company must undertake a "due diligence" review on the source and chain of custody of its conflict minerals and file a "Conflict Minerals Report" as an exhibit to its Form SD.
Although the filing of the first disclosures on the new Form SD, covering the reporting period of January 1 to December 31, 2013, is not due until May 31, 2014, those public companies to which the rule applies should be mindful of the substantial efforts that could be required for compliance with the rule and the substantial lead time that will be required for timely compliance.
To read more about the rule and the basic steps necessary to comply with the rule, click here.
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